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7 November 2015
2QFY16 Results Update | Sector: Capital Goods
BHEL
Ankur Sharma ([email protected]); +91 22 3982 5449 Amit Shah ([email protected]); +91 22 3029 5126
BSE SENSEX S&P CNX CMP: INR192 TP: INR215 (+12%) Neutral 26,265 7,954 Bloomberg BHEL IN Equity Shares (m) 2,447.6
M.Cap. (INR b) / (USD b) 470/7.3 52-Week Range (INR) 300 / 184 1, 6, 12 Rel. Per (%) -1/-14/20 Avg Val (INRm) 1073 Free float (%) 36.9
Financials & Valuation (INR Billion) Y/E MAR 2015 2016E 2017E
Net Sales 301.8 279.4 327.8 EBITDA 21.0 14.8 33.8
PAT 14.3 13.5 26.4 EPS (INR) 5.8 5.5 10.8 EPS Gr. (%) -58.8 -5.8 96.3
BV/Sh. INR 139.3 143.5 151.8 RoE (%) 4.3 3.9 7.3 RoCE (%) 4.3 3.9 7.1
P/E (x) 34.4 36.5 18.6 P/BV (x) 1.4 1.4 1.3
Estimate change
TP change
Rating change
2QFY16 performance significantly below estimates. Revenues at INR58b (down 3.4% YoY, in-line with estimates) and EBIDTA margins at negative 8.1% (significantly lower than estimates of 4.4%); Gross margins at 34.2%(-10% YoY) on the back of lower realizations and higher share of super critical orders). PBT loss at INR3.3b while PAT loss of INR2.0b helped by a tax write back of INR1.3b. Our estimate of PAT was at INR2.9b
Gross margins at 34.2% (-10% YoY) are lowest in a decade. The steep fall in gross margins driven by two factors: a) 65% of power segment sales during the quarter (55% in Q215) were for super critical equipment where most customers insist for a Joint Deed of Undertaking (JDU) from BHEL and its technology collaborators (Alstom for Boilers and Siemens for TG) to guarantee the equipment. BHEL earns lower margins on these orders since it has to buy ~15-20% of the order size from its collaborators. In our view, the downward pressure on margin may continue since ~45% of BHEL’s Power order book is composed of super critical orders with most having a JDU. b) Lower realization as a result of intense competition to bag orders during the last few years.
L1 in 8.3GW of orders; limited visibility on orders in FY17/18, in our view. BHEL is L1 in 8.3GW of orders and expects to cross INR500b in orders in FY16 (MOSL estimate at INR490b). However, we see limited visibility on orders in FY17/18
Valuations and view; cutting estimates, target price and rating. To factor in the miss in Q216 results and given the constrained execution (35% of order book is slow moving), expectations of continued margin pressure and limited visibility on orders in FY17/18, we cut our FY16 earnings estimates by 39% and FY17 estimates by 28%. We cut our rating to Neutral with a target price of INR215/share (P/E of 20x FY17E).
Investors are advised to refer through disclosures made at the end of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
7 November 2015 2
BHEL
2QFY16 results significantly below estimates BHEL reported weak 2QFY16 operational performance: Revenues at INR58b
(down 3.4% YoY, in-line with estimates) and EBIDTA margins at negative 8.1% (significantly lower than estimates of 4.4%); impacted by significant drop in gross margins. PBT loss at INR3.3b while PAT loss of INR2.0b helped by a tax write back of INR1.3b. Our estimate of PAT was at INR2.9b
Gross margins fell 10% YoY to 34.2% impacted by execution of low margin super critical orders and pricing pressures as a results of intense competition in a weak environment.
