Angel Broking: Bharat Heavy Electricals

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Jain Irrigation Bharat Heavy Electricals

Initiating Coverage Initiating Coverage
NEUTRAL
Price Target Price Investment Period Rs1,405 -
Losing 'Power'
Bharat Heavy Electricals Ltd (BHEL), one of the largest Engineering and Manufacturing Enterprise in India, dominates the Power Generation Equipment market of the country with about 64% share of the Total Installed Capacity. The company is in the midst of a rapid capacity expansion plan. It has already ramped up its capacity from 6,000 MW p.a. to 10,000 MW p.a. in December 2007 and is further scaling it up to 20,000 MW p.a. by FY2012. However, going forward the company faces diverse set of challenges both from the weak economic environment as well as the structural changes in the Sector, which could limit further upside on the stock. At the price of Rs1,405, the stock is commanding valuations of 15.2x FY2010E EPS and 9.4x FY2010E EBITDA. Given the overall concerns, we Initiate Coverage on the stock with a Neutral View. Increasing Competitive Pressures: The Indian Power Equipment market is in a midst of a structural change with enhanced competition both from Domestic as well as the International players. In addition the changing mix of the 12th plan Power projects towards weaker areas of BHEL would offer better opportunity for competitors to eat into BHEL's pie. We expect the heightened competition to change the dynamics of the Sector and affect the company's Margins on the incremental orders. Order Execution - A Key Challenge: With the Order Book swelling to a historic high, we believe the order execution would emerge as a key challenge for the company. Though company has so far managed the execution reasonably well in the current year, nonetheless several projects involving BHEL are already running behind schedule and going ahead there could be an increasing constraint from Balance of Plant supplies. Economic Slowdown: The economic slowdown has further worsened the outlook for the entire sector. After a strong GDP growth of more than 9% for three consecutive years, the growth estimates for the current year have already been revised downwards in the range of 7.0-7.5%. In addition, the Capex plans of the corporate India are also showing signs of deceleration on back of the global liquidity crunch, higher Interest rates and unfavorable Capital Markets etc.
Stock Info
Sector Market Cap (Rs cr) Beta 52 Week High / Low Avg Daily Volume Face Value (Rs) Capital Goods 68,782 1.0 2910/984 345450 10
BSE Sensex Nifty
9,964 2,973
BSE Code NSE Code Reuters Code Bloomberg Code
500103 BHEL BHEL.BO BHEL@IN
Shareholding Pattern (%) Promoters MF / Banks / Indian FIs FII / NRIs / OCBs Indian Public / Others 67.7 13.0 16.8 2.5
Key Financials
Y/E March (Rs cr) Net Sales % chg Adj Net Profit % chg Operating EBITDA (%) EPS (Rs) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
FY2007 17,238 28.9 2,414 44.1 18.6 49.3 28.5 7.8 30.0 30.9 3.5 16.9
FY2008 19,305 12.0 2,860 18.5 17.0 58.4 24.0 6.4 29.2 32.6 3.1 16.3
FY2009E 25,025 29.6 3,355 17.3 15.7 68.5 20.5 5.2 28.0 31.3 2.4 13.8
FY2010E 31,566 26.1 4,538 35.3 18.6 92.7 15.2 4.1 30.5 32.8 1.9 9.4
Abs. Sensex (%) BHEL (%)
3m
1yr
3yr 21.4 135.9
(34.1) (48.3) (20.8) (50.2)
Puneet Bambha
Tel: 022 - 4040 3800 Ext: 347
E-mail: puneet.bambha@angeltrade.com
November 2008 January 30,7, 2008
For Private Circulation Only - - SebiRegistration No :: INB 010996539 For Private Circulation Only Sebi Registration No
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Bharat Heavy Electricals

