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UBS Investment Research
Bharat Heavy Electricals Limited
Q 1 FY12: PAT in line with estimates
Event: PAT in line with UBS estimates, but ahead of consensus
In Q1 FY12, Bharat Heavy Electricals’ (BHEL) net sales rose 10% YoY to
Rs72.7bn, and EBITDA grew 15% YoY to Rs11.13bn. The margin expanded 88bp
to 15.3%, while reported PAT was up 22% YoY to Rs8.16bn. Sales was
significantly below our estimate (Rs80bn) and PAT was in line with our forecast
(due to better margins) and ahead of consensus. At the end of Q1 FY12, its order
book was Rs1.6trn, down 3% from its FY11 order book.
Impact: Q1 is not significant from a full-year perspective
Q1 typically contributes around 15% of BHEL’s full-year sales and 12-13% of
profit. Thus, we maintain our FY12 estimates (20% sales and 18% PAT growth).
We view the margin expansion as positive as we are factoring in a 40bp margin
decline in FY12. We are not yet worried about lower-than-expected sales growth.
However, we need to watch out for the trend in Q2 and Q3. In addition, the Q1
order inflow is only around 5% of its full-year order inflow guidance.
Action: fundamentally attractive, FPO remains an overhang in near term
We think the follow on public offer (FPO) could remain an overhang in the near
term as investors may believe: 1) the price band for the FPO will be determined by
the current share price; and 2) the government could offer a discount and the stock
will be available at a lower price later during the FPO.
Valuation: maintain Buy rating; top pick in India’s capital goods space
We base our Rs2,750.00 price target on a DCF valuation. Our key assumptions are
a WACC of 11.9%, a medium-term growth rate of 15%, and long-term growth.
BHEL is our top pick in India’s capital goods space.
PAT ahead of consensus
The key highlights of its Q1 results are as follows.
Net sales grew only 10% YoY to Rs72.7bn (UBS estimates Rs80bn). We
are not yet worried about lower-than-expected sales growth. However, we
need to watch out for the trend in Q2 and Q3.
EBITDA margins expanded 88bp to 15.31%. This was better than our
estimate (14.63%) and consensus.
PAT rose 22% YoY to Rs8.16bn. This was in line with UBS’s estimate
(due to better margins) and ahead of consensus.
At the end of Q1 FY12, the order book was Rs1.6trn, 3% lower than the
FY11 order book. As there were fewer orders awarded in Q1 FY12, Q1
order inflow was only around 5% of BHEL’s full-year order inflow guidance.
Bharat Heavy Electricals Limited
Bharat Heavy Electricals (BHEL) focuses on the Indian power equipment
business. Its main customers are National Thermal Power Corporation (NTPC)
and state electricity boards that account for over 70% of revenue. BHEL also
services the power transmission, captive power plant, industrial equipment, and
the transport segments. It is 68%-owned by the Government of India.
Statement of Risk
The key risks for BHEL remain execution, delivery, raw material costs, and
order inflows.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Bharat Heavy Electricals Limited
Q 1 FY12: PAT in line with estimates
Event: PAT in line with UBS estimates, but ahead of consensus
In Q1 FY12, Bharat Heavy Electricals’ (BHEL) net sales rose 10% YoY to
Rs72.7bn, and EBITDA grew 15% YoY to Rs11.13bn. The margin expanded 88bp
to 15.3%, while reported PAT was up 22% YoY to Rs8.16bn. Sales was
significantly below our estimate (Rs80bn) and PAT was in line with our forecast
(due to better margins) and ahead of consensus. At the end of Q1 FY12, its order
book was Rs1.6trn, down 3% from its FY11 order book.
Impact: Q1 is not significant from a full-year perspective
Q1 typically contributes around 15% of BHEL’s full-year sales and 12-13% of
profit. Thus, we maintain our FY12 estimates (20% sales and 18% PAT growth).
We view the margin expansion as positive as we are factoring in a 40bp margin
decline in FY12. We are not yet worried about lower-than-expected sales growth.
However, we need to watch out for the trend in Q2 and Q3. In addition, the Q1
order inflow is only around 5% of its full-year order inflow guidance.
Action: fundamentally attractive, FPO remains an overhang in near term
We think the follow on public offer (FPO) could remain an overhang in the near
term as investors may believe: 1) the price band for the FPO will be determined by
the current share price; and 2) the government could offer a discount and the stock
will be available at a lower price later during the FPO.
Valuation: maintain Buy rating; top pick in India’s capital goods space
We base our Rs2,750.00 price target on a DCF valuation. Our key assumptions are
a WACC of 11.9%, a medium-term growth rate of 15%, and long-term growth.
BHEL is our top pick in India’s capital goods space.
PAT ahead of consensus
The key highlights of its Q1 results are as follows.
Net sales grew only 10% YoY to Rs72.7bn (UBS estimates Rs80bn). We
are not yet worried about lower-than-expected sales growth. However, we
need to watch out for the trend in Q2 and Q3.
EBITDA margins expanded 88bp to 15.31%. This was better than our
estimate (14.63%) and consensus.
PAT rose 22% YoY to Rs8.16bn. This was in line with UBS’s estimate
(due to better margins) and ahead of consensus.
At the end of Q1 FY12, the order book was Rs1.6trn, 3% lower than the
FY11 order book. As there were fewer orders awarded in Q1 FY12, Q1
order inflow was only around 5% of BHEL’s full-year order inflow guidance.
Bharat Heavy Electricals Limited
Bharat Heavy Electricals (BHEL) focuses on the Indian power equipment
business. Its main customers are National Thermal Power Corporation (NTPC)
and state electricity boards that account for over 70% of revenue. BHEL also
services the power transmission, captive power plant, industrial equipment, and
the transport segments. It is 68%-owned by the Government of India.
Statement of Risk
The key risks for BHEL remain execution, delivery, raw material costs, and
order inflows.
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