65% of the power segment sales during the quarter (vs. 55% in Q215) were composed of super critical orders, a majority of which have been taken under a Joint Deed of Undertaking (JJDU) with BHEL’s technology collaborators (Alstom for Boilers and Siemens for TG). Under the JDU route, the technology collaborators guarantee the performance for the equipment along with BHEL; however, this also implies that BHEL has to source components from these suppliers and since these have a high imported content, this has led to weaker margins for BHEL. Since most central and state utilities demand a JDU for super critical equipment, the pressure on margins may not be a one off event, in our view. We do note that BHEL has completely indigenized manufacturing of SC boilers/TG – the JDU clause can be removed in case of an operational SC power plant for two years and BHEL has commissioned 800MW SC boilers for AP Genco, Krishnapatnam(FY14), NTPC Barh 2(2*660MW, FY14) and Bajaj Lalitpur(3*660MW, FY16). It intends to work with the Mininstry of Power and NTPC to remove the JDU clause in the future orders. ~45-50% of BHEL’s current order book is composed of super critical orders (most with a JDU clause in our view) and these orders are likely to see margin pressures during execution. The share of super critical orders is likely to increase further (65% as per management) as CEA has stopped issuing clearances for sub critical projects.
Another reason for the fall in margins during the quarter is due to pricing pressure as a result of BHEL’s aggressive stance to take market share. While BHEL has been able to sustain market share at 70-75% over the last few years, this may have come at the cost of margins. Industry orders during FY12-15 had fallen to ~6-8GW with only FY13 seeing ~15GW of orders due to NTPC bulk tenders and this coincided with a sharp increase in the no. of private players setting up BTG manufacturing capability in India. This lead to a sharp fall in prices for BTG/EPC equipment by ~15% over the same period. Even though industry orders in FY16 are expected to bounce back to ~15-18GW, there has not been any material improvement in pricing given that the industry capacity continues to be ~25GW.
Staff cost at INR14.8b in 2QFY16 (down 7.1% YoY) have been supported by employee retirements with employees at 43,273 vs. 44,905 at the start of the year. The management has stated that the retirements will be 2,200+ employees in FY16 (vs 2,657 in FY15); however, overall staff costs are guided to remain flat YoY.
Other expenses at INR10b (+24% YoY) primarily on higher provisioning for LD’s with net provision provided during the quarter at INR2b vs INR0.4b provided during Q215.
7 November 2015 3
BHEL
Exhibit 1: Revenues down 3.2% YoY on a declining order book and execution constraints
Source: MOSL, Company
Exhibit 2: Gross margin impacted led by execution of SC orders and pricing pressure%)
Source: MOSL, Company
Segmental performance: Execution remains constrained on slow moving/ stranded projects which now stand at INR370b 2QFY16 Power segment revenues at INR48.5b were up 2.5% YoY, while industry
segment revenues were down 15% YoY at INR13.4b. Power sector revenues have been impacted given weak execution due to lack of regulatory clearances, local issues, delays in payment / LCs, uncertainty surrounding coal block de-allocations, etc. The management stated that execution continues to remain sluggish, with stranded projects at ~INR370b, ~35% of BHEL’s power segment order book. A resolution of the stranded orders is unlikely to happen any time soon and a restart of execution on these orders is still a couple of quarters away.
BHEL had won three large orders from Telengana State Genco. In Q415/Q116 at Manuguru(4*270MW, Rs50b), Kothagudem(800MW, Rs38b) and Yadadri(5*800MW, Rs180b). Execution on Kothagudem has started with all clearances already in place. For Manuguru, the EC is still awaited but BHEL has begun execution at the behest of the state government. However, for Yadadri since the advance payment has not been received, work is yet to commence. The advance payment is likely to come through only post the project is given EC and this may take some more quarters. A material pick up in execution from the Telengana projects is likely to start only in FY17.
The Industry business has failed to provide support, given the dependence on captive power (50%+ of revenues); also the traction in transportation segment has been much below expectations given the delayed decision making in Railways. Margins have been impacted given the increased revenue contribution from projects.
