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7/28/2019 Sushil BHEL 03Feb10
1/15
BHEL is the largest engineering enterprise in India manufacturing over 180 products under
30 major product groups and caters to core sectors of the Indian Economy viz., Power
Generation & Transmission, Industry, Transportation, Telecommunication, Renewable
Energy, etc. In order to meet the increasing demand of power equipments it is currentlyexpanding its capacities to 20,000 MW, which expected to commission by Dec 2011. The
Company has order backlog of Rs 1.34 trn with visibility for next three and half years and
we expect its margins to expand by 521 bps by FY12.
Robust order book with visibility for next three and half years
BHEL has an order backlog of Rs. 1.34 trn. It has already won orders worth Rs. 369.5 bn
during 9MFY10 and is well placed to win orders worth 180 bn in order to achieve its order
intake target of Rs. 550 bn. Its current order book is 4.4x its trailing 12 months revenues
giving it a visibility of next three and half years.
Capacity expansion to provide economies of scale
BHEL has recently expanded its capacity from 10,000 MW to 15,000 MW which is expected
to stabalize by March 2010. It is further expanding its capacities for power equipmentmanufacturing. It is in the process of adding additional 5,000 MW taking its total capacity to
20,000 MW. We expect that BHEL will be able to achieve economies of scale by spreading of
fixed costs over higher volumes and through savings on outsourcing costs .
Supercritical projects to provide the next growth trigger
Share of total Super Critical Sets is expected to be 43,640 MW (59% of Coal based sets) in
12th Plan and 64,000 MW (100% of Coal based sets) in 13th Plan. CEAs policy paper has put
forward guidelines which would encourage indigenous manufacturing in India and benefit
companies like BHEL. BHEL has signed JVs with state utilities to set up super critical power
projects. These JVs will in turn pass on the equipment order to BHEL.
BHEL proving its prowess in spite of competition from Chinese equipment
A CEA panel has recently observed that the Chinese equipment was on par with the Indianequipment - quality wise. However, a recent cancelation of order placed with a Chinese
manufacturer by Indiabulls and subsequent placement of the same order with BHEL has once
again raised concerns on the quality of the Chinese equipment. BHEL has also claimed that its
equipment performance has been consistently 2% higher than other available equipments &
operating availability is also higher. Even though the initial capital cost of Chinese sets is
lower, operating cost is higher than Indian sets resulting in over-all higher cost.
OUTLOOK & VALUATIONBHEL is the largest manufacturer of power equipment in the country. The company has been
expanding its capacities on back of the increased capacities coming up during the 11th
and
12th
Plan. Several super-critical orders are awaited to be released which is expected to
provide further impetus to BHELs already robust order book. BHEL has also increased itsorder book from industry segment which could enable it to continue the pace of its growth in
the future. We expect the sales of the company to grow at a CAGR of 24% in next three years.
BHEL will be able to improve its margins by 521 bps by FY12. At CMP of Rs.2406 the stock is
trading 23x FY11E EPS of Rs.105 & 18x FY12E EPS of Rs.137. Given its strong order book,
strong balance sheet and proven track record of the management, BHEL is well poised to
capture the upcoming opportunities in the Power sector in the country and thus we initiate
coverage with an Accumulate rating on the Company with a target price of Rs.2767 (based on
20x its FY12E EPS of Rs.137).
Initiating Coverage
Bharat Heavy Electricals Ltd.
February 01 , 2010 ACCUMULATE MEDIUM RISK PRICE Rs.2406 TARGET Rs.2767
POWER
SHARE HOLDING (%)
Promoters 67.7
FII 15.6
FI / MF 10.8
Body Corporates 4.2
Public & Others 1.7
STOCK DATA
Reuters Code
Bloomberg Code
BHEL.BO
BHEL.IN
BSE Code
NSE Symbol
500103BHEL
Market
Capitalization*
Rs. 1177.8 bn
US$ 25.4 bn
Shares
Outstanding*489.5 mn
52 Weeks (H/L) Rs.2,550 /1,251
Avg. Daily
Volume (6m)123,423 Shares
Price Performance (%)
1 M 2M 3M
1 2 7
200 Days EMA: Rs. 2154
*On fully diluted equity shares
Part of Classic
Please refer to important disclosures at the end of the report For private Circulation Only.Sushil Financial Services Private Limited Member : BSEL, SEBI Regn.No. INB/F010982338 | NSEIL, SEBI Regn.No.INB/F230607435.Office : 12, Hom i Street, Fort, Mumbai 400 001. Phone: +91 22 40936000 Fax: +91 22 22665758 Email : [email protected]
KEY FINANCIALSY/E
Mar
Revenue
(Rs mn)
APAT
(Rs mn)
AEPS
(Rs)
AEPS
(% Ch.)
