Kotak on BHEL

Sorry the BHEL coverage was left out in the earlier post. Kotak is bullish on the prospects of BHEL and has set a price target of Rs 1,550 on the stock.

While there are likely to be strong order inflows in the next two years Kotak believes that XIIth plan with skew towards private sector and supercritical configuration would pose challenges for BHEL. BHEL may lose market share as well as face pressure on margins because of (a) heightened competition, (b) change in project profile and (c) shift of power generation sector to a competitive tariff based bidding regime. With a market share (57% overall market share) and operating margins (18-19%), Kotak arrives at a value of Rs1,550/share, on DCF based target price to Rs1,550 (from Rs1,350 earlier) as we rollover to March 09 basis.