87
93
186
74
108
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202
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110
105
199
67
93
89
154
53
63
64
130
45
58
26
25 32
10
24
19 24
17
1 -5 -2
-24 -1
5 -1
6 -2
2 -2
0 -3
2 -28 -1
6 -1
6 -3.2
2QFY
113Q
FY11
4QFY
111Q
FY12
2QFY
123Q
FY12
4QFY
121Q
FY13
2QFY
133Q
FY13
4QFY
131Q
FY14
2QFY
143Q
FY14
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
16
Revenues(INR b) Revenue growth (% YoY)
42.3
41
.5
46.7
50
.8
42.5
41
.6
43.6
43
.3
42.4
41
.9
43.9
44
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43.7
40
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43.5
42
.3 49
.6
44.1
46
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40.4
43
.9
34.2
1QFY
112Q
FY11
3QFY
114Q
FY11
1QFY
122Q
FY12
3QFY
124Q
FY12
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
Gross Margin
7 November 2015 4
BHEL
Exhibit 3: Segmental breakup INR m FY14 FY15 FY16
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q Revenues 66,712 93,156 89,195 154,316 52,772 63,193 63,555 129,951 45,007 61,933 Power 53,786 75,764 73,196 122,108 41,442 47,370 48,624 102,401 33,571 48,453
Growth (%) -20.5 -15.4 -11.9 -21.4 -23 -37.5 -33.6 -16.1 -19 2.5 Industry 12,926 17,392 15,999 32,208 11,331 15,824 14,931 27,550 11,436 13,390
Growth (%) -34.4 -15.4 -28.5 -25.8 -12.3 -9 -6.7 -14.5 1 -15.4 EBIT 8,899 10,942 14,402 29,622 5,645 6,955 4,651 15,782 2,191 (713) Power 7,589 10,984 12,084 23,354 5,250 6,661 4,587 13,119 2,162 (2790
Growth (%) -37.1 -37.9 -20.6 -42.5 -30.8 -39.4 -62 -43.8 -58.8 (104.2) Industry 1,311 -42 2,318 6,268 395 295 64 2,664 29 (434)
Growth (%) -68.3 -101 -43.3 -33.1 -69.9 -798.6 -97.2 -57.5 -92.7 (247.3) EBIT margin (%) 13.3 11.7 16.1 19.2 10.7 11 7.3 12.1 1.3 (3.8) Power 14.1 14.5 16.5 19.1 12.7 14.1 9.4 12.8 6.4 (0.6) Industry 10.1 -0.2 14.5 19.5 3.5 1.9 0.4 9.7 0.3 (3.2)
Exhibit 4: Stranded and slow moving orders in the order book Name of Power Project Customer MW Surana Power, Raichur TPP Surana Power 420 Malibrahmani, Angul TPP Monnet Ispat 1,050 Singraulli DB Power 1,320 Inddibulls Nashik Phase II Rattan India (Phase II) 1,350 Ramgarh CPP RRVUNL 1,320 Usha Jayaswal TPP Abhijeet Infra Phase 1 1,080 Raghunathpur DVC 1,320 Ennore SEZ TANGEDCO Ennore 1,320 Yedadri Thermal Power Project ** Telanagana State Genco 4,000 Chattisgarh Visa Power 1,200 Total 13,180
Source: MOSL, Company **the project is yet to reach the start date since no advances have been received
Order intake at INR23.5b in 2QFY16 (vs INR129.5b in 2QFY15), L1 pipeline robust at 8.3GW+ ; limited visibility for FY17/18 During 2QFY16, BHEL’s order intake stands at INR23.5b vs INR129.5b in 2QFY15.
Post 2QFY16, BHEL has received orders worth INR46b of 1.6GW for AP Genco’s Krishnapatnam(1x800MW) and Vijawada(1x800MW) projects .
Order backlog at the end of 2QFY16 stood at INR1123b, up 8% YoY. No key orders were finalised in the Power sector whereas Industry segment order intake stood at INR23b (Solar plant EPC, Transformers, CPP-STGs, etc).
BHEL is L1 in 8.3GW+ projects, comprising of i) 2,640MW NTPC Barethi (BTG+Aux), ii) 500MW Tuticorin (BTG, INR12b) iii) 1GW of Pakal DUL Hydro power with Patel Engg (~INR90b JV share, BHEL likely at INR10b) iv) 660MW Mahagenco Bhusawal (EPC) v) Sole bidder for 250MW Rourkela CPP, v)NTPC Kareemnagar Boiler(2*800MW), vi)NTPC Pudimadka TG(4000MW) etc... This compares with project awards of 5.3GW to BHEL in FY15 / 4G in 1QFY16, and thus the pipeline looks encouraging.
