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�� Headline numbers ahead of expectations
BHEL’s flash results for FY11 were ahead of our expectations. While revenue rose
30.3% Y-o-Y to INR 434.5 bn, PAT jumped 39.9% Y-o-Y to INR 60.2 bn.
Adjusted for change in accounting policy towards warranty cost accounting for
construction contracts, FY11 revenue grew by 22.9% to INR 410.0 bn, while PAT
growth stood at 30.3% to INR 57.4 bn. Revenues for 4QFY11, adjusted for
accounting policy change stands at Rs 173.4 bn (+20% YoY), while the impact of
the same on the bottom line is still not clear. We would await detail financials
and are not incorporating FY11 provisional numbers as of now.
�� Order intake, at INR 605 bn, below estimate owing to deferments
The company’s order inflow during FY11 was muted with 2.5% Y-o-Y growth to
INR 605.1 bn, below our estimate, on back of deferment of several large orders
during the year, NTPC’s bulk tender being the most prominent. Order backlog at
FY11E end stood at INR 1,600 bn (3.9x FY11 sales), a 11% Y-o-Y growth. We
expect NTPC to award boiler package orders for its 11x660 MW and BTG package
for 9x800 MW bulk tender during FY12. Management estimates to grow FY12
new order intake 10% Y-o-Y.
�� Capacity expansion on track; to start in March 2012
Management has indicated that the company is on track to enhance capacity
from 15 GW to 20 GW by March 2012. This will take BHELs total thermal BTG
capacity from the current 12.5 GW to 17.5 GW annually.
�� Outlook and valuations: Strong near-term visibility; maintain ‘BUY’
BHEL’s current order book, at INR 1,600 bn, provides excellent revenue growth
visibility for FY12 and FY13. However, we remain concerned over its revenue
growth beyond FY14 owing to limited order pipeline and intensifying domestic
competition. The stock is currently trading at 15.5x FY12E earnings. We maintain
‘BUY’ recommendation on the stock and rate it ‘Sector Outperformer’ on
relative return basis.
Company Description
BHEL is the largest engineering and manufacturing enterprise in India in the energyrelated/
infrastructure sector. It manufactures over 180 products under 30 major product
groups and caters to core sectors of the Indian economy viz., power generation and
transmission, industry, transportation, telecommunication, and renewable energy. BHEL
has a wide network with 14 manufacturing divisions, four power sector regional centers,
over 100 project sites, eight service centers, and 18 regional offices across the country.
An extensive network enables the company to promptly serve its customers and provide
them with suitable products, systems, and services. It has acquired and adopted some of
the best technologies from leading companies globally, besides developing technologies
at its own R&D center.
Investment Theme
Given the improving visibility and the government’s thrust on power sector reforms, we
expect addition of ~55-62 GW of generation capacity in India over the Eleventh Plan,
entailing an investment of ~INR 4.2 tn. Of the above capacity addition, ~65% plus is
estimated to be from thermal-based power plants. This is a positive for BHEL as its forte
lies in setting up coal-based power plants. BHEL has also demonstrated its skill in hydro
power projects. Further, to cater to the country’s ambitious future power-capacity
addition programme, BHEL is also planning to increase its capacity to 20,000 MW by
March 2012 from the existing 15,000 MW.
Key Risks
In the past, the domestic power sector has not kept pace with the growth in demand,
which resulted in energy shortage. Any slowdown in power reforms can impact BHEL, as
it has 65% market share in country’s total installed capacity.
In the domestic market, BHEL is facing stiff international competition, particularly from
Chinese power plant equipment (PPE) manufacturers, who have twin advantages of
economies of scale and global reach.
With order book growth surging at record levels, any delay in execution of projects could
hamper margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
�� Headline numbers ahead of expectations
BHEL’s flash results for FY11 were ahead of our expectations. While revenue rose
30.3% Y-o-Y to INR 434.5 bn, PAT jumped 39.9% Y-o-Y to INR 60.2 bn.
Adjusted for change in accounting policy towards warranty cost accounting for
construction contracts, FY11 revenue grew by 22.9% to INR 410.0 bn, while PAT
growth stood at 30.3% to INR 57.4 bn. Revenues for 4QFY11, adjusted for
accounting policy change stands at Rs 173.4 bn (+20% YoY), while the impact of
the same on the bottom line is still not clear. We would await detail financials
and are not incorporating FY11 provisional numbers as of now.
�� Order intake, at INR 605 bn, below estimate owing to deferments
The company’s order inflow during FY11 was muted with 2.5% Y-o-Y growth to
INR 605.1 bn, below our estimate, on back of deferment of several large orders
during the year, NTPC’s bulk tender being the most prominent. Order backlog at
FY11E end stood at INR 1,600 bn (3.9x FY11 sales), a 11% Y-o-Y growth. We
expect NTPC to award boiler package orders for its 11x660 MW and BTG package
for 9x800 MW bulk tender during FY12. Management estimates to grow FY12
new order intake 10% Y-o-Y.
�� Capacity expansion on track; to start in March 2012
Management has indicated that the company is on track to enhance capacity
from 15 GW to 20 GW by March 2012. This will take BHELs total thermal BTG
capacity from the current 12.5 GW to 17.5 GW annually.
�� Outlook and valuations: Strong near-term visibility; maintain ‘BUY’
BHEL’s current order book, at INR 1,600 bn, provides excellent revenue growth
visibility for FY12 and FY13. However, we remain concerned over its revenue
growth beyond FY14 owing to limited order pipeline and intensifying domestic
competition. The stock is currently trading at 15.5x FY12E earnings. We maintain
‘BUY’ recommendation on the stock and rate it ‘Sector Outperformer’ on
relative return basis.
Company Description
BHEL is the largest engineering and manufacturing enterprise in India in the energyrelated/
infrastructure sector. It manufactures over 180 products under 30 major product
groups and caters to core sectors of the Indian economy viz., power generation and
transmission, industry, transportation, telecommunication, and renewable energy. BHEL
has a wide network with 14 manufacturing divisions, four power sector regional centers,
over 100 project sites, eight service centers, and 18 regional offices across the country.
An extensive network enables the company to promptly serve its customers and provide
them with suitable products, systems, and services. It has acquired and adopted some of
the best technologies from leading companies globally, besides developing technologies
at its own R&D center.
Investment Theme
Given the improving visibility and the government’s thrust on power sector reforms, we
expect addition of ~55-62 GW of generation capacity in India over the Eleventh Plan,
entailing an investment of ~INR 4.2 tn. Of the above capacity addition, ~65% plus is
estimated to be from thermal-based power plants. This is a positive for BHEL as its forte
lies in setting up coal-based power plants. BHEL has also demonstrated its skill in hydro
power projects. Further, to cater to the country’s ambitious future power-capacity
addition programme, BHEL is also planning to increase its capacity to 20,000 MW by
March 2012 from the existing 15,000 MW.
Key Risks
In the past, the domestic power sector has not kept pace with the growth in demand,
which resulted in energy shortage. Any slowdown in power reforms can impact BHEL, as
it has 65% market share in country’s total installed capacity.
In the domestic market, BHEL is facing stiff international competition, particularly from
Chinese power plant equipment (PPE) manufacturers, who have twin advantages of
economies of scale and global reach.
With order book growth surging at record levels, any delay in execution of projects could
hamper margins.
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