P/E
(x)
ROCE
(%)
ROE
(%)
P/BV
(x)
FY09 262123 31120 63.6 8.9 37.8 30.1 26.2 9.1
FY10E 322382 41106 84.0 32.1 28.7 33.1 28.4 7.4
FY11E 402977 51420 105.0 25.1 22.9 33.7 28.5 5.9
FY12E 503721 66882 136.6 30.1 17.6 35.0 29.3 4.6
ANALYSTViral Shah | +91 22 4093 5045
SALES:
Devang Shah | +91 22 4093 6060/61
Nishit Shah | +91 22 4093 6074
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]7/28/2019 Sushil BHEL 03Feb10
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February 01 , 2010 2
Bharat Heavy Electricals Ltd.
Robust order book with visibility for next three and half years
BHEL has a robust order book which has grown at a CAGR of about 38% from Rs.236 bn
in FY04 to Rs. 1170 bn in FY09. Its order book consists of mainly 3 segments viz. Power,
Industry and Overseas. All the three segments have contributed to its overall growth in
past, with highest growth derived from Power segment. Power segment has grown at a
CAGR of 30% followed by Industry segment which has grown at a CAGR of 23.5% in past
five years.
Source: Company
Despite the slowdown in the Indian economy during 2007-08 to 2008-09 BHEL was able
to achieve a growth in the order intake of 18.7% during the same period, which clearlyhighlighted the intention of the Government on increasing the power capacity and
generation in the country. As of H1FY10, BHEL had an order book intake of Rs. 208.2 bn
which comprised 63% of orders contributed by Power, 33% of orders coming from
Industry and 5% from Overseas. Post H1FY10, BHEL has won additional order worth ~
Rs.160 bn and as of9MFY10 BHELs order intake stands at Rs.369.5 bn Of these 94% of
the orders are from the Private sector (independent power producers) as against just
22% as on FY09. As of date the order backlog stands at Rs.1.34 trn.
Source: Company
0
1
2
3
4
5
0
500000
1000000
1500000
2000000
FY04 FY05 FY06 FY07 FY08 FY09 FY10EFY11EFY12E
Book-
to-bill
Rs.
mn
Order book
Orders booked Orderbacklog Orderbacklog/sales
77%
20%
3%
Order book intake break up 9M FY10
Power Industry Overseas
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Bharat Heavy Electricals Ltd.
We believe that this is a positive move by BHEL, as most of the orders during the 12th
five year plan would be coming from private players. BHEL has guided for an order book
intake of Rs. 550 bn by end of FY10. We believe that since it has achieved an order
intake of Rs.350 bn for 9MFY10 it can achieve the balance Rs. 180 bn worth of orders
on back of the supercritical power projects which are awaited to be released soon.BHEL has an order book to bill ratio of 4.4x on a trailing twelve month basis. Going
forward BHELs order book accretion would happen mainly from supercritical orders,
11 bulk orders expected from NTPC and Power generation JVs signed by BHEL with
state utilities (which would place equipment orders with BHEL). We believe that orders
worth Rs. 621.3 bn will be booked in FY11E and orders worth Rs.640.7 bn will be
booked in FY12E.
Description MW Sector Order Value
Rs.mn
Power Engineers Contracting Company 42 Power 910
IOC 20 Power 1050Chennai Petroleum 20 Power 1700
Oil India 20 Power 1900
Petroleum Development Oman 126 Power 2050
Petroleum Development Oman 252 Power 3750
Adhunik Power & Natural Resources 270 Power 6400
Adhunik Power & Natural Resources 270 Power 6400
Ideal Energy Projects 270 Power 7030
Indian Railways 0 Industrial 9900
NTPC-Tamil Nadu Electricity Co. 500 Power 13000
Korba West Power Co. 600 Power 14750
Jindal India Thermal Co. Ltd. 1200 Power 26000Monnet Power Co. Ltd 1050 Power 26300
Jindal Power Ltd 2400 Power 50400
Prrayagraj Power Gen. Co. 1980 Power 56000
Karnataka Power Corporation 3 Power 420
Power Grid NA Power 2000
Hindalco Industries 900 Power NA
Source: Sushil Finance Research
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Bharat Heavy Electricals Ltd.