BHEL’s order intake had declined from peak levels of ~INR600b in FY10/FY11 to average levels of INR280b in FY12-15 BTG pipeline is showing signs of a strong
7 November 2015 5
BHEL
recovery in FY16 with projects of ~18-20GW likely to be awarded in FY16. This is meaningfully higher than project awards of 6.3GW in FY14 / ~7-8GW in FY15. However, we see a limited pipeline of 18GW of orders going into FY17-18 unless orders for UMPP’s start coming through.
Exhibit 5: Order intake has been muted in 2Q, led by delay in finalization of orders
Source: Company
Exhibit 6: BTB has witnessed a cyclical uptick to 3.8x in 2QFY16
Source: Company
Exhibit 7: Potential Pipeline of ~18GW to be awarded over next 2-3 years, largely from the Central / State sector (excludes orders where BHEL is already L1) Project Owner Sector Cap (MW) Comments Udangudi TN Genco State 1,320 Katwa NTPC Central 1,320 Ramagundem NTPC Central 1,600 Lakhisarai Bihar (26%) - NTPC (74%) Central 1,320 Maitree Project NTPC Bangladesh 1,320 Ghatampur Neyveli Central 1,980 Pirpainty Bihar (26%) – NHPC (74%) Central 1,320 Gorakhpur Nuclear Power Central 1,400 Nuclear Chandrapur Mahagenco State 1,320 Koradi Mahagenco State 1,980 Latur Mahagenco State 1,320 Panipat Thermal (Unit 9) Haryana State 660/800 Orba Extension UPRUVNL State 600 Potential Pipeline ~18,000
Source: MOSL, Company
BTB inches to 3.8x in 2QFY16 (vs lows of 2.2x in Sept 13): a key trend driving cyclical factors For 2QFY16, BHEL’s BTB stood at 3.8x (from lows of 2.2x in Sept 13). Also, Power
segment BTB is expected to bounce back to 4.3x in FY16. We believe that improvement in BTB is an all-important trend for capital goods
companies, and has ramifications on several cyclical components including working capital, operating free cash flows and operating leverage.
108 13
5 12
8 23
3 25
14
3
68
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20
210
15
30 72
16
3 11
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9 66
101
197
2.4
1QFY
112Q
FY11
3QFY
114Q
FY11
1QFY
122Q
FY12
3QFY
124Q
FY12
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
Order intake (INR b)
1,43
8 1,
480
1,54
0 1,
580
1,64
1 1,
596
1,61
0 1,
465
1,34
7 1,
330
1,22
3 1,
137
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2 1,
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3 1,
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6 97
4 1,
037
1,03
9 1,
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1,16
2 1,
123
4.2
4.2
4.2
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3.8
3.6
3.5
3.1
2.7
2.6
2.4
2.2
2.3
2.3
2.2
2.2 2.
5 2.
5 2.9
3.1 3.
