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Bharat Bijlee BUY -Target- 1350
Investment Rationale
• Improving industry outlook augurs well for the
bounceback
• Siemens India investment at significant value
• Any disinvestments of holdings unlock value for the
company
• Consistent dividend paying company and a bonus
candidate
• Expansion plans
Company Description
Bharat Bijlee Ltd is one of the leaders in the electrical
engineering industry in India. The company operates in one
segment, namely Industrial Products, comprising of power and
distribution transformers, a wide range of standard and
customised Low-Tension motors, and variable speed drives. They
also trade anti-corrosive products and submersible pumps. A
market leader in the 220-KV class of transformers, BBL caters
largely to state electricity boards. They are having their
manufacturing facilities at Navi Mumbai and Kalwa in
Maharashtra.
Company has prominent client in domestic as well as across
the globe such as Indonesia, Philippines, UAE, Egypt, Jordan,
Oman, Bangladesh and Nepal. Specifically like Aditya birla Nuvo
Ltd, atlas copco, blue star Ltd,bokaro steel plant Ltd, elgi
equipments, Essar Oil, goderej & boyce Ltd, gulf petrochem,
hindalco Ind, ispat steel, JSW steel Ltd, kirloskar Brothers Ltd,
KSB Pumps, Kuwait cement Company, L&T, Praj Ind, Ranbaxy
lab, Reliance Ind, Alfa laval, atlas copco, BHEL, elecon, Ion
Exchange, Kilburn, Mukand, Johnsons Lifts.
Investment Rationale
Improving industry outlook augurs well for the bounceback
India is expected to add a generation capacity of 62,000 MW in
the 11th Five-Year Plan as against the original 11th Plan target of
78,700 MW. Against the expected capacity addition, of the
country had added just 25,721.77 MW till November 2010, thus
leaving about 36,278.23 MW to be added in the balance period of
about 16 months.
If the expected replacement demand of about 20,000-25,000
MVA per annum and the projected export demand of about
18,000 MVA per annum is taken into account, the current
unfavorable demand-supply scenario for transformers is expected
to vanish given the aggregate transformer capacity of the country
is expected to be around two lakh MVA per annum. This is all
expected to result in improvement in realisation and profit for the
companies operating in this industry in the short to medium term.
Transformer production is expected to grow at CARG of 29.5%
during 2011-13. An unprecedented rise in the generation
capacity will lead to a sharp rise in demand for equipments used
for electricity transmission. This is expected to aid the production
growth of transformers.
Siemens India investment at significant value
BBL holds 28,25,160 shares of Siemens India. At the current
price of around Rs 895, the company is holding in Siemens India
is worth around Rs 253 crore, which means around Rs 451 per
share of BBL. Notably, Siemens AG, Germany, which owns about
55% of the Indian company, plans to raise the stake to 75% and
has offered to pay investors Rs 930 a share in a voluntary open
offer. If the company participates in the offer then it will fetch
around 263crs which is ~Rs. 470 per share. If company
participates then It may further boost the valuations for the
company.
Any disinvestments of holdings unlock value for the
company
BBL has other investments in blue chip companies like Bank of
India, HDFC, HDFC Bank, Hindustan Oil Exploration, and ICICI
Bank. All these investments including those in Siemens are worth
Rs 252 crore, which means around Rs 446 per share of BBL.
Disinvestment of these holdings, as and when it happens, will
unlock substantial value. Even if this investment is not sold, its
value will only increase due to excellent growth prospects of
these investments.
Consistent dividend paying company and a bonus candidate
BBL’s book value was Rs 397. The management has also
indicated for bonus or to consider stock-split at or before the next
AGM. The company is also a consistent paying dividend for last
many years.
Expansion plans
The company is also adding higher kv class transformers and
higher categories of motors for which it can go through brownfield
route on the existing land area. Power transformers accounted for
72%, motors 23%, and others the balance 5% of its revenue in
the fiscal ended March 2010 (FY 2010).
Valuations
At closing of Rs. 1035 the company is trading at 10.9x and
9.5x for FY11E and FY12E earnings respectively.
Historically the company is trading in the band of 12-13x
on 2 year forward earnings. So our 12 months target is Rs.
1350 with 30% upside potential.
Concerns
• Increasing raw material prices.