Capacity expansion to provide economies of scaleIndia has been witnessing a huge surge in power equipment demand on back of the
capacity additions in the power sector. In order to cater to this demand a huge onus lies
on BHEL. BHEL has been catering to 65% of the all India capacity additions. BHEL
currently has a manufacturing capacity of 15,000 MW, which has been expanded over a
period of time from 6000 MW in FY05. The capacity of 15,000 MW will stabilize by
March 2010. Hence the complete benefits of the expanded capacity will start accruing
from FY11 onwards. The capacity expansion has taken place at a cost of ~Rs.11 bn. The
Company further plans to expand its capacity to 20,000 MW by 2012 at a capital
expenditure of ~ Rs. 16 bn. It is planned to come into operations from Dec 2011. BHEL is
currently operating at a full capacity and in addition outsources significant amount of
BTG (boiler-turbine-generator) work. BHEL is at an advantage compared to its
competitors as most of its capacity addition is a brown field expansion whereas its
competitors are doing greenfield expansions. With the increase in the capacities, BHEL
will be able to save on outsourcing costs, as well as achieve economies of scale thereby
enhancing its operating margins. In addition to the above BHEL has planned a capacityaugmentation of transformers from 20,500 to 45,000 MVA and Capacity enhancement
of Electrical Motors from 1340 nos. to 2250 nos.
BHEL - Major operating units
Bhopal Heavy Electrical Plant
Jhansi Transformer plant
HaridwarHeavy Electrical Equipment, Pollution Control
Research, Central Foundry Forge Plant
Hyderabad Heavy Power Equipment Plant
TirchyHigh Pressure Boiler Plant, Seamless Steel
Tube Plant, Welding Research Institute
Ranipat Boiler Auxiliaries Plant
Bangalore Electronics and Industrial Systems Division
Source: Company
Salient Features of capacity augmentation
In view of uncertainty of Gas and Nuclear Capacities, provision for inter-
changeability of facilities have been made.
Inter-Unit and Intra-Unit Load sharing has been provided.
Respective facilities have inbuilt Capacity for Spares based on their consumption.
Installed Capacity has 10-15% stretch margin, as demonstrated in past.
Super-Critical projects to provide the next growth triggerShare of total Super Critical Sets is expected to be 43,640 MW (59% of Coal based sets)
in 12th Plan and 64,000 MW (100% of Coal based sets) in 13th Plan.
Plan Total
Subcritical
MW
600
MW
(Nos.)
800
MW
(Nos.)
Total
Supercritical
MW
Total
10th
9620 0 0 0 9620
11th
44490 9 2 7540 52030
12th 30473 54 10 43640 74113
13th 0 54 23 64100 64100
Source: Company, International Conclave
In order to promote indigenous manufacturing in India for supercritical power
equipments, the CEAs policy paper has stipulated certain guidelines which include
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Bharat Heavy Electricals Ltd.
technical restrictions such as maximum design turbine cycle heat rate of 1850 kcal/kwhr
(incase unit is provided with steam driven boiler feed pumps) & 1810 kcal/kwhr (in case
of electrically driven boiler feed pumps). All Central and State PSUs have been directed
to invite bids of BTG for supercritical projects mandatorily from companies setting up
indigenous manufacturing facilities in India, as per proposal for bulk ordering of 11 units.Further all the supercritical units to be set up by public/private will be eligible for
customs duty and deemed exports benefits. The Government is also working on ushering
in 10 ultra supercritical power projects of 800 MW capacity each. These could be ready
for tendering next month, after the current proposal for putting up 11 supercritical
projects of NTPC and Damodar Valley Corporation is floated.
Till date, BHEL has alredy won folowing orders for super-critical projects from below
listed companies
Source: CEA
In order to get benefit of the supercritical projects and to minimize the impact of
competition BHEL has signed up JVs with state utilities where BHEL holds a 26% stake.
These JVs would place BTG orders for Power equipment with BHEL.
Source: Company
BHEL proving its prowess, in spite of competition from Chinese equipmentIn the 11th plan period, out of the likely thermal power capacity addition of 61,237 MW,
equipment for about 21,000 MW is being imported from China. Similarly, out of total
orders of about 15,000 MW for hydro power projects, orders for 464 MW have been
placed on Chinese manufacturers. In the 12th plan period, out of total orders of about
45,000 MW placed so far, orders for thermal capacity of about 14,000 MW have been
placed on Chinese manufacturers or suppliers. Equipments for about 33 % of thermalprojects are being imported from China. Thus, the import of cheaper power equipment
from China has been imposing a threat to domestic manufacturers including BHEL.
