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BHEL – Electrifying Order Book and Future

January 24, 2011

BHEL reported 3QFY11 net sales of Rs88.5bn up 25% YoY, EBITDA margins of 21.4% up 126bps YoY, and PAT of Rs14bn up 31% YoY. Adjusting for the change in accounting, Adj. PAT at Rs13.4bn was up 25% YoY, 10% ahead of CIRA and 4% ahead of consensus.

Quality of earnings was better with 21% fall in treasury income. Rep PAT Rs14bn +31%YoY on Rs603mn profit on change in method of calculation of % completion. Overall, BHEL had a better 3Q v/s L&T with margin expansion and lower treasury. To contain run-away margins, BHEL made Rs1bn prov. for liquidated damages. Rec. PAT +21%YoY despite +39% depreciation and 21% lower treasury income.

BHEL has won Rs365bn of orders in 9mFY11 implying a 4QFY11 requirement of Rs235bn. The company will win at least
5X660MW NTPC-DVC boilers (Rs46bn) in 4Q and the company will capture orders for 4X660MW NTPC-DVC turbines (Rs29bn) in 4Q,.

BHEL is expected to report an EPS between Rs 120 and Rs 139 [Consensus is 138] for FY 2012 according to various research estimates who have put a 12 month price target for the stock between Rs 2300 to Rs 2800.

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