Capital Goods
Company Background
The largest Engineering and Manufacturing enterprise in India in the Energy Related/ Infrastructure Sector Bharat Heavy Electricals Ltd (BHEL) is the largest Engineering and Manufacturing enterprise in India in the Energy Related/Infrastructure Sector. The company manufactures over 180 products across 30 major product groups and caters to several Core Sectors of the Indian Economy including Power Generation & Transmission, Industry, Transportation, Telecommunication, Renewable Energy, etc. Overall, the company's operations are organized around three Business Sectors, namely Power, Industry and Overseas Business.
Exhibit 1: Business Segments
BHEL
Power
Industry
Overseas
Power Sector
64% Market Share in the Total Installed Capacity BHEL is the leading manufacturer of the Power Equipment in the country accounting for about 64% of the Total Installed Capacity and about 73% of the Total Power Generation in the country.
Exhibit 2: Installed Generation Capacity

160,000 140,000 120,000 100,000 107,056 111,028 115,091 118,561 134,697 125,414
(MW)
80,000 60,000 40,000 20,000 0
69,020
71,132
74,780
76,742
80,782
85,786
FY2003
FY2004
FY2005 All India BHEL
FY2006
FY2007
FY2008
November 7, 2008 January 30, 2008
For Private Circulation Only - - SebiRegistration No :: INB 010996539 For Private Circulation Only Sebi Registration No INB
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Capital Goods
Power remains the key area for BHEL and comprises Thermal, Nuclear, Gas, Diesel and Hydro business. The company has proven turnkey capabilities for executing Power projects right from the concept to the final commissioning of the plant. The company has introduced new rating Thermal sets of 270 MW, 525 MW and 600 MW in subcritical class to take on the competition and also has the Technology and capability to produce Thermal sets with super critical parameters up to 1000 MW unit rating. Besides, BHEL possesses Combined Cycle Power Plant Technology involving advanced class Gas Turbines and also Engineers and Manufactures custom made Hydro sets of different types. Spares and Services The Power sector encompasses "Spares and Services Business Group" (SSBG), which provides a single window facility to the customers for the post warranty services. Having supplied about 64% of the country's Installed Capacity, Renovation and Modernization (R&M) of plants offer a good growth opportunity for the company. Of the Total 19,205 MW planned for R&M during the Eleventh plan period, about 16,705 MW (87%) comprises of the BHEL made sets.
Business Group offers a good growth opportunity
Exhibit 3: Thermal Units Programmed for R&M Works during 11th Plan
16,000 14,000 2,500 12,000 10,000
(MW)
8,000 6,000 4,000 2,000 0 State BHEL Make Others Centre 5,035 11,670
Source: CEA, Angel Research
Industry Sector
Under this segment, BHEL manufactures and supplies capital equipment and systems to host of Sectors including Transmission, Transportation, Renewable Energy, Oil & Gas etc. The company supplies captive Power plants, Industrial boilers & Auxiliaries and a wide range of Transmission products and Systems including High-Voltage Power and Distribution Transformers, Instrument Transformers, SF6 Switchgear, Capacitors and Ceramic Insulators. The company is also a leading supplier of Traction and Traction Control Equipment for the Indian Railways and has capability to supply complete onshore Drilling Rigs, Super-deep Drilling Rigs, Desert Rigs, Mobile Rigs, Work over Rigs and Sub-Sea Well heads. Industry Sector contributes about 26% of Revenues Currently, the Power sector contributes about 74% of the company's Revenues with the balance 26% being accounted by the Industry Segment. Going forward, the Management expects the contribution of Industry segment to increase to about 30% of its Revenues by FY2012.
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Capital Goods
Exhibit 4: Segmental Revenue Breakup

18,000 16,000 14,000 12,000
74.0% 73.6% 74.7%
(Rs cr)
10,000 8,000 6,000 4,000 2,000 0 FY2006 FY2007 Power Industry FY2008
26.4% 25.3%
26.0%
Overseas Business
Overseas Business - A major thrust area for the company BHEL's overseas presence spans 70 countries in all the six continents of the world. In the International market, company supplies its entire range of products including Turnkey Power projects, Sub-Station projects, Rehabilitation projects, besides a wide variety of products like Transformers, Compressors, Valves, Oil field equipment, Electrostatic Precipitators, Photovoltaic Equipment, Insulators, Heat Exchangers, Switchgears, Castings and Forgings etc. The Overseas business is one of the major focus areas for the company and as a part of its "Strategic Plan 2012", the company is targeting a six fold increase in its exports business to about Rs6,000-7,000cr by FY2012.
Exhibit 5: Overseas Business Revenue Growth