A CEA panel has recently observed that the Chinese equipment was on par with the
Indian equipment - quality wise and operated at 81% PLF in Sep-Nov 09.It also
mentioned that the delivery schedule of Chinese equipments was better compared to
that of BHEL. This panel had put all the quality issues being raised about Chinese
equipment to rest. However, a recent cancelation of order placed with a Chinese
manufacturer by Indiabulls and subsequent placement of the same order with BHEL has
once again raised concerns on the quality of the Chinese equipment. BHEL has agreed to
the fact that Chinese manufacturers are a threat. However, BHEL has also claimed that
its equipment performance has been consistently 2% higher than other available
Project Company Supplier Capacity (MW)
Krishnapatnam AP Genco BHEL / L&T 1,980
Barh Stage 2 NTPC BHEL 1,600
TNEB TNEB - BHEL JV BHEL 1,320
Bara Jaiprakash BHEL 1,980
States Capacity (MW) Configuration
Tamil Nadu 1,600 2 X 800MW
Karnataka 1,980-2,400 3 X 660/800MWMaharashtra 1,320 2 X 660MW
Madhya Pradesh 1,600 2 X 800MW
Total 6,500-6,920
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Bharat Heavy Electricals Ltd.
equipments and operating availability is also higher. Even though the initial capital cost
of Chinese sets is lower, operating cost is higher than Indian sets resulting in over-all
higher cost.
BHEL is also in talks with Chinas largest manufacturer of high-voltage transformers,Tebian Electric Apparatus Stock Co. Ltd (TBEA), to jointly manufacture power equipment
in India. Currently, BHEL manufactures power transformers up to capacity of 400kV while
TBEA has the capacity to make ultra high voltage (UHV) power equipment of up to
1,000kV capacity. A tie-up with TBEA will allow BHEL to compete with companies such as
Siemens AG and ABB in the high-voltage segment, which is expected to receive a boost in
view of the expansion of the National Grid.
Sales to grow at 24% CAGR and Operating Margins to expand by 521 bpsBHELs current order book is currently 4.4x its trailing twelve month revenues. We
believe that going forward its growth in order book intake will slowdown given the fact
that a significant portion of orders in the 12th and the 13th plan will be for supercriticalprojects and several new players are expected to enter into this industry. This would
eventually reduce BHELs market share. However, given its already robust order book
and increasing share of industry segment in its order book, there is a clear visibility of
revenues for next three and half years. BHELs revenue would be able to grow at a CAGR
of 24% from FY09 to FY12E.
Source: Sushil Finance Research Estimates, Company
BHELs expansion would enable it to reduce its outsourcing costs and attain economies of
scale by spreading its fixed costs over its higher volumes. Further, benefits of lower
commodity costs have already started accruing and larger size of boiler orders from 12th
plan would aid in reduce the raw material as a percentage of sales from 62.8% in FY09 to
60.5% in FY12E. The wage revision had dented BHELs margins during FY09. A lot of
uncertainty towards this wage revision has now been a settled. BHEL is planning to add
18,000-20,000 employees up to FY12E. Although the cost per employee would rise,
productivity per employee on expanded capacities would go higher. We expect BHELs
operating margins to improve by 521 bps to 19.3% by FY12.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
0
100,000
200,000
300,000
400,000
500,000
600,000
FY07 FY08 FY09 FY10E FY11E FY12E
Growth(in%
)
R
s.mn
Sales analysis
Sales Sales growth
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Bharat Heavy Electricals Ltd.
Source: Sushil Finance Research Estimates, Company
Opportunities in the Power generation and Power equipment industry
India has been one of the fastest growing economies in emerging markets. Indian
economy has posted more than 9% growth for three years consecutively and has seen a
decade of more than 7% growth. One of the key factors behind any growing country is
the energy requirement and supply in that country. The Indian power sector has
historically been characterized by energy shortages which have been increasing over the
years. In the period from April 2009 to Dec 2009, peak energy deficit has been 11%. Due
to inadequate supply and distribution infrastructure, the per capita consumption of
energy in India is extremely low in comparison to most other parts of the world.
Source: CEA
According to the 17th Electric Power Survey, Indias peak demand will reach
approximately 153 GW with an energy requirement of approximately 969 billion units by
fiscal year 2012. By the fiscal year 2017, peak demand is expected to reach 218 GW with
an energy requirement of 1,392 billion units.
