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10/11/10

Add Bharat Heavy Electricals; target of Rs 2572: IIFL - Moneycontrol.com -

Add Bharat Heavy Electricals; target of Rs 2572: IIFL - Moneycontrol.com -: "IIFL is bullish on Bharat Heavy Electricals (BHEL) and has recommended add rating on the stock with a target of Rs 2572 in its October 11, 2010 research report.

“Bharat Forge-Alstom (BFA) JV has emerged as the lowest bidder (L1) to supply supercritical turbine-generators for the 7.2GW (11x660MW) NTPC-DVC contract, edging out BHEL. As L2, BHEL will not lose out on volumes, because it still gets four sets as compared to five sets for L1. JSW-Toshiba JV as L3 gets two sets. But, the price point is determined by the need to match L1 and not by internal margin thresholds. The 3.3GW order provides BFA reasonable volumes to kick-start operations. Industry sources indicate that BFA would continue to bid competitively. Domestic competition in supercritical turbines would only increase, as L&T might bid for new projects more aggressively to make up for the lost opportunity in this tender.”"

“Prima-facie, the L1 pricing does not seem aggressive at Rs 13m/MW. Both BHEL and L&T have earlier won turbine orders at lower prices. Given differing specifications across tenders, it is difficult to make an apple-to-apple comparison. In the current order, BHEL’s margins would be lower than its own expectations, as it has to match L1. EBITDA margins post FY12 would be largely determined by gross margins, as growth decelerates and fixed costs move in line with revenues. Add Bharat Heavy Electricals with a 12 month target of Rs 2572,” says IIFL research report.

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