Visit http://indiaer.blogspot.com/ for complete details BHEL is India's dominant producer of power and industrial machinery and a leading EPC
company, established in the late 1950s as the government's wholly-owned subsidiary. Post
divestment, the government currently has an equity stake of 67.7%.
It has an annual installed capacity of 6,000MW. It has formed a tie-up with Alstom and an
alliance with Siemens to the manufacture of super-critical 800MW boilers and turbines.
Recent Developments:
Draft Cabinet note circulated by Power Ministry recommends imposing import duty of 5%,
CVD of 10% and SAD of 4%, implying effective import duty of around 20%, on power
equipment imported under all categories. Presently, imported power equipment for projects
of over 1000MW is exempt from all duties under the Mega Power Policy. Domestic
manufacturers will also have to pay CVD and SAD. The difference in duties on imported
and domestic equipments will be 6-7%.
The Power Ministry also recommends doing away with 15% price preference to domestic
manufacturers. BHEL has never used this preference in many years. BHEL stands to benefit
from these recommendations, as the price difference between BHEL and Chinese sets will
substantially reduce. This will encourage domestic power generators to source equipment
from local manufacturers like BHEL & L&T.
BHEL'S Order backlog at the end of 1QFY11 was Rs1,480b, a book-to-bill ratio of 4.4x TTM,
providing the best revenue visibility in our engineering universe. We expect earnings and
revenue CAGR of 22% and 24% respectively with margin expansion of 160bp at 22.1%
over FY10-12.
After capacity expansion to 20GW by 2012, BHEL's capacity will be at par with its Chineseand
Korean counterparts, giving BHEL muscle to compete, execute and deliver on time.
Our EPS estimates for BHEL are Rs119 for FY11 and Rs147 for FY12. Our price target is
Rs2,934, an upside of 19% from current levels. Maintain Buy.
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