3 3.9
3.8
4QFY
101Q
FY11
2QFY
113Q
FY11
4QFY
111Q
FY12
2QFY
123Q
FY12
4QFY
121Q
FY13
2QFY
133Q
FY13
4QFY
131Q
FY14
2QFY
143Q
FY14
4QFY
141Q
FY15
2QFY
153Q
FY15
4QFY
151Q
FY16
2QFY
16
Order book (INR b) Book-to-bill ratio ( x TTM)
7 November 2015 6
BHEL
Exhibit 8: BHEL has expanded power sector offerings meaningfully over past three years Year Increased Offerings, Technology Licensing’s, etc FY14 Commissioned Critical piping / Heavy Boiler parts factory at Trichy FY14 Super critical boiler which can switch 100% indigenous / imported coal FY13 Expand offerings in nuclear for BOP, Control centre instrumentation etc FY13 Marketing of Coal Handling & Ash Handling Plants as independent systems FY13 Enterprise Framework Agreement with Shell for Gas Turbine Generator FY13 Technology Licensing with Mitsubishi Heavy Inds, Japan for Flue Gas Desulphurization FY12 Introduced new ratings 300MW sets FY12 Technology Licensing with GE India Industrial for Water Management System FY12 Stabilization of CFBC boiler technology (250MW /125MW boilers) FY12 Developing Power plant EPC capabilities
Source: MOSL, Company
New initiatives/expansion plans: Solar / Defence / Railways opens up interesting possibilities MoU with Solar Energy Corporation, PGCIL, SJVNL, Sambhar Salts and Rajasthan
Electronics for setting up a 4GW Ultra Mega Solar Power Project at Sambhar, Rajasthan. Also, BHEL has plans to set up an integrated manufacturing facility for 480MW Solar PV systems (Wafers-Cells-Modules) at a capex of INR24b (of which 40% will be funded through capex subsidy). BHEL intends to be an integrated player in the solar equipment value chain, including inverters / substations, etc. The management believes that the Cabinet approval for capital subsidy payment is expected shortly. In solar, BHEL has also received orders for 51MW of EPC projects from NTPC (~INR3.5b) and the targeted execution in FY16 is 100MW.
In Dec 2014, BHEL, Hindustan Shipyards and Mishra Dhatu Nigam came together to form a consortium to bid for the construction of six Scorpene submarines.
Separately, the company is also bidding for the naval gun systems, and the order could be finalized in FY16.
BHEL is also bidding for the railway tender to set up manufacturing facilities for electric and diesel locos, in tie-ups with MNC players. The company has also tied up with Kawasaki and Toshiba for bidding for 15 train sets, of which 13 will be manufactured in India (under Make in India initiative).
BHEL is expanding the power sector portfolio by
adding Flue-Gas Desulphurization, Water
Management System, Air Cooled Condenser and other Balance of Plant
Systems
7 November 2015 7
BHEL
Valuations and view To factor in the sharp decline in margins in Q216, continued execution challenges from slow moving order which now stands at ~35% of power order book and limited visibility on orders in FY17/18, we cut our FY16 estimates by 39% and FY17 estimates by 28% and expect BHEL to report EPS of INR5.5 in FY16E, INR10.8 in FY17E. At the CMP of INR192/sh, the stock quotes at PER of 37x FY16E/ 19x FY17E. We reduce our rating to Neutral with a target price of INR215/sh (PER of 20x FY17E). Our target multiple of 20x is based on average one-year forward PER during FY06-11, a period when the power sector ordering was relatively robust. Key Triggers Sharp pick up in projects awards in FY17/FY18 from the public and private sector
utilities. However, this appears to be highly unlikely given the poor balance sheet strength of most IPP’s.
Successful coal mine auctions, sustained ramp up in Coal India production. Lower than expected increase in salaries as a result of the Pay Commission
recommendations. Key risks/variables The key variable to watch out is the impact of Pay Commission’s implementation
in FY17 and could be a vital swing factor. BHEL is trying to mitigate part of the impact by productivity improvements /operating leverage over the medium term.
Another variable is the uncertainty on coal block de-allocations and mine auctions, which could delay the order pipeline and impact execution in the interim period.
