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 Largest supplier of power equipment in India

 Caters to core sectors of the Indian Economy viz., Power
Generation & Transmission, Industry, Transportation, Renewable
Energy, etc.
 Wide product portfolio consisting of boilers, gas turbines,
fabric filters, steam generators and switch gears, among others.

 


 Fifth largest in generation capacity around the world

 Government reforms such as The Electricity Act and National Tariff Policy
will give the impetus to the Indian power sector.
 Challenges hindering the entry of new players
- Huge initial investments
- Issues while acquiring land
- Unavailability of skilled work force
- Huge losses while transmitting and distributing power
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Rs. 2416.45
(as on 11th Nov,2010)



 


Promoters Ȃ 67.7, MF/Banks Ȃ 15.7, FII,NRI,OCBs Ȃ 14.8, Indian public Ȃ 1.8

 
 
 
 
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Balance Sheet for last 5 years

Income Statement for last 5 years
Cash Flow Statement for last 5 years









 


 





g A publicly traded firm potentially has an infinite life. The value is therefore the
present value of cash flows forever.

g Since we cannot estimate cash flows forever, we estimate cash flows for a Dzgrowth
perioddz and then estimate a terminal value, to capture the value at the end of the
period.
 


  

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As per previous year trends,

EPS = Rs. 109.50(Expected in 2011), P/E = 23(Expected in 2011),
Intrinsic value of single share = 109.5 * 23 = Rs. 2518.5
With P/E ratio close to industry average of 26, the stock looks a .
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As per previous year and industry trends,

Book Value = Rs. 400 (Expected in 2011), P/B = 6.5 (Expected in 2011),
Intrinsic value of single share = 400 * 6.5 = Rs. 2600
Amongst its peers BHEL is having lowest P/B ratio meaning the stock is little
undervalued, stock looks a 
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For BHEL the net sales are growing at an average of 15%-20% since last few years. So
for the year FY2011 we can safely assume the sales will be around Rs. 40,000Cr.
Sales per share = Rs. 805 (Expected), P/S = 3.2 (Expected)



  of share would be = 805 * 3.2 = 
This Price to Sales ratio indicates that the stock is undervalued at this moment. So it
can be a at this market price.
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As per previous year trends,

We are predicting an increment in cash flow of 25% for the year FY2011.
Cash Flow per share = Rs. 140 (Expected)
P/CF ratio = 17.5 (Expected)



  of share would be = 140 * 17.5 = Rs. 
This ratio gives a measure of firmǯs financial health. The ratio for BHEL is improving
YoY. So the stock looks a from medium to long term point of view.
   
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g pividend Growth Model for a constant growth stock gives the estimation of the
present value of the stock price.
g  

!
"† r = Expected return on stock, g = Expected growth rate in
dividends
g For this stock the dividend return is more than 50% in FY2010 YoY. If the company's
dividend growth rate exceeds the expected return rate, we cannot calculate a value -
because you get a negative denominator in the formula. Stocks don't have a negative
value. In this case we are unable to predict by ppM model.
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With a very high revenue visibility and long term stability provided by immense power
sector opportunity in the country, we believe that piscounted Cash Flow
methodology is apt for valuing BHEL.

Using sensitivity analysis we find that for a terminal growth of 5%, we can expect the
intrinsic value of the stock to be in the range of Rs 2400 - Rs. 3200 for a WACC rate of
15% to 11%.




g 
$#££
 
- Robust revenue growth of 26.2% yoy to Rs. 8,491cr for 2QFY2011
- Net sales rose by 430bp yoy to 64.3%.
- Employee costs were down by 90bp to 15.2% of sales
- Order inflows for the quarter surged by 68.3% yoy to Rs.13,500.

g %
&



%
- Strong revenue growth of 28.3% yoy to Rs. 6,965cr for 2QFY2011
- Maintain a balanced order backlog
- Strategy of revenue portfolio spread across the power and industry division in
the ratio of 70:30
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)
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- Largest supplier of power equipment in India
- Wide product portfolio consisting of boilers, gas turbines, fabric filters,etc
- Only Indian player manufacturing large-size, gas-based power plant equipment
- Strong presence in the boiler turbine generator (BTG) category, which forms a
key part of the power plant.

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*%
&'

- Order inflows during 2QFY2011 increased by 68.3% yoy to Rs. 13,500cr
- BHEL received orders from its JVs with various SEBs for the supply of
supercritical BTG.
- NTPC-BHEL Power Projects Ltd (NBPPL) has committed Rs 200 crore by end of
March 31, 2011
- Front runner to receive a significant share of a bulk tendering order for 11
660MW sets, worth Rs 250 billion for complete turnkey in FY11.

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- Power equipment industry is undergoing structural changes post the increasing
preference for fuel-efficient and supercritical technologies.
- Indian companies have set up or have initiated the process of setting up local
manufacturing facilities in collaboration with leading international players.

g
 


- Long delivery schedules of BHEL.
- Chinese manufacturers on account of their large capacities and standardized product
offerings pose threat.
- Under the XIth plan ~49% of total orders have been delayed
 

g 
&
&
- Very strong with continued inflow of orders, streamlining of new capacities
that will aid volume growth, continued capacity addition in power sector
and expansion of transmission network.
- Stock is trading much below its 52week high
- Recommend !


g 
&
- Competition from companies such as L&T, JSW Energy which will start
their power equipment manufacturing operations.
- Not expected to increase its current market share in the long term.
- Recommend a 
  outlook.