Bharat Heavy Electricals
Cluster: Apple Green
Price target: Rs2,845
Current market price: Rs1,878
Conquering new frontiers
- According to media reports Bharat Heavy Electricals Ltd (BHEL) has been awarded the order to supply boiler package for National Thermal Power Corporation (NTPC)'s 1,320-megawatt (MW) Barh stage-II supercritical power project in Bihar. The value of the order has not been disclosed. The breakthrough in the supercritical space would help address the concerns over the company's capability to secure supercritical orders and beat competition.
- BHEL has a healthy order book. It has already won orders worth Rs10,583 crore or 3,345MW in Q4FY2008 so far. We expect the order inflow to remain buoyant especially for the projects based on the supercritical technology.
- The company has brought on stream an additional manufacturing capacity of 4,000MW during the current quarter, taking its total installed capacity to 10,000MW. The timely expansion of its manufacturing capacity augurs well for the company considering the favourable demand outlook across the globe.
- The robust order inflow and timely capacity expansion provide visibility to the company's future earnings. We continue to remain positive on the stock and reiterate our Buy recommendation on it with a price target of Rs2,845.
- We believe the recent correction in the stock and the concerns over the company's ability to secure supercritical orders are overdone. The stock's current valuations are extremely attractive. At the current market price it trades at 22.4x FY2009E and 16.5x FY2010E earnings. In terms of enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA), the stock trades at 15.5x and 11.1x its estimates for FY2009 and FY2010 respectively.