SNAPSHOT
NSE CODE: BHEL
BSE CODE: 500103
CMP: 224.65
52 WEEK HIGH/LOW: 328.35 / 195.05
MCAP: 54,165 Cr.
PE: 7.85
INDUSTRY PE: 9.77
EPS (TTM): 28.63
BV: 103.37
FV: 2.00
DIVIDEND Yield (%): 2.89%
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 equipment’s in the country is poised to take advantage of this demand with superior quality and healthy balance sheet.
STRONG ORDER BOOK: For H1 FY13 order inflows stand at Rs 8,700 cr vs Rs. 16,770 cr in H1FY12. Company’s current order book stands at Rs. 122,300 cr. 2.5x TTM sales. The company registered orders worth Rs. 3,150 cr during the quarter. Currently, there are few tenders in pipeline like Rajasthan EPC order (2*660 MW), Maharashtra (660 MW), NTPC (3 projects of 2*660MW) and AP (3*500 MW). Although, Current order-book is sluggish. However, Going forward management is expected to improve it by 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 @ 10,561.6 cr for Q2FY13 compare with 10,475.3 Cr for Q2FY12. Power Segment grew by 14.9% YoY and Industry segment shrink 30.6% YoY. EBITDA margin came in slightly lower than expected at 18.0%. Its PAT stood at Rs. 1,274.5 cr, registering a decline of around 2% YoY. Net Profit Margin (%) declined to 1,274.5 cr from 1,412.0 YoY basis. In last 10 years, BHEL has grown its sales and profits at average annual rates of 25% and 35% respectively. Low Debt, stable Cash flow, Stable ROW & ROCE makes a safe long term bet.
VALUATION
With flat set of number in Q2 of FY13 and stable inflows of order book in Q2 of FY13, EPS is expected to be around 25 for FY13. At Current price of Rs. 224, Stock is trading @ 9.1x and 10.3x on our FY2013E and FY2014E EPS estimates. With Strong Order Book, Stable profit margin, Good Cash Flow, experienced management, BHEL is trading at attractive valuation. Long Term Investors can BUY @ 224 till 200 for Target 370 in next 2 years.
Regards – EquityAhead Research!!
Disclaimer: This document is provided for assistance only and nothing should be construed as investment advice and nothing in this document is solicitation to buy or sell the securities of companies referred to in this document. This is Stock Idea based on fundamental Analysis not Multibagger Stocks recommended to Multibagger Plus Subscribers of Equityahead.net.
© 2012, EquityAhead. All rights reserved.