8,000 7,000 7,000 6,000
(Rs cr)
5,000 4,000 3,000 2,000 1,000 0 FY2006 FY2007 FY2008 Overseas Business FY2012E 704 1,071 1,020
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Capital Goods
Capacity Expansion Plan

More period thant Tripling its BHEL completed its first phase of expansion plan by raising its Power Plant Equipment capacity from 6,000 MW per annum to 10,000 MW per annum in December 2007.The company is in the process of further augmenting this capacity to 15,000 MW per annum by December 2009 and to 20,000 MW per annum by December 2011.Notably, the current capacity comprises of 6,000 MW of Thermal, 2,500 MW of Hydro and the balance 1,500 MW of Captive plant, while the incremental capacity from 10,000 MW to 20,000 MW is planned solely in the Thermal space.
Capacity over a five year
Exhibit 6: Planned Capacity Addition

25,000 20,000 20,000 15,000
(MW)
15,000 10,000 10,000 6,000 5,000 0 FY2007 FY2008 Capacity (MW) FY2010E FY2012E
Significant Strategic Partnerships

Several Strategic Partnerships to drive future growth BHEL has recently been pursuing several strategic relationships with various parties to enhance its presence and opportunities in the market. Some of the significant partnerships are as below: Acquisition of Bharat Heavy Plates and Vessels (BHPV): During the current year, BHEL formally acquired BHPV as its 100% subsidiary. BHEL plans to develop BHPV as a dedicated centre for Industrial boilers ensuring better delivery. Notably, it has already placed an order to manufacture and supply 680 Metric Tonnes of boiler components including Drums, Headers, Riser Tubes, Panels, Coils and Piping products on BHPV. The Management expects the acquisition of BHPV to increase the execution capabilities of BHEL to an extent of about 5% in the first year itself and later on to about 12% in the ensuing years. JV with NTPC: BHEL and NTPC have also come together and formed a JV called NTPC-BHEL Power Projects Pvt. Ltd. The JV will initially carry on the EPC power plant business and also establish capability for manufacturing Balance of Plant (BoP) Equipment. However, in the due course of time this JV will also get into the Power Equipment manufacturing business with an expected capacity of about 5,000 MW per annum by 2013-14.
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JV with Nuclear Power Corporation of India Ltd (NPCIL): BHEL has signed a MoU with NPCIL to form a JV to carry out EPC activities for Power Plants (conventional island) based on atomic energy both within the country and outside. We believe that in the backdrop of the current developments on the Nuclear power front, this collaboration might go a long way in boosting Revenues of the company. JV with Heavy Engineering Corporation (HEC): BHEL has also signed a MoU with HEC to form a JV company for supply of Castings and Forgings. Notably, the general boom in the global markets has placed a serious constraint in the timely availability of Castings and Forgings. Hence the JV would help BHEL in easing supply of critical input material required for Equipment manufacturing. JV with TNEB: To expedite the indigenization and absorption of the super-critical technology, BHEL has entered into an MoU with Tamil Nadu Electricity Board (TNEB) to set up a Joint Venture company to build, own and operate a 1600 MW (2x800 MW) Super Critical Thermal Power Plant at Tamil Nadu. In addition, the company also plans similar JVs in the state of Gujarat, Karnataka etc.
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Capital Goods
Investment Concerns
Increasing Competitive Pressures
Structural Change in the Sector with entry of several new Players The Indian Power Equipment market is in a midst of a structural change with increasing competition both from the Domestic as well as the International players. Several domestic companies have been forging alliances with the global players to cash on the huge opportunity in the Sector. Most of these capacities are expected to be operational in the next 3-4 years and hence would heighten the competition for the 12th plan orders.
Exhibit 7: Planned Power Equipment Capacities

