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Bharat Heavy Electricals
Wins a strategic order beating
Alstom; Buy
Wins 1.98GW super-critical order from Bajaj; Buy
BHEL beat Alstom (its collaborator & Bharat Forge JV) to win Rs54.5bn (8% of
inflow) super-critical (SC) BTG order for 3x660MW Lalitpur project of Bajaj Group,
in-line with table 1 of our report Bharat Heavy Electricals, 21 March 2011. Three
key takeaways: 1) This is BHEL's 5th largest order ever and 2nd SC order from a
private IPP indicating growing dominance in this new technology, 2) healthy ASP
(Rs27.5mn/MW) indicate no impact on its pricing of Chinese bulk orders and 3)
supports our view that BHEL is indeed on-track to achieve its guidance of
Rs600bn ($13.2bn) FY11 inflow vs the market perception of BHEL missing it.
BHEL is one of our top picks on 24% EPS CAGR over FY11-13E with a backlog
at 3.3x FY12E sales, and improved competitiveness trading at 12.5x FY13E.
Reiterate buy with PO of Rs2960 - 44% potential upside.
BHEL win of Rs54.5bn order leads to five key conclusions:
1) it is its fifth largest order in its history after KPCL JV, Indiabulls & JP Power orders,
2) it is its second SC order from a private IPP after JP Power in FY10 and
3) ASP were healthy @ Rs27.5mn/MW and inline with JP order indicating that
bulk order on Chinese OEMs by IPPs such as Lanco, Reliance, Adani and
Abhijeet had no impact whatsoever on BHEL’s SC pricing. This is inline with
our view read Bharat Heavy Electricals, 29 October 2010.
4) Order shall also compensate for delay in Rs110bn (17% orders) of orders
and help BHEL meet its guidance.
5) Orders from new IPPs with full equity and coal tie-up yet to happen is fraught
with risks. We take comfort on state support to the project and assume some
delay in execution.
Order inflows accelerate despite cloudy skies
In our report Bharat Heavy Electricals, 19 January 2011 we had called for
acceleration in inflows during 4QFY11 (see Table 1 & 2) despite weak sentiment
towards capex, based on our on-ground research. We remain comfortable on our
key assumptions in light of recent order wins, which support our view
Price objective basis & risk
Bharat Heavy (BHHEF)
Our Price Objective of Rs2960 is based on 18.5x 1-year forward earnings, which
is a discount to its current multiples to factor-in slower future growth, the 27pct
discount to peak PE in the last cycle (94-97) and the mid-range of PE bands. On
FY12E, BHEL trades at 10% premium to the market, it deserves premium given
BHEL's superior market position, forecast earnings growth (24pct for BHEL vs.
the market 24pct) and RoE (30pct vs. the market 19pct). Risks to our price
objective are Govt. encouragement to its competitors with continued zero %
import duty / assured orders, Chinese, Japanese and Korean competition, a
rebound in metal prices, higher-than-expected wage hikes and on-ground project
execution challenges.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Heavy Electricals
Wins a strategic order beating
Alstom; Buy
Wins 1.98GW super-critical order from Bajaj; Buy
BHEL beat Alstom (its collaborator & Bharat Forge JV) to win Rs54.5bn (8% of
inflow) super-critical (SC) BTG order for 3x660MW Lalitpur project of Bajaj Group,
in-line with table 1 of our report Bharat Heavy Electricals, 21 March 2011. Three
key takeaways: 1) This is BHEL's 5th largest order ever and 2nd SC order from a
private IPP indicating growing dominance in this new technology, 2) healthy ASP
(Rs27.5mn/MW) indicate no impact on its pricing of Chinese bulk orders and 3)
supports our view that BHEL is indeed on-track to achieve its guidance of
Rs600bn ($13.2bn) FY11 inflow vs the market perception of BHEL missing it.
BHEL is one of our top picks on 24% EPS CAGR over FY11-13E with a backlog
at 3.3x FY12E sales, and improved competitiveness trading at 12.5x FY13E.
Reiterate buy with PO of Rs2960 - 44% potential upside.
BHEL win of Rs54.5bn order leads to five key conclusions:
1) it is its fifth largest order in its history after KPCL JV, Indiabulls & JP Power orders,
2) it is its second SC order from a private IPP after JP Power in FY10 and
3) ASP were healthy @ Rs27.5mn/MW and inline with JP order indicating that
bulk order on Chinese OEMs by IPPs such as Lanco, Reliance, Adani and
Abhijeet had no impact whatsoever on BHEL’s SC pricing. This is inline with
our view read Bharat Heavy Electricals, 29 October 2010.
4) Order shall also compensate for delay in Rs110bn (17% orders) of orders
and help BHEL meet its guidance.
5) Orders from new IPPs with full equity and coal tie-up yet to happen is fraught
with risks. We take comfort on state support to the project and assume some
delay in execution.
Order inflows accelerate despite cloudy skies
In our report Bharat Heavy Electricals, 19 January 2011 we had called for
acceleration in inflows during 4QFY11 (see Table 1 & 2) despite weak sentiment
towards capex, based on our on-ground research. We remain comfortable on our
key assumptions in light of recent order wins, which support our view
Price objective basis & risk
Bharat Heavy (BHHEF)
Our Price Objective of Rs2960 is based on 18.5x 1-year forward earnings, which
is a discount to its current multiples to factor-in slower future growth, the 27pct
discount to peak PE in the last cycle (94-97) and the mid-range of PE bands. On
FY12E, BHEL trades at 10% premium to the market, it deserves premium given
BHEL's superior market position, forecast earnings growth (24pct for BHEL vs.
the market 24pct) and RoE (30pct vs. the market 19pct). Risks to our price
objective are Govt. encouragement to its competitors with continued zero %
import duty / assured orders, Chinese, Japanese and Korean competition, a
rebound in metal prices, higher-than-expected wage hikes and on-ground project
execution challenges.
stock is under performing for last 2 years in spite of better than expected results .markets have priced in negatives far ahead.m
ReplyDeletewill surprise on upside