0%
5%
10%
15%
20%
25%
0
20000
40000
60000
80000
100000
120000
FY07 FY08 FY09 FY10E FY11E FY12E
PBIDT
rgn(%)
Rs.mn
EBITDA analysis
EBITDA EBITDA Mrgn (%)
0
2
4
6
8
10
12
14
16
18
0
20000
40000
60000
80000
100000
120000
2001 2002 2003 2004 2005 2006 2007 2008 2009
Percentage(%)
MW
Peak Demand
Demand (MW) Availablity (MW) Deficit (%)
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Bharat Heavy Electricals Ltd.
Source: CEA Conclave
Projected capacity addition chart
Source:CEA Conclave
However the nation has witnessed severe slippages in the implementation of the five
year plan. The target set for capacity addition during the 10th Plan was 41,110 MW
against which the capacity addition achieved during 10th Plan was 21,180 MW. Some of
the major reasons for slippages during the 10th Five year plan
Delay and non sequential supplies/erection by suppliers/contractors
Delay in tie-up of super critical technology by indigenous manufacturers
Non-availability of Gas/Fuel
Delay in award of works
Projects not taken up/Escrow cover not given/Financial closure not
achieved/Funds not tied up
Delay in approval of investment decision of Hydro projects
0
50
100
150
200
250
300
350
0
500
1000
1500
2000
2500
2006-07 10th
plan end
2011-12 11th
plan end
2016-17 12th
plan end
13th plan
GW
BU
Demand Summary of All India Forecast
Energy Requirement (BU) Peak Load (GW)
0
200
400
600800
1000
1200
1400
2012E 2017E 2022E 2027E 2032E
GW
Projected Power Demand
Year Projected Power Demand (GW)
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Bharat Heavy Electricals Ltd.
Delay in Environmental clearance, Geological surprises, Natural calamities, R&R
issues, delay in signing of MoU with host state, Court Cases for Hydro Projects.
Law & Order Problems.
Present Status of the projects during 11th
plan
As of Dec 2009 Indias total installed capacity has reached 156,092 MW, which is an
addition of 23,763.23 MW over the installed capacity during the 10th plan period. As per
the planning commission, target capacity of 78,577 MW needs to be added during the
11th plan.
Projected Power demand
Based on the projected demand, Integrated Energy Policy projections for Capacity
addition requirement is:
XI Plan - 102,000 MW (target - 78,577 MW)
XII Plan - 104,000 MW (target ~100000 MW)
XIII Plan - 151,000 MW (target ~100000 MW)XIV Plan - 197,000 MW
Reasons for delay in 11th Plan
Delay in placement of orders - mainly Civil Works & BOPs.
Delay and non-sequential supply of material for Main Plant and BoPs.
Shortage of skilled manpower for erection and commissioning.
Contractual disputes.
Inadequate deployment of construction machinery.
Shortage of fuel (Gas & Nuclear).
Delay in Land Acquisition.
Delay in creation of infrastructure facilities
12th plan capacity addition envisaged
A capacity addition of about 100,000 MW from conventional power projects is required
during the 12th Plan to meet the All-India demand projections of 17th EPS Report. CEA
has identified shelf of Hydro projects totaling to about 30,000 MW for 12th Plan. Out of
this, projects of about 5,000 MW have major problems related to environment and R&R.
On detailed examination, commissioning of Hydro capacity of about 25,000 MW seems
feasible and the remaining projects need to be pursued for early completion of DPRs and
statutory clearances. A shelf of about 100,000 MW projects has also been prepared
comprising of projects which have been given Coal linkage or have been allotted Coal
block or are based on imported Coal. Gas based capacity has not been firmed up for the
12th Plan so far due to uncertainty about availability of Gas for Power Sector.
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Source: International Conclave, Base Paper
Opportunity in Power equipment
Power equipment broadly comprises of two categories viz. boiler-turbine-generator
(BTG) (50%) and balance of plant (BOP) (35%). A BTG package contains 50% boilers and
50% turbine-generators. A balance of plant typically consists of coal handling plant, ash
handling, chimneys, cooling towers, DM plant, fuel oil system and pre-treatment plant.
With every capacity addition plan, there is an increased requirement of power
equipments. Assuming an addition of ~270 GW until 13th plan, BTG demand translates to
~135 GW. This means an annual demand of 11 GW per annum. Assuming a Rs. 50 mn
capex for the power plant the BTG opportunity would be about Rs.6.8 trn. (50% of total
spend).
Estimated requirement for BOP during the 12th plan
During the Eleventh and Twelfth plans, India targets to add ~170 GW which in turn would
generate a BoP opportunity worth INR 2.9 trn (Rs.17 mn per MW to be spent across
various BOP packages).
