BHEL - A SAFE LONG TERM BET | www.equityahead.net

SNAPSHOT

NSE CODE: BHEL
BSE CODE: 500103
CMP: 1975
52 WEEK HIGH/LOW: 2695 / 1960
MCAP: 96680.20 Cr.
PE: 18.87
INDUSTRY PE: 20.39
EPS (TTM): 104.65
BV: 325.16
FV: 10.00
DIVIDEND (%): 233.00%

Overview

Bharat Heavy Electricals Limited (BHEL) is India’s largest engineering and manufacturing enterprise. It is engaged in producing Energy and infrastructure machinery. BHEL was established more than 40 years ago and today it has wide network of 15 manufacturing divisions. BHEL’s operations are organised around three business sectors, namely Power, Industry – including Transmission, Transportation and Renewable Energy – and Overseas Business. This enables BHEL to have a strong customer orientation, to be sensitive to his needs and respond quickly to the changes in the market. It has an annual installed capacity of 15,000 MW in BTG segment. BHEL manufactures and supplies some of the most important products in power generation sector.

INVESTMENT THESIS

HIGH GROWTH SECTOR: The sector has huge opportunity in developing nation like India. Government is also committed to provide all support for infrastructure development. Power generation and Infrastructure is still in progressive stage and lots of things need to be done. Today, many energy projects are lined up to meet the power demand in India. BHEL which is pioneer in producing Energy and infrastructure machinery and largest manufacturer of power equipments in the country is poised to take advantage of this demand with superior quality and healthy balance sheet.

STRONG ORDER BOOK: BHEL’s current order book stands at Rs. 1576.1 bn. The management has maintained its guidance of Rs 60,000 cr of order inflows during FY11 (61% of guidance met till Q3FY11). Q4FY11 is also expected to be on line. Strong Order book will help company to generate steady revenue and PAT for next 3 years with support of good cash flow. This Order book estimates the growth of 25% CAGR till FY14.

Cutting Cost & Maintain Margin: Currently, BHEL is engaged in many R&D to maintain margin and reduce operational cost. Recently, BHEL has started in Joint-venture with SAIL for manufacturing of critical input such as CRGO. Company also working to increase its vendor base and reduce content of import for supercritical sets. In Addition, the board of BHEL has approved the company’s plan of starting a non-banking financial company (NBFC) to finance power projects.

Further Expansion: Company is working on an agreement with NPC (Nuclear Power Corporation) and Toshiba to supply turbines to an upcoming nuclear project. BHEL also joined hands with Abengoa of Spain to develop Concentrated Solar Power projects in India. In Addition, Company has recently signed an agreement with GE for a 10-year licensing pact to manufacture high-end oil and gas compressors to be marketed in India and South Asia. Company is all set to enter into manufacturing of renewable energy generating equipments with JV with BEL (Bharat Electronics Ltd). Although Company has strong orderbook till FY13 but Due to competition with Chinese market, BHEL is working to expand its business with new horizon.

Steady Financial Performance: BHEL sales turnover stands @ 9,023.32 cr for Q3FY11 compare with 7,229.22 Cr for Q3FY10. Power Segment grew by 27.5% YoY and Industry segment grew 18.9% YoY. EBIT margins witnessed a decline for both power and industry segments but margin has expanded. Its APAT stood at Rs. 13432.3 mn, registering a growth of 25.2% YoY. Net Profit Margin (%) remained stable around 12%-14% YoY for last 5 years. Low Debt, Good Cash flow, Stable ROW & ROCE makes a safe long term bet.

VALUATION

With good set of number in Q3 of FY11 and good inflows of order book in Q4 of FY11, EPS is expected to be around 111 for FY11. At Current price of Rs. 1975, Stock is trading @ 17.7xFY11 earning of Rs. 111 and 14x on FY12 earnings of Rs. 139. With Strong Order Book, Stable profit margin, Good Cash Flow, experienced management, BHEL is trading at attractive valuation. Long Term Investors can BUY @ 1975 till 1900 for Target 2710 in next 12-15 Months.

Regards – EquityAhead Research!!

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