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Reduce Bharat Bijlee – Kotak

May 12, 2008

Bharat Bijlee’s [BBL] numbers though good appears to indicate moderate growth.BBL reported 11% growth in Q4FY08 to Rs.1.9 bn. On a sequential basis, revenue growth was strong at 79% QoQ. In the third quarter, the company had suffered loss of production on account of the capacity expansion work being carried out at its facility. Hence, the fourth quarter also had some revenue spillover of the previous quarter.

BBL’s transformer division is currently operating at over 100% utilization and in view of this, it is in the process of raising its transformer capacity from 8000 MVA to 11000 MVA at its existing location at Kalwa.

BBL’s current order backlog stands at greater than Rs.3.5 bn, equivalent to ten months of estimated FY08 transformer revenues.

Bharat Bijlee is cash rich and the value of its equity investments is Rs.317 per share. The stock is currently trading at 16.2x and 14.4x FY09 and FY10 earnings, respectively. Kotak values Bharat Bijlee on a DCF basis with target price of Rs.2600 including Rs.480 in cash and investments. In view of limited upside, Kotak recommends a REDUCE on Bharat Bijlee Ltd.

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