Company L&T - Mitsubishi Alstom - Bharat Forge Reliance Infra - Shanghai Electric NTPC - BHEL JSW - Toshiba Ansaldo Caldie Skoda Power
Source: Industry, Angel Research
Capacity (MW) 4,000 5,000 10,000 5,000 3,000 NA NA
Year 2010 2011 2010 2013 2010 2011 2011
Chinese Players giving a tough company time to the
In addition, number of Chinese manufacturing players including Dongfang Electric Corporation, Shanghai Electric and Shandong Electric Power Construction Corporation (SEPCO III) are playing an increasing role in the Indian markets (Refer Annexure 1). Superior delivery schedules and lower Capital Costs (about 10-15%) offered by the Chinese players have led several Indian companies to place orders with them. It is pertinent to note that Chinese players have already bagged about 24.6% of the Total Thermal Power Plant orders for the 11th plan period.
Exhibit 8: Share of Chinese Players in the 11th Plan Thermal Orders

13.3%
24.6% 62.1%
BHEL
Chinese
Others
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While the recent appreciation of Chinese Remimbi against Indian Rupee has offered some respite to BHEL by reducing the price differential to some extent, we believe that the exchange rate fluctuations cannot be taken as sustainable competitive advantage for the company in the long run. Going forward, we expect the heightened competition to change the dynamics of the Sector and impact the margins of the company on the incremental orders. Notably in the recent earnings call, the management of BHEL also hinted at being flexible in terms of pricing to private players so as to win them over from Chinese competition.
Exhibit 9: Chinese Remimbi Vs Indian Rupee
Source: Bloomberg, Angel Research
Changing Mix of the 12th Plan Orders - Competitors to Eat into BHEL's Pie
Changing order mix towards weaker areas of BHEL The 12th plan Power projects envisage a change in the order mix with a larger participation from the private players, increased proportion of the Hydro and Nuclear power plants and greater thrust on the Super-critical sets. It's pertinent to note that traditionally these are comparatively weaker areas for BHEL and hence would offer a better opportunity for the competitors to eat into BHEL's market share.
Exhibit 10: 11th Plan Capacity (MW) Addition Summary

THERMAL BREAKUP HYDRO Total Thermal CENTRAL SECTOR STATE SECTOR PRIVATE SECTOR ALL-INDIA 8,654 3,362 3,491 15,507 21,496 22,001 15,286 58,783 Sub critical 16,730 18,684 10,655 46,069 COAL Super critical Total 3,300 20,030 0 18,684 2,120 12,775 5,420 51,489 GAS/ LNG 1,466 3,316 2,511 7,293 3,380 33,530 0 25,363 0 18,777 3,380 77,670 Nuclear Total
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Exhibit 11: Capacity (MW) Awarded to BHEL in the 11th Plan

THERMAL BREAKUP HYDRO Total Thermal CENTRAL SECTOR STATE SECTOR PRIVATE SECTOR ALL-INDIA 4,009 674 922 5,605 16,256 18,235 2,040 36,531 Sub critical 15,530 15,385 2,040 32,955 COAL Super critical Total 0 15,530 0 15,385 0 2,040 0 32,955 GAS/ LNG 726 2,850 0 3,576 0 20,265 0 18,909 0 2,962 0 42,136 Nuclear Total
Exhibit 12: BHEL's Share in the Capacity for 11th Plan

THERMAL BREAKUP HYDRO Total Thermal CENTRAL SECTOR STATE SECTOR PRIVATE SECTOR ALL-INDIA 46% 20% 26% 36% 76% 83% 13% 62% Sub critical 93% 82% 19% 72% COAL Super critical 0% 0% 0% 0% Total 78% 82% 16% 64% GAS/ LNG 50% 86% 0% 49% 0% 0% 0% 0% 60% 75% 16% 54% Nuclear Total
Private Sector Utilities - Have Lined up Mega Plans Private Sector Orders - A forte of Chinese Players To cash on the enormous opportunity in the Indian Power sector, several Private players including Reliance Power, Tata Power, Lanco, Adani and CESC etc. have lined up mega expansion plans for the ensuing years. While at present the Private sector contributes only about 14.6% of the country's Installed Capacity, going forward they are expected to play a larger role and account for 30-35% of the incremental capacity addition in the 12th plan. We believe that this would pose a challenge for BHEL as it has a dismal track record in the private space having won only 13.3% of the 11th Plan Private Thermal projects. Notably, on the other hand Private sector has been a forte of the Chinese players with about 65% share of the same.
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Capital Goods
Exhibit 13: BHEL's Share in the 11th Plan Thermal Projects

