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Management Q&A
BHEL’s management is confident of strong orders in FY12, driven by the
two NTPC bulk tenders and Rajasthan utility projects; enquiries from IPPs
are also robust. It believes industrial business will lead the growth over
the next decade, contributed primarily by transportation and transmission
sectors. It expects revenues to grow at 15-20% Cagr over the next few
years, and the company to benefit from operating leverage benefits. BHEL
is trading at a discount to its five-year average PE, PB and EV/Ebitda
multiples and close to Chinese peers despite superior growth. BUY.
Confident of strong order inflows
BHEL management expressed confidence at meeting its order inflow guidance
of 10% YoY in FY12, driven by the two NTPC bulk tenders (11x660MW and
9x800MW) and 2x660MW Rajasthan utility projects (where the company has
already emerged the L1 bidder). Order from Tamil Nadu JV (2x660MW) is also
likely to be awarded in FY12; BHEL is in discussions with more state
governments to form JVs. Enquiry levels from IPPs are strong and the
company will continue to improve its market share in super-critical category.
Industrial business should be the next growth driver
Management sees strong growth in the transportation business, and believes
that it could reach the levels of power over the next 10 years. BHEL is bidding
with GE for diesel locomotives and with Alstom for IGBT-based locomotives
and propulsion systems. In addition, transmission segment also presents an
attractive growth opportunity, evident from the HVDC order that BHEL won in
consortium with ABB in FY11. Management believes that while initial offtake
for solar is likely to be slow, the business offers strong long-term potential.
15-20% revenue Cagr; operating leverage benefits
BHEL does not include any project in the order backlog unless it is financially
closed and an advance has been received. The current backlog makes
management confident of delivering 15-20% revenue Cagr over next few
years; operating leverage benefits should help mitigate the impact of pricing
pressure and material cost increases.
Maintain BUY
We forecast BHEL to post revenue and EPS Cagrs of 17% and 19%
respectively over FY11-14. Historically, BHEL’s earnings growth has been
stronger than its Chinese peers and the trend should continue (we estimate
4-8% EPS Cagr for Dongfang and SEG). Despite this, BHEL trades at
multiples close to Chinese companies and at a discount to its five year
average PE, PB and EV/Ebitda multiples. Maintain BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Management Q&A
BHEL’s management is confident of strong orders in FY12, driven by the
two NTPC bulk tenders and Rajasthan utility projects; enquiries from IPPs
are also robust. It believes industrial business will lead the growth over
the next decade, contributed primarily by transportation and transmission
sectors. It expects revenues to grow at 15-20% Cagr over the next few
years, and the company to benefit from operating leverage benefits. BHEL
is trading at a discount to its five-year average PE, PB and EV/Ebitda
multiples and close to Chinese peers despite superior growth. BUY.
Confident of strong order inflows
BHEL management expressed confidence at meeting its order inflow guidance
of 10% YoY in FY12, driven by the two NTPC bulk tenders (11x660MW and
9x800MW) and 2x660MW Rajasthan utility projects (where the company has
already emerged the L1 bidder). Order from Tamil Nadu JV (2x660MW) is also
likely to be awarded in FY12; BHEL is in discussions with more state
governments to form JVs. Enquiry levels from IPPs are strong and the
company will continue to improve its market share in super-critical category.
Industrial business should be the next growth driver
Management sees strong growth in the transportation business, and believes
that it could reach the levels of power over the next 10 years. BHEL is bidding
with GE for diesel locomotives and with Alstom for IGBT-based locomotives
and propulsion systems. In addition, transmission segment also presents an
attractive growth opportunity, evident from the HVDC order that BHEL won in
consortium with ABB in FY11. Management believes that while initial offtake
for solar is likely to be slow, the business offers strong long-term potential.
15-20% revenue Cagr; operating leverage benefits
BHEL does not include any project in the order backlog unless it is financially
closed and an advance has been received. The current backlog makes
management confident of delivering 15-20% revenue Cagr over next few
years; operating leverage benefits should help mitigate the impact of pricing
pressure and material cost increases.
Maintain BUY
We forecast BHEL to post revenue and EPS Cagrs of 17% and 19%
respectively over FY11-14. Historically, BHEL’s earnings growth has been
stronger than its Chinese peers and the trend should continue (we estimate
4-8% EPS Cagr for Dongfang and SEG). Despite this, BHEL trades at
multiples close to Chinese companies and at a discount to its five year
average PE, PB and EV/Ebitda multiples. Maintain BUY.
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