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Alstom-Shanghai Electric Boiler JV
Alstom and Shanghai Electric (SEG) have signed a LoI to combine the global
boiler businesses of the two companies into a 50:50 JV. Both Alstom and BHEL
say that current technology agreement between the two will continue. But
while Alstom has said that the new JV will supply boilers to India, BHEL
believes the JV being an affiliate of Alstom cannot supply once-through boilers
(for super-critical projects) to India. Given the importance of India market,
we believe this JV should be able to find some way to supply these boilers to
India over medium term. There is no impact on earnings over next 3-4 years.
We maintain our BUY rating but cut our target price to Rs2,500 given
increased uncertainty over long term competition.
Alstom-SEG to form a JV to manufacture boilers
Alstom and SEG have signed a letter of intent (LoI) to form a 50:50 JV to combine
the boiler businesses of the two companies. Earlier boiler orders placed on Alstom
or SEG will be serviced by the JV. For any turnkey contracts bagged by these two
companies, boilers will be supplied by the JV. However, this JV will not be involved
in services business, though it will supply the components for the same. Alstom
believes it would take 9-12 months to get approvals and conclude the deal.
Alstom’s technology tie-up with BHEL should continue
BHEL has a technology transfer agreement with Alstom for >300MW once-through
boilers, which is valid up to 2020. According to BHEL management the agreement
gives BHEL the exclusive right to manufacture and sell once-through boilers in
India. Alstom or any of its affiliates cannot sell once-through boilers in India. On
being asked about these technology agreements with BHEL, Alstom said on its call
“We have ongoing agreements and these agreements will continue”. Alstom’s
other business interests with BHEL (nuclear power turbines JV, proposed railway
locomotive JV) as well as good diplomatic relations between India and France
relations will make it difficult for Alstom to completely ignore BHEL’s interests.
A potential negative for the long term
According to Alstom, the new JV will supply boilers to India. If this happens it will
be a negative for BHEL as Alstom-Shanghai JV will be more formidable competitor
than SEG alone. However, BHEL management says the technology transfer
agreement prohibits any affiliate of Alstom from selling once-through boilers to
India. This scenario would be positive for BHEL. However, this could also put
existing Indian orders of Shanghai Electric into jeopardy. Given the importance of
India market for the JV and large existing orders, we believe the JV should be able
to find some-way (for instance maintaining two streams of technologies –SEG
designed and Alstom designed). There is no impact on BHEL’s earnings over next
3-4 years and we maintain our BUY rating. However, given increased long term
uncertainty we have cut our target price to Rs2,500 based on 15x FY13 earnings.
BHEL’s technology transfer agreement with Alstom
BHEL has a technology transfer agreement with Alstom for once-through
type boilers with exclusive rights to sell and manufacture in India such
boilers above 300MW. This agreement lasts till 2020 and was signed in
2005. Alstom or any of its affiliates are not allowed to sell once through
boilers of 300 MW and above rating in India.
BHEL’s management’s comments on the deal
1. The new JV can supply to Indian only boilers of types other than oncethrough
type.
2. It is difficult to envisage the JV pursuing two types of technologies in
once-through boilers.
3. The JV being an affiliate of Alstom would become bound by the
existing agreements between BHEL and Alstom and hence would not
be a threat to BHEL for once-through type boilers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Alstom-Shanghai Electric Boiler JV
Alstom and Shanghai Electric (SEG) have signed a LoI to combine the global
boiler businesses of the two companies into a 50:50 JV. Both Alstom and BHEL
say that current technology agreement between the two will continue. But
while Alstom has said that the new JV will supply boilers to India, BHEL
believes the JV being an affiliate of Alstom cannot supply once-through boilers
(for super-critical projects) to India. Given the importance of India market,
we believe this JV should be able to find some way to supply these boilers to
India over medium term. There is no impact on earnings over next 3-4 years.
We maintain our BUY rating but cut our target price to Rs2,500 given
increased uncertainty over long term competition.
Alstom-SEG to form a JV to manufacture boilers
Alstom and SEG have signed a letter of intent (LoI) to form a 50:50 JV to combine
the boiler businesses of the two companies. Earlier boiler orders placed on Alstom
or SEG will be serviced by the JV. For any turnkey contracts bagged by these two
companies, boilers will be supplied by the JV. However, this JV will not be involved
in services business, though it will supply the components for the same. Alstom
believes it would take 9-12 months to get approvals and conclude the deal.
Alstom’s technology tie-up with BHEL should continue
BHEL has a technology transfer agreement with Alstom for >300MW once-through
boilers, which is valid up to 2020. According to BHEL management the agreement
gives BHEL the exclusive right to manufacture and sell once-through boilers in
India. Alstom or any of its affiliates cannot sell once-through boilers in India. On
being asked about these technology agreements with BHEL, Alstom said on its call
“We have ongoing agreements and these agreements will continue”. Alstom’s
other business interests with BHEL (nuclear power turbines JV, proposed railway
locomotive JV) as well as good diplomatic relations between India and France
relations will make it difficult for Alstom to completely ignore BHEL’s interests.
A potential negative for the long term
According to Alstom, the new JV will supply boilers to India. If this happens it will
be a negative for BHEL as Alstom-Shanghai JV will be more formidable competitor
than SEG alone. However, BHEL management says the technology transfer
agreement prohibits any affiliate of Alstom from selling once-through boilers to
India. This scenario would be positive for BHEL. However, this could also put
existing Indian orders of Shanghai Electric into jeopardy. Given the importance of
India market for the JV and large existing orders, we believe the JV should be able
to find some-way (for instance maintaining two streams of technologies –SEG
designed and Alstom designed). There is no impact on BHEL’s earnings over next
3-4 years and we maintain our BUY rating. However, given increased long term
uncertainty we have cut our target price to Rs2,500 based on 15x FY13 earnings.
BHEL’s technology transfer agreement with Alstom
BHEL has a technology transfer agreement with Alstom for once-through
type boilers with exclusive rights to sell and manufacture in India such
boilers above 300MW. This agreement lasts till 2020 and was signed in
2005. Alstom or any of its affiliates are not allowed to sell once through
boilers of 300 MW and above rating in India.
BHEL’s management’s comments on the deal
1. The new JV can supply to Indian only boilers of types other than oncethrough
type.
2. It is difficult to envisage the JV pursuing two types of technologies in
once-through boilers.
3. The JV being an affiliate of Alstom would become bound by the
existing agreements between BHEL and Alstom and hence would not
be a threat to BHEL for once-through type boilers.
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