India’s generation capacity additions are set to move from a 5GW/year over the last five years to a 14GW/year over the next five years. As the generation capacity addition opportunity grows in size, BHEL could make do with a 50–60% market share vis-a-vis the earlier 65 -70% market share to meet its growth target of 20% sales CAGR over the next five years.
BHEL is our top Indian electric equipment pick. Citi Increases target price to Rs1,923 (from Rs1,672 earlier) as we increase our target P/E multiple to 23x FY09E (20x FY09E earlier) on par with other Indian capital goods majors (L&T/ Suzlon). Our target multiple is well supported by EPS CAGR of 27% over FY07-10E with RoEs in the 25–30% range.
BHEL is expected to report a fully diluted EPS of Rs 66.33 and Rs 83.61 for FY2008 and FY2009 respectively.