BOP Requirement during 12th Plan
Name of the System BOP's Requirement
Cool Handling System 148
Ash Handling System 148DM Plant 211
Cooling Towers 218
Chimneys 77
Fuel Oil System 148
Pre-Treatment Plant 160
Source: Base Paper, International Conclave
0
200
400
600
800
1000
2012-13 2013-14 2014-15 2015-16 2016-17
Rs.bn
12th Plan Funding requirement
Hydro Thermal Nuclear
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Bharat Heavy Electricals Ltd.
Risk & Concerns
Delays in the expansion of capacity could affect the volume and earnings estimate
for BHEL.
Significant jump in commodity prices can affect our operating margin estimates.Several new players such as L&T, Bharat Forge, JSW Group, BGR Energy, and
Thermax have been reportedly planning to form a JV with a foreign partner and
have plans to enter manufacturing of supercritical power equipments. This will
create a level playing field, thus, giving BHEL a tough competition in bidding for
supercritical projects.
With new players entering the BTG manufacturing, there could be a possible
overcapacity threat that could be faced by the industry.
A CEA panel has recently observed that the Chinese equipment was on par with the
Indian equipment quality wise and operated at 81% PLF in Sep-Nov 09. This could
ease concerns over quality of the Chinese equipment and increase competition for
BHEL.
OUTLOOK & VALUATIONBHEL is the largest manufacturer of power equipment in the country. The company
has been expanding its capacities on back of the increased capacities coming up
during the 11th
and 12th
Plan. Several super-critical orders are awaited to be
released which is expected to provide further impetus to BHELs already robust
order book. BHEL has also increased its order book from industry segment which
could enable it to continue the pace of its growth in the future. We expect the sales
of the company to grow at a CAGR of 24% in next three years. BHEL will be able to
improve its margins by 521 bps by FY12. At CMP of Rs.2406 the stock is trading 23x
FY11E EPS of Rs.105 & 18x FY12E EPS of Rs.137. Given its strong order book, strongbalance sheet and proven track record of the management, BHEL is well poised to
capture the upcoming opportunities in the Power sector in the country and thus we
initiate coverage with an Accumulate rating on the Company with a target price of
Rs.2767 (based on 20x its FY12E EPS of Rs.137).
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Bharat Heavy Electricals Ltd.
Annexure: Company Background
BHEL is the largest engineering and manufacturing enterprise in India in the energy-
related/infrastructure sector. BHEL was established more than 40 years ago, ushering inthe indigenous Heavy Electrical Equipment industry in India. BHEL manufactures over 180
products under 30 major product groups and caters to core sectors of the Indian
Economy viz., Power Generation & Transmission, Industry, Transportation,
Telecommunication, Renewable Energy, etc.
The wide network of BHEL's 14 manufacturing divisions, 4 power sector regional centers,
8 service centers, 15 regional offices, one subsidiary co., Joint Ventures and a large
number of Project Sites spread all over India and abroad enables the Company to
promptly serve its customers and provide them with suitable products, systems and
services - efficiently and at competitive prices.
Power Generation
BHEL manufactures a wide range of products and systems for thermal, nuclear, gas andhydro-based utility power plants. BHEL has proven turnkey capabilities for executing
power projects from Concept to Commissioning. BHEL-built power generating sets
account for nearly two third of the overall Installed capacity and around three fourth of
the power generated in India. BHEL supplies steam turbines, generators, boilers and
matching auxiliaries up to 800 MW ratings including supercritical sets of 660/800 MW.
BHEL has facilities to go up to 1000 MW unit size. BHEL-make steam turbines are
designed to achieve higher efficiencies. To make efficient use of high ash content coal
available in India, BHEL also supplies circulating fluidized bed combustion (CFBC) boilers
for thermal plants. BHEL manufactures 220/235/500/540 MWe Nuclear turbine-
generator sets. BHEL is the only Indian company capable of manufacturing large-size gas
based power plant equipment, comprising advanced-class combined-cycle operations. It
has retained 100% share of R&M market of Thermal sets in the country. BHEL is one of
the few companies worldwide, involved in the development of Integrated Gasification
Combined Cycle (IGCC) technology which would usher in clean technology.
BHEL offers a large variety of control equipment and solutions, for power stations
ranging from simple control systems to single push-button automation. Company has
expertise of supplying complete Systems for entire power stations comprising Boiler,
Turbine and Balance of Plant (BOP).
