BHEL – 2QFY2011 Result Update Angel Broking

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   BHEL – 2QFY2011 Result Update

Angel Broking maintains a Neutral on BHEL.

BHEL reported strong 2QFY2011 results, in line with our expectations. The

company’s revenue grew by 26.2% yoy, while PAT increased by 33.2% yoy. Order

inflows for the quarter surged by 68.3% yoy to `13,500. We maintain our Neutral

view on the stock.

Robust growth with steady margins: For 2QFY2011, the company’s revenue

registered impressive growth of 26.2% yoy to `8,491cr. EBITDA also increased by

32.5% yoy to `1,632cr on the back of a 92bp yoy improvement in margin to

19.2%. The quarter also witnessed 68.3% yoy growth in order inflows to

`13,500cr. Order inflow during 1HFY2011 totaled to `24,324cr as compared to

`20,417cr in 1HFY2010. Management expects annual order inflows to aggregate

to ~`60,000cr during FY2011. (It is pertinent to note that order inflows during

FY2009 and FY2010 were of ~`60,000cr each.)

Outlook and valuation: The Indian power equipment industry is undergoing

structural changes post the increasing preference for fuel-efficient and

supercritical technologies. Given the growth prospects in the domestic power

sector, few Indian companies have set up or have initiated the process of setting

up local manufacturing facilities in collaboration with leading international

players. As competition intensifies from both domestic as well as overseas players,

we do not expect BHEL to increase its current market share in the long term.

At the CMP of `2,466, the stock is quoting at 22.5x FY2011E EPS and at 19x

FY2012E EPS. Given the structural long-term concerns, we maintain our Neutral

view on the stock.