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The global JV between Alstom and Shanghai Electric last week increases competition for BHEL.
While we await clarity on Alstom's stand in India, on the fringe it brings in one more competitor in
the power equipment space, though we think it would take time for the impact of the new JV to
play out.
Alstom-Shanghai Electric announce global boiler JV
Shanghai Electric and Alstom of France have announced a global joint venture last week to
make boiler equipment. Each of them will hold 50% in the JV.
This could be a tough global competitor across the power equipment industry, as it combines
European quality with Chinese costs.
What doe this mean for BHEL?
On the margin, this increases competition for BHEL and the other players though we
think it would take time for the impact of the new JV to play out.
We await more clarity in terms of how Alstom will try to address the Indian
market through the JV.
For BHEL, which has a tie-up with Alstom for supercritical boiler till 2020, the key
would remain exclusivity of the tie up. Our understanding based on discussions with industry
experts is that Alstom has a non-compete arrangement with BHEL for selling supercritical
boilers in India.
A way out for the JV would be for Alstom to take orders as an Engineering Procurement
and Construction (EPC) player and then place it with the JV.
Private sector players who are already placing orders with players like Shanghai
Electric may veer towards the JV.
Some private sector players who have expressed reservations about placing orders with
Chinese vendors over technology issues and hence preferred BHEL, may opt for the JV as
Alstom's presence removes concerns over technology.
For Central and State utilities orders, the JV may have to set up a local manufacturing base,
which while not difficult, should take atleast 3-4 years to happen.
Near term order pipeline looks strong
BHEL had a strong FY11 in terms of order inflows, reporting inflows of Rs605bn and the
company expects the momentum to continue in FY12, where the Chairman has guided for a
c10% increase to current year inflows.
With the boiler part of bulk tender of 11x660MW as well as 9x800MW from NTPC, along with
more state JV projects likely to happen in FY12, we expect the strong inflow trend to continue.
BHEL has been competitive in recent orders, emerging the lowest bidder against BGR-Hitachi
for the Rajasthan project of two plants of 2 x 660MW each.
We continue to maintain our Buy rating on the stock. The stock trades at c.15x FY12F EPS of
Rs136.5.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The global JV between Alstom and Shanghai Electric last week increases competition for BHEL.
While we await clarity on Alstom's stand in India, on the fringe it brings in one more competitor in
the power equipment space, though we think it would take time for the impact of the new JV to
play out.
Alstom-Shanghai Electric announce global boiler JV
Shanghai Electric and Alstom of France have announced a global joint venture last week to
make boiler equipment. Each of them will hold 50% in the JV.
This could be a tough global competitor across the power equipment industry, as it combines
European quality with Chinese costs.
What doe this mean for BHEL?
On the margin, this increases competition for BHEL and the other players though we
think it would take time for the impact of the new JV to play out.
We await more clarity in terms of how Alstom will try to address the Indian
market through the JV.
For BHEL, which has a tie-up with Alstom for supercritical boiler till 2020, the key
would remain exclusivity of the tie up. Our understanding based on discussions with industry
experts is that Alstom has a non-compete arrangement with BHEL for selling supercritical
boilers in India.
A way out for the JV would be for Alstom to take orders as an Engineering Procurement
and Construction (EPC) player and then place it with the JV.
Private sector players who are already placing orders with players like Shanghai
Electric may veer towards the JV.
Some private sector players who have expressed reservations about placing orders with
Chinese vendors over technology issues and hence preferred BHEL, may opt for the JV as
Alstom's presence removes concerns over technology.
For Central and State utilities orders, the JV may have to set up a local manufacturing base,
which while not difficult, should take atleast 3-4 years to happen.
Near term order pipeline looks strong
BHEL had a strong FY11 in terms of order inflows, reporting inflows of Rs605bn and the
company expects the momentum to continue in FY12, where the Chairman has guided for a
c10% increase to current year inflows.
With the boiler part of bulk tender of 11x660MW as well as 9x800MW from NTPC, along with
more state JV projects likely to happen in FY12, we expect the strong inflow trend to continue.
BHEL has been competitive in recent orders, emerging the lowest bidder against BGR-Hitachi
for the Rajasthan project of two plants of 2 x 660MW each.
We continue to maintain our Buy rating on the stock. The stock trades at c.15x FY12F EPS of
Rs136.5.
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