BHEL, Buy

BHEL, Buy

Orders spree continues

Price Rs1878 Target Price Rs3,300

BHEL has secured a mega contract for setting up 2 units of 500 MW each at Anpara D Thermal Power Station (TPS) in Uttar Pradesh and the order value stands at Rs33.9 bn . Apart from this order, BHEL has also won the Rs8.66 bn captive power plant order from Reliance Industries and Rs24.75 bn 600 mw order from TNEB. This takes the tally of orders to Rs67.3 bn won in the month of Jan and February 2008. With BHEL already being the sole bidder for NTPC Barh stage II 660X2 MW plant and with the order 800X2 MW from of its JV with TNEB we believe that the short-medium term order flow momentum will be strong for BHEL. During the recent price correction, BHEL valuation has taken a hit close to 25-30%. We believe that such pessimistic outlook on the stock is unjustified. We remain positive on BHEL and believe that the concern on the street regarding BHEL’s ability to bag supercritical set orders and addressing competition is overdone. We believe that the company is heading in a right direction for addressing the supercritical market and it’s just a matter of time that BHEL bags its first supercritical order and significantly allay street fears. At current levels the stock is trading at 16.7 X its FY2010 earnings and 10.6X its FY2010 E EBIDTA. We believe the valuations are attractive keeping in mind the order backlog in excess of Rs850 bn (including new order), which provides significant earnings visibility.

MK, 11 February 2008, Sensex 16,631