• Any delay in capacity additions may impact the
companies performance going forward.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Bijlee BUY -Target- 1350
Investment Rationale
• Improving industry outlook augurs well for the
bounceback
• Siemens India investment at significant value
• Any disinvestments of holdings unlock value for the
company
• Consistent dividend paying company and a bonus
candidate
• Expansion plans
Company Description
Bharat Bijlee Ltd is one of the leaders in the electrical
engineering industry in India. The company operates in one
segment, namely Industrial Products, comprising of power and
distribution transformers, a wide range of standard and
customised Low-Tension motors, and variable speed drives. They
also trade anti-corrosive products and submersible pumps. A
market leader in the 220-KV class of transformers, BBL caters
largely to state electricity boards. They are having their
manufacturing facilities at Navi Mumbai and Kalwa in
Maharashtra.
Company has prominent client in domestic as well as across
the globe such as Indonesia, Philippines, UAE, Egypt, Jordan,
Oman, Bangladesh and Nepal. Specifically like Aditya birla Nuvo
Ltd, atlas copco, blue star Ltd,bokaro steel plant Ltd, elgi
equipments, Essar Oil, goderej & boyce Ltd, gulf petrochem,
hindalco Ind, ispat steel, JSW steel Ltd, kirloskar Brothers Ltd,
KSB Pumps, Kuwait cement Company, L&T, Praj Ind, Ranbaxy
lab, Reliance Ind, Alfa laval, atlas copco, BHEL, elecon, Ion
Exchange, Kilburn, Mukand, Johnsons Lifts.
Investment Rationale
Improving industry outlook augurs well for the bounceback
India is expected to add a generation capacity of 62,000 MW in
the 11th Five-Year Plan as against the original 11th Plan target of
78,700 MW. Against the expected capacity addition, of the
country had added just 25,721.77 MW till November 2010, thus
leaving about 36,278.23 MW to be added in the balance period of
about 16 months.
If the expected replacement demand of about 20,000-25,000
MVA per annum and the projected export demand of about
18,000 MVA per annum is taken into account, the current
unfavorable demand-supply scenario for transformers is expected
to vanish given the aggregate transformer capacity of the country
is expected to be around two lakh MVA per annum. This is all
expected to result in improvement in realisation and profit for the
companies operating in this industry in the short to medium term.
Transformer production is expected to grow at CARG of 29.5%
during 2011-13. An unprecedented rise in the generation
capacity will lead to a sharp rise in demand for equipments used
for electricity transmission. This is expected to aid the production
growth of transformers.
Siemens India investment at significant value
BBL holds 28,25,160 shares of Siemens India. At the current
price of around Rs 895, the company is holding in Siemens India
is worth around Rs 253 crore, which means around Rs 451 per
share of BBL. Notably, Siemens AG, Germany, which owns about
55% of the Indian company, plans to raise the stake to 75% and
has offered to pay investors Rs 930 a share in a voluntary open
offer. If the company participates in the offer then it will fetch
around 263crs which is ~Rs. 470 per share. If company
participates then It may further boost the valuations for the
company.
Any disinvestments of holdings unlock value for the
company
BBL has other investments in blue chip companies like Bank of
India, HDFC, HDFC Bank, Hindustan Oil Exploration, and ICICI
Bank. All these investments including those in Siemens are worth
Rs 252 crore, which means around Rs 446 per share of BBL.
Disinvestment of these holdings, as and when it happens, will
unlock substantial value. Even if this investment is not sold, its
value will only increase due to excellent growth prospects of
these investments.
Consistent dividend paying company and a bonus candidate
BBL’s book value was Rs 397. The management has also
indicated for bonus or to consider stock-split at or before the next
AGM. The company is also a consistent paying dividend for last
many years.
Expansion plans
The company is also adding higher kv class transformers and
higher categories of motors for which it can go through brownfield
route on the existing land area. Power transformers accounted for
72%, motors 23%, and others the balance 5% of its revenue in
the fiscal ended March 2010 (FY 2010).
Valuations
At closing of Rs. 1035 the company is trading at 10.9x and
9.5x for FY11E and FY12E earnings respectively.
Historically the company is trading in the band of 12-13x
on 2 year forward earnings. So our 12 months target is Rs.
1350 with 30% upside potential.
Concerns
• Increasing raw material prices.
• Any delay in capacity additions may impact the
companies performance going forward.
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