100 90 80 70 60 18.8% 5.6% 2.1% 15.0% 21.7%
(%)
50 40 30 20 10 0 Centre BHEL State Chinese Others 75.6% 82.9%
65.0%
13.3% Private
Greater Thrust on the Super Critical Sets Super Critical Technology is at nascent stages for the company Going ahead, there is an increasing thrust on the capacity addition through the large size Super Critical units. NTPC and State Utilities have lined up several projects based on the Super Critical parameters for the 12th plan. In addition, all the Ultra Mega Power Projects (UMPPs) envisaged by the Government would also be set up using this more fuel efficient Technology. Though BHEL has bagged few Super Critical orders, the company is at nascent stages w.r.t development of the Technology and it would take some time before it becomes globally competitive in this segment as well.
Exhibit 14: Key Super Critical Projects

Project Sipat I Barh I Mundra Mundra UMPP Sasan UMPP Krishnapatnam UMPP Barh II TNEB Krishnapatnam Agency NTPC NTPC Adani Tata Power Reliance Power Reliance Power NTPC TNEB-BHEL JV APPDCL Capacity (MW) 1,980 1,980 1,320 4,000 3,960 3,960 1,320 1,600 1,600 Boiler Doosan Korea Technoprom SEPCO III Doosan Korea Shanghai Electric Shanghai Electric BHEL BHEL BHEL Turbine Power Machines Power Machines SEPCO III Toshiba Shanghai Electric Shanghai Electric BHEL BHEL L&T
Source: CEA, Industry Sources, Angel Research
Increased Proportion of the Hydro and Nuclear Projects The overall market-share of BHEL would also be progressively under pressure due to the increased proportion of the Hydro and Nuclear power projects in the 12th plan. Though the company had bagged about 36% of the 11th Plan Hydro projects but it is way lower than its 62% share in the Thermal space. Similarly with the inking of Indo US nuclear deal, going ahead
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Capital Goods
there would be an increasing focus on the Nuclear power projects in the country. Again though BHEL is expected to occupy some share in the same nevertheless it would be far lower than its dominance in the Thermal space.
Order Inflow Growth to Slowdown

During FY2007 and FY2008, the company witnessed a phenomenal order inflow growth of 88.2% and 41.0% respectively, primarily driven by the bunching up of orders for the Eleventh Five Year Plan. As a result, the order book coverage ratio zoomed from 2.6x in FY2006 to about 4.0x in FY2008.However, now with the majority of the Eleventh Plan Orders (~77GW, Refer Annexure 2) having already been placed and the order inflow for the Twelfth Plan Period expected to pick up from FY2010 onwards, we anticipate the order inflow growth to slow down. Notably, the high base of the last few years would also play its role in slowing down the order inflow growth in the ensuing years. As a result, we expect the order book coverage ratio to decline from 4.0x in FY2008 to 3.1x in FY2011E.
Exhibit 15: Status of the 11th Plan Projects (MW)

4,834, 6% 11,554, 15%
61,282, 79% Commissioned Under Construction Additional Under Construction
Order
Book
Coverage
Exhibit 16: Order Book Coverage

60,000 4.0 50,000 3.0 40,000 2.7 2.1 1.5 20,000 1.7 2.0 1.5 1.0 10,000 0.5 0 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009EFY2010E FY2011E 0.0 2.9 2.6 2.5 30,000 3.8 3.5 3.5 3.1 3.0 4.5 4.0
ratio to decline gradually
(Rs cr)
Order Inflow (LHS)
Order Book Coverage (RHS)
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Capital Goods
Order Execution - A Key Challenge

