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UBS Investment Research
Bharat Heavy Electricals Limited
D uty may be imposed on foreign equipment
Event: media reports indicate duty may be imposed on foreign equipment
According to media reports, the Department of Heavy Industries is pushing for the
imposition of an import duty on foreign electrical equipment to protect domestic
manufacturers against competition from duty-free imports. The media reports
indicate that the Department of Heavy Industries is planning to send a proposal to
the Planning Commission shortly.
Impact: the price disadvantage for domestic manufacturers is ~15-20%
We think the current pricing disadvantage for domestic equipment manufacturers
(BHEL and others) is ~15-20% compared to imported BTG equipment. This would
include excise duty on domestic manufacturing and financial support for foreign
companies by their respective governments. Also, there are generation companies
that maintain that private sector developers’ preference for imported BTG
equipment is driven by faster delivery schedules and not just cost alone.
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.
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
We believe the key risks for BHEL remain execution, delivery, raw material
costs, and order inflows.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
UBS Investment Research
Bharat Heavy Electricals Limited
D uty may be imposed on foreign equipment
Event: media reports indicate duty may be imposed on foreign equipment
According to media reports, the Department of Heavy Industries is pushing for the
imposition of an import duty on foreign electrical equipment to protect domestic
manufacturers against competition from duty-free imports. The media reports
indicate that the Department of Heavy Industries is planning to send a proposal to
the Planning Commission shortly.
Impact: the price disadvantage for domestic manufacturers is ~15-20%
We think the current pricing disadvantage for domestic equipment manufacturers
(BHEL and others) is ~15-20% compared to imported BTG equipment. This would
include excise duty on domestic manufacturing and financial support for foreign
companies by their respective governments. Also, there are generation companies
that maintain that private sector developers’ preference for imported BTG
equipment is driven by faster delivery schedules and not just cost alone.
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.
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
We believe the key risks for BHEL remain execution, delivery, raw material
costs, and order inflows.
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