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Bharat Heavy Electricals
Healthy price from new
competition + Rs52bn order
„Expected to win 3.2GW Rs52bn boiler order under bulk tender;
Buy
BHEL is expected to win ~Rs52bn (7% of FY12E inflows) / 4x800MW boiler order
(inline) under NTPC 9x800MW bulk tender at a good ASP @ Rs16.4mn/MW (L1
price). Pricing was rational – Doosan (L1 bidder) bid 6% above BofAMLe despite
intense competition among 4 non-BHEL players. BHEL bid looks high as it had
little incentive to undercut per game theory, as it could win maximum 5 and
minimum 4 boilers. Think good ASP in 800MW boiler tender creates margin
cushion for the turbine bulk tender opening tomorrow, which may see more
competition. This should address market concerns on aggressive bids by new
competition. Buy BHEL on visibility of 22% EPS CAGR over FY11-13E with a
backlog at 3.4x FY12E sales and improved competitiveness, trading at 10.5x
FY13E. Stock over-hang (divestment) could cap upside near-term.
Strategic imperatives apart from 3% OB add
The key strategic observations from this bid are a) BGR-Hitachi (lost last 2 bids vs
BHEL) and Thermax-Babcock (1st bid loss) may re-think their presence in India
on lack of competitiveness, while Doosan makes an entry, and b) healthy ASP
from new competition (Doosan) leading to sustained margins and improving
visibility (3% add to 1QFY12 backlog). This supports our view of healthy pricing in
9x800MW NTPC boiler tender given BHEL's improving competitiveness in this
very important space. With ~10GW of supercritical orders obtained (table 1) BHEL
has already reached its indigenisation threshold (better margins).
How good is Rs16.4mn / MW ASP; +17% since Barh II
ASP of Doosan was 9% below BHEL and L&T-MHI (L2) bid was 5% below BHEL.
BHEL bid may look relatively high given it had little incentive to bid aggressively,
per game theory. This is as it could win minimum order for 4 sets and max order
for 5, per terms of bulk tender
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharat Heavy Electricals
Healthy price from new
competition + Rs52bn order
„Expected to win 3.2GW Rs52bn boiler order under bulk tender;
Buy
BHEL is expected to win ~Rs52bn (7% of FY12E inflows) / 4x800MW boiler order
(inline) under NTPC 9x800MW bulk tender at a good ASP @ Rs16.4mn/MW (L1
price). Pricing was rational – Doosan (L1 bidder) bid 6% above BofAMLe despite
intense competition among 4 non-BHEL players. BHEL bid looks high as it had
little incentive to undercut per game theory, as it could win maximum 5 and
minimum 4 boilers. Think good ASP in 800MW boiler tender creates margin
cushion for the turbine bulk tender opening tomorrow, which may see more
competition. This should address market concerns on aggressive bids by new
competition. Buy BHEL on visibility of 22% EPS CAGR over FY11-13E with a
backlog at 3.4x FY12E sales and improved competitiveness, trading at 10.5x
FY13E. Stock over-hang (divestment) could cap upside near-term.
Strategic imperatives apart from 3% OB add
The key strategic observations from this bid are a) BGR-Hitachi (lost last 2 bids vs
BHEL) and Thermax-Babcock (1st bid loss) may re-think their presence in India
on lack of competitiveness, while Doosan makes an entry, and b) healthy ASP
from new competition (Doosan) leading to sustained margins and improving
visibility (3% add to 1QFY12 backlog). This supports our view of healthy pricing in
9x800MW NTPC boiler tender given BHEL's improving competitiveness in this
very important space. With ~10GW of supercritical orders obtained (table 1) BHEL
has already reached its indigenisation threshold (better margins).
How good is Rs16.4mn / MW ASP; +17% since Barh II
ASP of Doosan was 9% below BHEL and L&T-MHI (L2) bid was 5% below BHEL.
BHEL bid may look relatively high given it had little incentive to bid aggressively,
per game theory. This is as it could win minimum order for 4 sets and max order
for 5, per terms of bulk tender
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