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Much awaited NTPC bulk tendering out, BHEL, BGR and L&T bag orders
Media reports have indicated that BGR has emerged as L1 for NTPC’s second bulk
tendering of SC equipment (9x800MW) in the turbine generator segment. In tandem with
a split ratio of 4:3:2 for the number of units (tender condition), BGR is eligible to receive
four units of turbine generators. The order potential for BGR amounts to ~`3,200cr
(@`1.01cr per MW). Similarly, BHEL and L&T have emerged as L2 and L3 respectively,
thereby bagging orders worth ~`2,400cr and `1,600cr respectively. Markedly, BHEL was
preferred over L&T, who was initially declared L4, however placed L2 due to pre-agreed
cabinet decision favouring BHEL.
After a dry intake spell of nearly eight months, this is an extremely positive development for
BGR, which desperately needs big orders to lend revenue visibility to its manufacturing
venture. With its 4GW BTG manufacturing unit scheduled to commission in FY2013/14,
the order will start contributing to the revenue from FY2014. But given the huge
competition in the space, order bagging would help to put rest concerns on its venture, at
least for the time being. Further, we believe the order is bagged on aggressive terms as it
is bided at 10-12% lower ASP than the historical price and would imply tight rope walk for
the company on margin front. However, management has indicated the company is
expecting profit margin of 10% on this order but we would wait for more clarity on the
same. Further, given the bleak outlook for the power segment, we would like to maintain
our Neutral view on the stock. Also, the stock price gained >14% yesterday and closed at
`368, factoring in most of the positives from the order.
With preferential placement as L2 (vs. L4 in the original bidding), BHEL additionally gained
by securing orders to the tune of ~`2,400cr apart from orders to the tune of `4,200cr for
the Boilers. L&T on the other hand would be getting orders for 2 Turbines worth `1,600cr.
However, BHEL and L&T would need to supply at the L1 price. We believe with given rising
competition in the BTG space, from domestic and international players, BHEL would face
margin pressure and the concerns of margin coming down for BHEL would come true.
Therefore we maintain Neutral on BHEL. For L&T given its wide areas of expertise and
market leader position in other sectors we believe that L&T is better placed to handle
competition and hence we maintain Buy on the same with a target price of `1,903.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Much awaited NTPC bulk tendering out, BHEL, BGR and L&T bag orders
Media reports have indicated that BGR has emerged as L1 for NTPC’s second bulk
tendering of SC equipment (9x800MW) in the turbine generator segment. In tandem with
a split ratio of 4:3:2 for the number of units (tender condition), BGR is eligible to receive
four units of turbine generators. The order potential for BGR amounts to ~`3,200cr
(@`1.01cr per MW). Similarly, BHEL and L&T have emerged as L2 and L3 respectively,
thereby bagging orders worth ~`2,400cr and `1,600cr respectively. Markedly, BHEL was
preferred over L&T, who was initially declared L4, however placed L2 due to pre-agreed
cabinet decision favouring BHEL.
After a dry intake spell of nearly eight months, this is an extremely positive development for
BGR, which desperately needs big orders to lend revenue visibility to its manufacturing
venture. With its 4GW BTG manufacturing unit scheduled to commission in FY2013/14,
the order will start contributing to the revenue from FY2014. But given the huge
competition in the space, order bagging would help to put rest concerns on its venture, at
least for the time being. Further, we believe the order is bagged on aggressive terms as it
is bided at 10-12% lower ASP than the historical price and would imply tight rope walk for
the company on margin front. However, management has indicated the company is
expecting profit margin of 10% on this order but we would wait for more clarity on the
same. Further, given the bleak outlook for the power segment, we would like to maintain
our Neutral view on the stock. Also, the stock price gained >14% yesterday and closed at
`368, factoring in most of the positives from the order.
With preferential placement as L2 (vs. L4 in the original bidding), BHEL additionally gained
by securing orders to the tune of ~`2,400cr apart from orders to the tune of `4,200cr for
the Boilers. L&T on the other hand would be getting orders for 2 Turbines worth `1,600cr.
However, BHEL and L&T would need to supply at the L1 price. We believe with given rising
competition in the BTG space, from domestic and international players, BHEL would face
margin pressure and the concerns of margin coming down for BHEL would come true.
Therefore we maintain Neutral on BHEL. For L&T given its wide areas of expertise and
market leader position in other sectors we believe that L&T is better placed to handle
competition and hence we maintain Buy on the same with a target price of `1,903.
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