Buy BHEL; target of Rs 244: Firstcall Research

“Bharat Heavy Electricals Ltd is an integrated power plant equipment manufacturer and one of the largest engineering and manufacturing companies in India, which was established in the year 1964, ushering in the indigenous Heavy Electrical Equipment industry in India - a dream that has been more than realized with a wellrecognized track record of performance. BHEL is truly India’s industrial ambassador to the world. The Company engaged in the design, engineering, manufacture, construction, testing, commissioning and servicing of a wide range of products and services for the core sectors of the economy, viz. Power, Transmission, Industry, Transportation, Renewable Energy, Oil & Gas and Defence.”

“The company has 15 manufacturing divisions, two repair units, four regional offices, eight service centres, eight overseas offices and 15 regional centres and currently operates at more than 150 project sites across India and abroad. BHEL research and development (R&D) efforts are aimed not only at improving the performance and efficiency of existing products, but also at using state-of-the-art technologies and processes to develop new products. The high level of quality & reliability of products is due to adherence to international standards by acquiring and adapting some of the best technologies from leading companies in the world including General Electric Company, Alstom SA, Siemens AG and Mitsubishi Heavy Industries Ltd., together with technologies developed in the company own R&D centres. Most of manufacturing units and other entities have been accredited to Quality Management Systems (ISO 9001:2008), Environmental Management Systems (ISO 14001:2004) and Occupational Health & Safety Management Systems (OHSAS 18001:2007).”

“Bharat Heavy Electricals Ltd is an integrated power plant equipment manufacturer and one of the largest engineering and manufacturing companies in India, reported its financial results for the quarter ended 30 June, 2012. The first quarter witness a healthy increase in overall sales as well as profitability on account, the company has successfully commissioned new projects and robust infrastructural Support system. The company’s net profit jumps to Rs.9209.00 million against Rs.8155.10 million in the corresponding quarter ending of previous year, an increase of 12.92%. Revenue for the quarter rose 16.06% to Rs.84390.10 million from Rs.72714.60 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.3.76 a share during the quarter, registering 12.92% increase over previous year period. Profit before interest, depreciation and tax is Rs.15684.60 millions as against Rs.13618.80 millions in the corresponding period of the previous year.”

“At the current market price of Rs 212, the stock P/E ratio is at 6.55 x FY13E and 5.93 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.32.36 and Rs.35.73 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 13% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 4.17 x for FY13E and 3.79 x for FY14E. Price to Book Value of the stock is expected to be at 1.56 x and 1.23 x respectively for FY13E and FY14E. BHEL had won the turnkey contract for setting up the Gas Turbine-based CCPP against International Competitive Bidding (ICB) from Pragati Power Corporation Limited (PPCL). The first quarter witness a healthy increase in overall sales as well as profitability on account of powerful combination of exciting products, an enhanced new projects and robust infrastructural Support system. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs 244 for medium to long term investment,” says Firstcall Research report.

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