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Kotak Upgrades BHEL to Outperform

August 20, 2007

With strong order book and continued flow, Kotak Securities has upgraded the stock of BHEL to Outperfrom and set a target price of Rs 1,825.

BHEL has received orders for two supercritical units of 800 MW each at OBRA power station. BHEL is also picking up a 50% equity stake in the project, which may have tilted the scales in its favor. Ordering activity for XIth plan requirements is very strong, with BHEL winning orders for 7,850 MW in FY2008 so far. BHEL could have near-term order inflows of about 19,819 MW for the XIth plan projects that have not been ordered yet, based on the market share that BHEL has recorded so far in the XIth plan projects.

Kotak revises earnings estimate for FY2008E and FY2009E to Rs65.9 (from Rs61.4 earlier) and Rs82.4 (from Rs74.2 earlier). Sales during the same period is expected to be Rs 221 bn and Rs 268 bn with EV/EBITDA of 13.6 and 10.7 respectively. They set a target price of Rs1,825 based on DCF model.

Citigroup has a target price of Rs 1,923 on BHEL.

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