KRChoksey is bullish on Bharat Heavy Electricals (BHEL) and has recommended buy rating on the stock with a target of Rs 2600 in its June 26, 2011 research report.
“BHEL has changed its accounting policy in FY11 in terms of revenue recognition, warranty provisioning and depreciation, resulting in an addition of Rs. 2772.8 crore to the revenue and Rs. 695.5 crore to PBT. Company has clarified that change is not an accounting engineering but shift towards IFRS accounting standards and net changes include the impact of prior accounting periods. In our opinion, there is nothing wrong in the BHEL’s accounting policy; it’s only that company has been conservative in the past.”
“BHEL’s management has stated that Alstom-Shanghai JV will not impact its prospects as it has exclusive contract with Alstom to manufacture and sell boilers in India till 2020. So, Alstom cannot sell in India even through its JV with shanghai electric. BHEL has order book of 65,000 MW of BTG equipment at the end of FY11, giving it a visibility for next 3-4 years. Further, by FY14-FY15 ordering for 13th plan will start, where the opportunity is expected to the tune of 1.5 lakh MW. Company has guided for the order inflows of Rs. 66,550 crore in FY12, about 16-17 GW of BTG orders. As for the topline growth, management has indicated that their internals targets are 20% and revenue in excess of Rs. 50,000 crore. Material cost as a percentage of sales will be at the same level as FY11 on the back of cost cutting, localisation of technology and efficient sourcing of raw materials.”
“BHEL’s valuations have compressed by ~28% in last 4 quarters on the concerns of order inflows and intensifying competition from both domestic and Chinese players. Some of these concerns are overdone in our view and stock currently offers a favorable risk reward opportunity. Near term catalyst are (a) 30% increase in capacity by FY12, which will bring operating leverage in play and (b) NTPC bulk tendering. At the CMP of Rs. 1,950 stock is current trading at 5 year historical trough P/E of 14.7x. We maintain ‘BUY’ recommendation with a 12-months target price of Rs 2600,” says KRChoksey research report.
Source : moneycontrol.com
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