Exhibit 9: Revision of Estimates New Estimates Old Estimates YoY Change(%)
FY16E FY17E FY16E FY17E FY16E FY17E
Sales 271,342 319,610 280,306 333,356 -3% -4%
EBITDA 14,758 33,766 22,589 38,497 -35% -12%
Margin (%) 5.40% 10.60% 8.10% 11.50% -3% -1%
PAT 13,467 26,441 22,016 37,032 -39% -29%
EPS 5.5 10.8 9 15 -39% -28%
Source: MOSL, Company
7 November 2015 8
BHEL
BHEL: Operating metrics
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Order Intake (INR b)
Power 90 245 387 444 401 443 176 226 175 211 385 342
R&M 19 32 24 28 19 21 23 29 34 38 42 46
Industry 47 60 69 92 135 114 79 45 50 52 52 63
International Business 33 19 23 33 36 37 2 20 26 7 8 9
Cancellations - - - - - - 58 - - - - -
Total Order Intake 189 356 503 597 590 605 221 319 285 308 487 459
% YoY 4% 88% 41% 19% -1% 2% -63% 45% -11% 8% 58% -6%
Segmental Revenues
Power 98 127 159 213 269 348 379 396 325 240 235 285
Industry 37 50 44 56 57 90 102 106 79 70 49 50
International Business 145 187 214 280 342 450 495 502 403 309 284 335
Total Revenues 98 127 159 213 269 348 379 396 325 240 235 285
EBITDA Margins (%) 18.9 20.4 18.9 15.7 17.7 19.9 20.3 19.4 11.6 7.0 5.3 10.5
Contribution Margins (%) 43.3 43.3 44.4 38.5 40.4 40.3 41.5 43.5 42.4 43.9 41.0 41.5
Staff Costs (%) 13.7 13.9 15.8 15.4 15.7 13.5 11.4 5.2 3.1 (8.2) (6.0) (0.3)
Other Expenses (%) 10.7 9.0 9.7 7.4 6.9 9.5 9.4 12.2 15.7 18.9 14.9 13.4
Employees (in 000) 42.6 42.6 42.1 43.6 46.3 46.7 49.4 48.4 47.5 44.9 42.2 40.1
INR M/empl 0.0 0.0 0.0 0.0 0.0 0.0 1.1 1.2 1.2 1.2 1.2 1.3 Cash / (Debt), INR B
Cash 41 58 84 103 98 96 67 77 119 98 145 126
Retention Money 12 27 28 42 68 97 135 129 181 202 182 164
Debt -6 -1 -1 -1 -1 -1 -1 -14 -27 -1 -1 -1
Net Cash / (Debt) 47 84 111 144 164 192 200 192 273 300 327 2879
INR/sh 19 34 45 59 67 79 82 79 112 122 133 118
Net Profit (INR B) 17 24 25 36 47 57 69 66 35 14 13 26
EPS (INR / sh) 6.9 9.9 10.3 14.6 19.2 23.2 28.2 27.0 14.2 5.8 5.5 10.8
ROE (%) 23.0 27.5 23.3 27.6 29.4 28.1 27.2 23.7 10.9 4.3 3.9 7.3
7 November 2015 9
BHEL
Financials and valuations
Income Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E Total Income 333,545 404,443 479,788 484,247 391,089 301,830 279,390 327,769 Change (%) 25.4 21.0 18.8 0.9 -19.2 -22.8 -7.4 17.3 Staff Cost 52,432 54,769 54,654 57,528 59,338 54,500 51,230 51,589 Mfg. Expenses 198,857 230,816 280,845 273,552 225,188 169,205 164,772 191,665 Selling Expenses 23,059 38,325 45,213 59,262 61,363 57,133 48,630 50,749 EBITDA 59,196 80,532 99,076 93,905 45,200 20,992 14,758 33,766 Change (%) 40.3 36.0 23.0 -5.2 -51.9 -53.6 -29.7 128.8 % of Net Sales 17.7 19.9 20.6 19.4 11.6 7.0 5.3 10.3 Depreciation 4,580 5,441 8,000 9,534 9,829 10,773 11,057 11,831 Interest 335 547 513 1,253 1,326 917 200 200 Other Income 11,549 10,206 12,656 11,217 16,160 12,205 15,204 16,038 Extra-ord. Items (net) 73 5,305 -193 -4 -61 -101 0 0 PBT 65,903 90,055 103,026 94,331 50,144 21,406 18,705 37,773 Tax 22,800 29,945 32,623 28,184 15,535 7,210 5,237 11,332 Rate (%) 34.6 33.3 31.7 29.9 31.0 33.7 28.0 30.0 Reported PAT 