Bharat Heavy Electricals - At a cyclical inflexion point ::Standard Chartered Research,

 We upgrade BHEL to OP from UP, with a PT of INR 230,
valuing it at 1.5x FY15E PBR and implying 12x FY15E PE.
Though earnings could decline over FY13-15E, order book
visibility is more important at current depressed valuations.
 The SEB restructuring plan and acceptance by key states
are likely to support orders in the next 12-18 months.
 Chinese competition is likely to ease, as the INR has
depreciated 30% against the CNY in the past 20 months.
 While the CCI has had mixed results overall, it is positive at
the margin, with specific wins in oil & gas, state-sector
power projects and mining, in our view.
 Given a re-allocation of resources, we transfer coverage of
BHEL to Satish Kumar.

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SEB restructuring paves the way for further orders: Given
broad guidelines on tariff revision by State Electricity Boards
(SEBs) and agreement to the restructuring package by major
states like Uttar Pradesh, Tamil Nadu and Maharashtra, we
believe power-sector woes are on the path to resolution. After
the balance-sheet cleanup, SEBs‟ capacity to buy imported
coal-based power will increase. Hence, in a likely coal-deficit
scenario, more imported coal-based plants can become viable
during the 13th Plan period.
Capable of gaining from opportunities in diverse sectors:
BHEL already has manufacturing capabilities in defence,
railways and the transmission sector. With a renewed focus, it
can gain from opportunities in these segments. We estimate
BHEL‟s overall order inflow at INR 550bn in the next two years.
Chinese competition may ease as INR depreciates: The
Indian rupee (INR) has depreciated by 30% against the
Chinese yuan (CNY) in the past 20 months. This will reduce the
competitiveness of Chinese players, as none of them have
manufacturing facilities in India.
We believe the worst is priced in; valuing at cyclical
inflexion point; upgrade to OP: In our view, the stock has
already priced in the worst (significant decline in orders, margin
pressure and worsening working capital), and is therefore
trading near decade-low valuations. While negatives are priced
in, any potential positives could lead to stock re-rating. During
the previous cycle, regulatory changes and a slight increase in
order book saw the stock re-rate to 2x PBR within three to six
months. With positive regulatory changes, the possibility of
positive surprises has significantly increased at 1x PBR. We
upgrade the stock to Outperform with a PT of INR 230.
Historically, BHEL has traded at an average PBR of 1.5x during
cyclical inflexion points.