Industries
BHEL is a leading manufacturer of a variety of electrical electronic and mechanical
equipment, to meet the demands of a number of industries, like metallurgical, mining,
cement, paper, fertilizers, refineries & petro chemicals etc. other than power utilities.BHEL has supplied systems and individual products including a large number of co-
generation Captive power plants, Centrifugal compressors, Drive Turbines, Industrial
boilers and auxiliaries, Waste heat recovery boilers, Gas turbines Pumps, Heat
exchangers, Electrical machines, Valves Heavy castings and forgings, Electrostatic
precipitators ID/FD fans, Seamless pipes etc. to a number of industries other than power
utilities. BHEL has also emerged as a major supplier of controls and instrumentation
systems especially distributed digital control systems for various power plants and
industries. BHEL is the leading company in the world having mastered the art of burning
Naptha in Gas Turbines Industry sector is fully geared to execute EPC contracts for
captive power plants from concept to commissioning.
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Railways
BHEL provides traction propulsion system and controls to Indian railways. The range
includes traction motors, traction generators/alternators, transformers, substation
equipment, vacuum circuit breakers, locomotive bogies, smoothing reactors, exciters,converters, inverters, choppers and associated control equipment, viz., master
controllers, chopper controllers, brake and door equipment, electronic controls including
software based controls extending to rolling stock and other transport applications. BHEL
has manufactured and supplied a large number of 3900HP electric locomotives and
4700HP AC/DC locomotives to Indian Railways and diesel-electric locomotives ranging
from 350 HP to 2600 HP to cement, steel and fertilizer plants, thermal power stations
coalfields, ports, and other medium and large industries and urban transportation
projects. BHEL has also established itself as a leading supplier of state-of-the-art
propulsion equipment to Indian Railways for 3-phase drive 6000 HP electric locos, 4000
HP diesel-electric locos, electrical multiple units etc.
Renewable EnergyBHEL has made rapid strides in this strategically important area of non-conventional
energy, which holds the key to the problem of burgeoning energy needs, on the one
hand and rapidly depleting fossil-based energy sources, on the other. Range of
Renewable Energy product and systems manufactured and supplied includes a number
of solar water heating systems, solar photo-voltaic (SPV) systems for both Domestic and
Industrial application and wind electric generators all over India. BHEL also has the
capability to set up Grid-connected and Hybrid SPV Power Plants. In addition, BHEL
fabricates space-grade solar panels and space-quality batteries for satellites launched by
ISRO. BHEL is also supplying small hydro power plants (up to 25 MW station capacity) for
distributed power generation.
The range of equipment covers onshore deep drilling rigs, super-deep drilling rigs, heli-
rigs, work over rigs, mobile rigs and desert rigs with matching draw works and hoisting
equipment. The diesel-electric oil rigs for onshore drilling made by BHEL are suitable for
depths up to 9,000 meters.
Transmission
The products manufactured by BHEL include Power transformers, Instrument
transformers, Dry type transformers, Shunt reactors, Vacuum and SF6 switchgear, Gas
insulated switchgears, Ceramic insulators, etc. Major critical hardware such as capacitor
banks, circuit breakers, control and protection equipment and thyristor valves are in its
manufacturing range. BHEL has developed and commissioned indigenous 36KV and 145
KV Gas Insulated Substation (GIS).
International Business
BHEL has, over the years, established its references in 70 countries across the world.
These references encompass almost the entire range of BHEL products and services,
covering Thermal, Hydro and Gas-based turnkey power projects, Substation projects,
Rehabilitation projects, besides a wide variety of products like Transformers
Compressors, Valves, Oil field equipment, Electrostatic Precipitators, Photovoltaic
equipment, Insulators, Heat Exchangers, Switchgears, Castings and Forgings etc. The
experience with these projects has provided BHEL the experience of working with world
renowned consulting organizations and inspection agencies.
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Bharat Heavy Electricals Ltd.
