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http://www.kotaksecurities.com/pdf/dmb/MorningInsight18042012.pdf
BHEL
PRICE: RS.262 RECOMMENDATION: REDUCE
TARGET PRICE: RS.269 FY13E P/E: 10.3X
We resume coverage on BHEL with a Reduce rating and a target
price of Rs 269
Sharp drop in Order intake in FY12 reflective of subdued investment outlook in the power sector. Revenue visibility lowest since FY06. Growth
outlook remains subdued
Sector Outlook - Industry heading towards a prolonged period of overcapacity
Consequently, we forecast revenues to decline by 3% in FY13 to Rs 490
bn. Revenue outlook beyond FY13 also appears to be subdued due to
likely decline in order backlog.
At the current price, BHEL is trading at a 10.3x FY13 earnings. Based on
FY13E, the stock is trading at 6.0x EV/EBITDA multiple. The stock is trading at a discount to its past trading range. While the valuation looks attractive, but we note that the profit growth in the medium-term is likely
to remain modest (may be even negative). This may restrict potential for
rerating.
SECTOR OUTLOOK
Industry heading towards a prolonged period of overcapacity
The ministry of power has scaled down the power capacity addition plan for 12th
plan from 100000 MW to 76000 MW. For the 13th plan, the ministry is targeting
addition of 93000 MW.
We estimate total power capacity under construction to be ~ 100000 MW out of
which BHEL's share would stand at ~ 60000 MW. Thus we believe that the ordering
for 12th plan period would be largely completed, implying weak demand scenario in
the near-term.
Recent bids quoted by domestic players in the NTPC bulk tender indicated heightened competitive intensity. Lowest bid for boilers in the 660 MW bulk tender were
lower by 14% compared to the 800 MW bulk tender.
The industry appears to be heading towards a prolonged period of overcapacity as
total manufacturing capacity would increase to around 36000-39000 MW in the next
24 months significantly higher than the annual ordering of power projects
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight18042012.pdf
BHEL
PRICE: RS.262 RECOMMENDATION: REDUCE
TARGET PRICE: RS.269 FY13E P/E: 10.3X
We resume coverage on BHEL with a Reduce rating and a target
price of Rs 269
Sharp drop in Order intake in FY12 reflective of subdued investment outlook in the power sector. Revenue visibility lowest since FY06. Growth
outlook remains subdued
Sector Outlook - Industry heading towards a prolonged period of overcapacity
Consequently, we forecast revenues to decline by 3% in FY13 to Rs 490
bn. Revenue outlook beyond FY13 also appears to be subdued due to
likely decline in order backlog.
At the current price, BHEL is trading at a 10.3x FY13 earnings. Based on
FY13E, the stock is trading at 6.0x EV/EBITDA multiple. The stock is trading at a discount to its past trading range. While the valuation looks attractive, but we note that the profit growth in the medium-term is likely
to remain modest (may be even negative). This may restrict potential for
rerating.
SECTOR OUTLOOK
Industry heading towards a prolonged period of overcapacity
The ministry of power has scaled down the power capacity addition plan for 12th
plan from 100000 MW to 76000 MW. For the 13th plan, the ministry is targeting
addition of 93000 MW.
We estimate total power capacity under construction to be ~ 100000 MW out of
which BHEL's share would stand at ~ 60000 MW. Thus we believe that the ordering
for 12th plan period would be largely completed, implying weak demand scenario in
the near-term.
Recent bids quoted by domestic players in the NTPC bulk tender indicated heightened competitive intensity. Lowest bid for boilers in the 660 MW bulk tender were
lower by 14% compared to the 800 MW bulk tender.
The industry appears to be heading towards a prolonged period of overcapacity as
total manufacturing capacity would increase to around 36000-39000 MW in the next
24 months significantly higher than the annual ordering of power projects
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