43,103 60,110 70,403 66,147 34,608 14,196 13,467 26,441 Adjusted PAT 46,839 56,650 68,922 66,152 34,669 14,297 13,467 26,441 Change (%) 31.3 20.9 21.7 -4.0 -47.6 -58.8 -5.8 96.3 Balance Sheet (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E Share Capital 4,895 4,895 4,895 4,895 4,895 4,895 4,895 4,895 Reserves 154,278 196,643 248,837 299,546 325,575 335,951 346,345 366,754 Net Worth 159,174 201,538 253,732 304,441 330,471 340,846 351,240 371,649 Loans 1,278 1,021 1,234 14,152 26,548 610 610 610 Differed Tax Liability -15,272 -21,636 -15,462 -15,507 -19,690 -22,207 -22,207 -22,207 Capital Employed 145,179 180,924 239,504 303,086 337,329 319,249 329,643 350,051 Gross Fixed Assets 65,801 80,497 97,066 108,247 120,734 125,910 134,292 144,125 Less: Depreciation 41,647 46,488 54,098 63,281 73,604 84,510 95,567 107,398 Net Fixed Assets 24,154 34,009 42,968 44,966 47,131 41,400 38,725 36,727 Capital WIP 15,296 17,338 13,476 11,335 6,220 5,010 5,010 5,010 Investments 798 4,392 4,617 4,292 4,202 4,350 4,400 4,450 Curr. Assets 429,348 515,229 591,237 625,185 650,670 611,704 583,666 622,065 Inventory 92,355 108,521 135,487 117,638 97,976 101,017 93,506 109,698 Debtors 206,888 274,656 357,405 398,882 399,530 376,373 333,083 372,798 Cash & Bank Balance 97,901 96,302 66,720 77,321 118,729 98,127 145,354 126,486 Loans & Advances 28,137 32,654 30,118 29,345 31,910 34,437 9,972 11,332 Other Current Assets 4,069 3,096 1,506 2,000 2,525 1,750 1,750 1,750 Curr. Liab. & Prov. 324,417 390,043 412,794 382,692 370,893 343,215 302,157 318,200 Creditors 75,798 80,526 108,717 103,562 94,090 94,260 79,065 82,594 Other Liabilities 204,439 224,790 218,656 189,708 173,543 138,551 120,895 115,713 Provisions 44,180 84,728 85,421 89,421 103,260 110,404 102,196 119,892 Net Current Assets 104,931 125,186 178,443 242,494 279,777 268,489 281,509 303,865 Appli. of Funds 145,179 180,924 239,504 303,086 337,329 319,249 329,644 350,052 E: MOSL Estimates
7 November 2015 10
BHEL
Financials and valuations
Ratios Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E Basic (INR) EPS 19.1 23.1 28.2 27.0 14.2 5.8 5.5 10.8 Change (%) 31.3 20.9 21.7 -4.0 -47.6 -58.8 -5.8 96.3 Cash EPS 21.0 25.4 31.4 30.9 18.2 10.2 10.0 15.6 Book Value 65.0 82.3 103.7 124.4 135.0 139.3 143.5 151.8 DPS 4.7 6.2 6.4 5.4 2.8 1.2 1.1 2.2 Payout (incl. Div. Tax.) 26.5 25.4 22.3 20.0 20.0 19.9 20.0 20.0 Valuation (x) P/E 11.5 7.4 14.2 34.4 36.5 18.6 Cash P/E 10.3 11.1 11.1 19.6 20.1 12.9 EV/EBITDA 7.3 4.6 8.8 18.8 23.5 10.8 EV/Sales 1.5 1.1 1.3 1.4 1.1 1.0 Price/Book Value 3.1 1.6 1.5 1.4 1.4 1.3 Dividend Yield (%) 3.0 2.7 1.4 0.6 0.5 1.1 Return Ratio (%) RoE 29.4 28.1 27.2 23.7 10.9 4.3 3.9 7.3 RoCE 45.6 47.1 43.3 21.0 10.0 4.3 3.9 7.1 Turnover Ratios Debtors (Days) 221 241 263 301 373 455 435 415 Inventory (Days) 103 100 105 89 91 122 122 122 Creditors. (Days) 84 77 83 78 88 114 103 92 Asset Turnover (x) 8.3 7.7 8.4 8.6 7.3 6.5 6.4 7.9 Leverage Ratio Debt/Equity (x) -0.8 -0.6 -0.5 -0.2 -0.3 -0.3 -0.4 -0.3 Cash