Dalal Street Investments

ABB + BHEL + Capital Goods Review from Credit Suisse

November 9, 2007

Credit Suisse continues to be optimisitc about the performance of Capital Goods Sector in India. Here are the top recommendations form the sector and their TARGET PRICES.

For ABB, around 33% of revenue and 43% of PAT accrue in the last quarter of the year. During the nine months ended September, ABB has registered revenue of Rs40.9 bn, which, extrapolated for the full year, is in line with our estimates. The stock is relatively stable and maintain OUTPERFORM rating with a DCF-based target price of Rs1,812.

BHEL is also seasonal in generating revenue. The first half generally accounts for 33% of the full-year revenue and around 22-25% of PAT. Expect the company to perform substantially well in the coming quarters, due to a combination of better execution momentum and implicit volume growth coming out of capacity addition, as the company moves from 6,000 MW to 10,000 MW by the end of 2007. Maintain OUTPERFORM rating with a DCF-based target price of Rs3,117.

Admittedly, BEML had a poor second quarter. However, rating call cannot be changed on a single quarter’s performance in isolation, and would wait and see how subsequent quarters pan out for the company. We expect BEML to perform in line with our expectation. BEML generates close to 35-40% revenue and around 25% PAT in the first half. Maintain OUTPERFORM rating with a DCF-based target price of Rs 1,851.

Crompton Greaves witnessed lower revenue growth. Management has been very sanguine on its margins since it is benefiting from the appreciation in the rupee and it expects the margin improvement shown to continue. We maintain our revenue estimates for the company, expecting margin expansion for the business, and we increase our FY08 and FY09 EPS estimates by 4.8% and 4.1%, respectively. Maintain our OUTPERFORM rating with a target price of Rs 475.

Neutral on Cummins India with a Price Objective of Rs 409. Cummins operates in an industry that is relatively more competitive than the space operated by the others.

Suzlon Energy has again given positive guidance and there is also implicit volume growth as it is doubling its earlier capacity expansion plans from 1,500 MW to 3,000 MW. We maintain our estimates and move towards a DCF-based target price of Rs2,385. There is a sum-of-theparts (SOTP) angle building up with the proposed listing of its gearbox subsidiary, Hansen Transmission. Other coverage on Suzlon Energy. Dipan Mehta says Suzlon’s next 4 quarters will be surprises and it was his Diwali pick.


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