India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Bharat Heavy Electricals Limited
D isinvestment approval next week?
Event: Cabinet may approve sale of 5% government stake; stock corrected
The stock corrected 4.5% today after media reports highlighted that the Union
Cabinet is likely to approve disinvestment in Bharat Heavy Electrical (BHEL).
According to the reports, the central government intends to raise Rs45bn by selling
a 5% stake in the company thereby bringing down its stake to 62.72%.
Impact: Cabinet approval is only procedural and a non-event, in our view
Please note that the company board announced a follow on offering (FPO) during
its FY11 results announcement in May 2011. The Cabinet approval is a procedural
requirement before the government can go ahead with disinvestment in any public
sector enterprise. We do not believe the stock price reaction was justified as the
disinvestment was already planned for FY12. We also do not think there has been
any indication by the government on how much discount it might offer compared
to the current market price.
Action: fundamentally attractive, FPO remains an overhang in near term
We believe the FPO may continue to be an overhang in the near term as investors
may believe: 1) the price band to be fixed for the FPO will be determined by the
current stock price; and 2) the government may offer a discount and the stock will
be available at a lower price later during the FPO.
Valuation: maintain Buy rating; top pick in capital goods space
We base our price target of Rs2,750 on a DCF valuation. Our key assumptions are
a WACC of 11.9%, a medium-term growth rate of 15%, and long-term growth.
BHEL is our top pick in the capital goods space and we reiterate our Buy rating on
the stock.
Union Cabinet may approve disinvestment
The stock corrected 4.5% today after the media reports highlighted that the
Union Cabinet is likely to approve disinvestment of 5% stake by the
Government of India in the company. According to the reports:
the government intends to raise Rs45bn from the share sale
the government intends to bring down its stake in BHEL to 62.72%.
there may not be any fresh equity issuance
Why we think the announcement is a non-event
We believe that the Cabinet approval is a non-event as:
the company board announced an FPO during the FY11 results
announcement in May 2011
the Cabinet approval is a procedural requirement for share sale in public
sector enterprises such as BHEL
Hence, we do not believe the stock price reaction was justified as the
disinvestment was already planned for FY12. We also do not think that there has
been any indication by the government on how much discount it may offer
compared to the current market price.
FPO may remain an overhang
Apart from this, there has been no progress yet on the announced FPO. We
believe this may remain an overhang in the near term as investors may believe:
1) the price band to be fixed for the FPO would be determined by the current
stock price; and 2) the government may offer a discount and the stock will be
available at a lower price later during the FPO.
Fundamentally, we remain positive on the stock. BHEL remains our top pick in
the India Capital Goods space though we think the FPO may continue to be an
overhang in the near term.
Bharat Heavy Electricals Limited
Bharat Heavy Electricals (BHEL) focuses on the Indian power equipment
business. Its main customers are National Thermal Power Corporation (NTPC)
and state electricity boards that account for over 70% of revenue. BHEL also
services the power transmission, captive power plant, industrial equipment, and
the transport segments. It is 68%-owned by the Government of India.
Statement of Risk
The key risks for BHEL remain execution, delivery, raw material costs, and
order inflows.
No comments:
Post a Comment