Source : Company, Sushil Finance Research Estimates
PROFIT & LOSS STATEMENT Rs.mn
Y/E March FY09 FY10E FY11E FY12E
Net Sales 262123 322382 402977 503721
Total Raw material 164685 196653 245816 304751
Personnel Costs 29837 32820 36103 40074
SG&A 18358 23211 29417 37779
Others 12198 15152 18940 23675
EBITDA 37046 54545 72701 97442
Interest 307 300 350 450
Depreciation 3343 4226 5518 6879
Other Income 14604 14210 13510 14390
Extraordinary items (489) - - -
PBT 48489 64229 80343 104504
Tax 17106 23122 28924 37621
RPAT 31382 41106 51420 66882
Extraordinary adj 262 - - -
APAT 31120 41106 51420 66882
BALANCE SHEET STATEMENT Rs.mn
As on 31st
March FY09 FY10E FY11E FY12E
Share Capital 4895 4895 4895 4895
Reserves & Surplus 124493 155300 195852 251295Net Worth 129388 160195 200747 256190
Secured Loans - - - -
Unsecured Loans 1494 1494 1494 1494
Total Loan funds 1494 1494 1494 1494
Deferred tax liability (18403) (24826) (32860) (43311)
Capital Employed 112479 136863 169381 214373
Net Block 15116 28890 42812 55934
Cap. WIP 11570 10000 12000 15000
Add: Lease Adjustment (412) - - -
Investments 523.4 523.4 523.4 523.4
Sundry Debtors 159755 198728 249515 313273
Cash & Bank Bal 103147 101662 107376 120009
Loans & Advances 24237 28714 35868 44835
Inventories 78370 99673 127959 162812
Other current assets 3502 3852 4238 4661
Curr Liab & Prov 283329 335180 410910 502675
Net Current Assets 85682 97450 114045 142916
Total Assets 112479 136863 169381 214373
KEY RATIOS STATEMENT
Y/E March FY09 FY10E FY11E FY12E
Growth (%)
Net Sales 35.8 23.0 25.0 25.0APAT 8.9 32.1 25.1 30.1
EBITDA 11.6 47.2 33.3 34.0
Profitability (%)
EBITDA Margin 14.1 16.9 18.0 19.3
Adj. PAT Margin 11.9 12.8 12.8 13.3
ROCE 30.1 33.1 33.7 35.0
ROE 26.2 28.4 28.5 29.3
Per Share Data (Rs.)
Adj. EPS 63.6 84.0 105.0 136.6
Adj. CEPS 60.7 79.5 99.9 129.3
BVPS 264.3 327.3 410.1 523.3
Valuations (X)
PER 37.8 28.7 22.9 17.6
PEG 4.3 0.9 0.9 0.6
P/BV 9.1 7.4 5.9 4.6
EV / EBITDA 29.0 19.7 14.7 10.9
EV / Net sales 4.1 3.3 2.7 2.1
Dividend Yield (%) 0.7 0.7 0.8 0.8
Turnover Days
Debtors days 222.5 225.0 226.0 227.0
Creditors days 153.4 155.0 150.0 145.0
Gearing Rations
Total Debt to Equity - - - -
CASH FLOW STATEMENT Rs.mn
Y/E March FY09 FY10E FY11E FY12E
PAT 31382 41106 51420 66882
Depreciation &
Amortization3102 4226 5518 6879
Chg in Deferred tax (5024) (6423) (8034) (10450)
Chg in Working cap 12444 (13253) (10881) (16238)
Cash flow from
operations41904 25657 38022 47072
Chg in Gross PPE (7814) (18000) (19440) (20000)
Chg in WIP (4989) 1570 (2000) (3000)
Chg in Investments (441) 0 0 0
Chg in others (179) (412) 0 0
Cash flow from
investing(13423) (16843) (21440) (23000)
Chg in debt 542 - - -
Chg in Share Capital - - - -
Chg in reserves - 10 14 15
Dividend (9736) (10309) (10882) (11455)
Cash flow from
financing(9194) (10299) (10868) (11440)
Chg in cash 19287 (1485) 5714 12633
Cash at start 83860 103147 101662 107376
Cash at end 103147 101662 107376 120009
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Bharat Heavy Electricals Ltd.
Rating Scale
This is a guide to the rating system used by our Equity Research Team. Our rating system
comprises of six rating categories, with a corresponding risk rating.
Risk Rating
Risk Description Predictability of Earnings / Dividends; Price Volatility
Low Risk High predictability / Low volatility
Medium Risk Moderate predictability / volatility
High Risk Low predictability / High volatility
Total Expected Return Matrix
Rating Low Risk Medium Risk High RiskBuy Over 15 % Over 20% Over 25%
Accumulate 10 % to 15 % 15% to 20% 20% to 25%
Hold 0% to 10 % 0% to 15% 0% to 20%
Sell Negative Returns Negative Returns Negative Returns
Neutral Not Applicable Not Applicable Not Applicable
Not Rated Not Applicable Not Applicable Not Applicable
Please Note
enhanced our return criteria for such stocks by five percentage points.
Desk Research Call is based on the publicly available information on the companies we find interesting and arequoting at attractive valuations. While we do not claim that we have compiled information based on our meeting with
the management, we have taken enough care to ensure that the content of the report is reliable. Although we have
christened the report as Desk Research Calls (DRC), we intend to release regular updates on the company as is donein our other rated calls.
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