Flow Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E PBT bef. EO Items 65,830 84,750 103,218 94,331 50,144 21,406 18,705 37,773 Add : Depreciation 4,580 5,441 8,000 9,534 9,829 10,773 11,057 11,831 Less : Direct taxes paid 22,800 29,945 32,623 28,228 19,718 9,728 5,237 11,332 (Inc)/Dec in WC -54,151 -36,596 -78,991 -53,449 4,126 -9,314 34,207 -41,224 CF from Operations 21,345 36,198 -4,588 22,187 44,381 13,137 58,731 -2,952 EO Income 73 5,305 -193 0 0 0 0 0 CF from Op. Incl. EO Items 21,418 41,503 -4,780 22,187 44,381 13,137 58,731 -2,952 (Inc)/dec in FA -17,756 -17,339 -13,097 -9,390 -6,879 -3,833 -8,382 -9,833 Free Cash Flow 3,589 18,860 -17,685 12,797 37,502 9,304 50,350 -12,785 (Pur)/Sale of Investments -275 -3,593 -225 325 90 -148 -50 -50 CF from Investments -18,031 -20,932 -13,322 -9,065 -6,789 -3,981 -8,432 -9,883 (Inc)/Dec in Networth 3,135 -6,369 6,169 28 -475 -583 0 0 (Inc)/Dec in Debt -216 -256 213 12,918 12,396 -25,938 0 0 Dividend Paid 11,216 14,999 17,960 15,466 8,104 3,237 3,073 6,033 CF from Fin. Activity -8,632 -22,171 -12,091 -2,521 3,817 -29,758 -3,073 -6,033 Inc/Dec of Cash -5,245 -1,599 -30,194 10,601 41,409 -20,602 47,227 -18,868 Add: Beginning Balance 103,147 97,901 96,302 66,720 77,321 118,729 98,128 145,354 Closing Balance 97,902 96,301 66,720 77,321 118,729 98,128 145,354 126,486
7 November 2015 11
BHEL
Corporate profile Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Sep-15 Jun-15 Sep-14
Promoter 63.1 63.1 63.1
DII 15.6 16.1 15.7
FII 17.6 17.3 16.9
Others 3.7 3.5 4.3
Note: FII Includes depository receipts Source: Capitaline
Exhibit 3: Top holders Holder Name % Holding LIC of India 9.4 Comgest Growth PLC A/C. Comgest Growth Emerging Markets 1.2 Lazard Asset Management LLC A/c Lazard Emerging Markets Portfolio 1.1 Magellan 1.0 LIC of India Market Plus -1 Growth Fund 1.0
Source: Capitaline Exhibit 4: Top management
Name Designation
B Prasada Rao Chairman & Managing Director
I P Singh Company Secretary
Source: Capitaline
Exhibit 5: Directors Name Name D Bandyopadhyay Atul Sobti Subrata Biswas Amitabh Mathur A N Roy Harinder Hira
Rajesh Kumar Singh S K Bahri
*Independent
Exhibit 6: Auditors Name Type Anjaneyulu & Co Statutory DSP & Associates Statutory J V Ramanujam & Co Statutory Jugal K Puri & Associates Cost Auditor Narasimha Murthy & Co Cost Auditor
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus EPS (INR)
MOSL forecast
Consensus forecast Variation (%)
FY16 5.5 8.2 -32.9
FY17 10.8 13.1 -17.3
Source: Bloomberg
Company description BHEL is India’s dominant producer of power and
industrial machinery and a leading EPC company, established in the late 1950s as the government’s wholly-owned subsidiary.
The company has 14 manufacturing divisions, 8 service centers, 4 power sector regional centers besides project sites spread across all over India and abroad.
It has a manufacturing capacity of 20GW spread across multiple factories in India; including for thermal, hydro and gas projects
7 November 2015 12
BHEL
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