Several Projects involving BHEL are already running behind schedule With the Order book swelling to a historic high, we believe the Order execution would emerge as a key challenge for the company. Notably, India has a dismal track record in achieving Planned Capacity addition during the previous Five Year Plans with delays in equipment supply being cited as one of the major reasons for the shortfall. Even for the current plan period the scene is not dramatically different with large number of Power Projects already running behind the schedule. The blame game has already started with the Union Power Minister Jairam Ramesh holding BHEL responsible for delay of quite a few projects including 500 MW Lehra Mohabbat stage-4 Thermal project, which has been delayed by nearly 15 months. In addition several other projects involving BHEL such as Chandrapur (Jharkhand), Sipat II (Chhattisgarh), Kutch Lignite (Gujarat), Amarkantak (Madhya Pradesh) etc are also behind schedule.
Exhibit 17: Planned Vs Actual Capacity (MW) Addition

FY2003-07 Planned Capacity Addition Actual Capacity Addition Achievement (%)
FY2008 16,335 9,263 56.7
FY2009 (April-September) 5,226 1,759 33.7
41,110 21,180 51.5
In addition, the Balance of Plant (BoP) equipment continues to remain a critical area in the entire value chain with severe shortage of qualified vendors. There are limited vendors in each of the sub-segment and at times only a single quotation is received. Our industry check suggests that several of the current plan BoP orders are running behind schedule and orders for nearly 48% of the BoP equipment are yet to be placed. As BHEL too sub contracts number of packages to various vendors, the overall execution capability of BHEL would also be constrained by the BoP supplies in the industry.
Exhibit 18: Summary of Major BOPs for 11th Plan Thermal Projects
Name of BOP Coal Handling Plant (CHP) Ash Handling Plant (AHP) Demineralized(DM) water Plant Cooling Tower Chimney Fuel Oil (FO) System PT Plant TOTAL
BOPs Required 89 89 96 99 101 100 97 671
Orders Already Placed 54 53 44 53 58 40 50 352
% Orders Placed 60.7 59.6 45.8 53.5 57.4 40.0 51.5 52.5
Sharp
increase
in
the
Our execution concerns have also been strengthened by the sharp increase in the contingent liabilities for Liquidated Damages (LDs) of BHEL in FY2008. It is pertinent to note that the contingent liability on account of LDs increased by more than two times from 257cr in FY2007 to 810cr in FY2008. Though we understand that this entire amount would not materialize into actual penalty for BHEL but it is a definitely a concerning factor and needs a close monitoring.
contingent liabilities for Liquidated Damages
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Capital Goods
Economic Slowdown
Economic slowdown has worsened the outlook for the entire Sector The economic slowdown has further worsened the outlook for the entire Capital Goods sector. After a strong GDP growth of more than 9% for three consecutive years, the growth estimates for the current year have already been revised downwards in the range of 7.0-7.5%. Similarly, the Index of Industrial Production (IIP) is also showing signs of slowdown with the IIP growth falling from 11.5% in FY2007 to about 8.5% in FY2008. The scene has further worsened in FY2009 with the cumulative IIP growth for the period April-August FY2009 being at 4.9% over the 10.0% growth in the corresponding period of the previous year.
Exhibit 19: GDP & IIP Growth

12 10 8.4 8 7.0 6 5.1 4 2 0 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 2.6 5.8 8.2 8.5 11.5
GDP Growth
IIP Growth
Source: CMIE, Angel Research
Notably, the Corporate Capex plan has been showing phenomenal growth from 2003 onwards primarily on back of the strong economic growth, easy liquidity and buoyant Capital markets etc. This helped in driving the order book position for the Capital Goods Sector to a record level. However, now owing to the adverse macro factors such as slowing economy, global liquidity crunch, higher Interest rates, unfavorable Capital markets etc, the Capex plans of the corporate India are clearly showing signs of deceleration. As a result, going ahead there would be an increasing pressure both on the future order inflows as well as the current order book execution for the sector. In fact the adverse environment has also increased the order cancellation risk for the companies in general.
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Capital Goods
Exhibit 20: Capex Announcements Growth (YoY)

150% 130% 110% 90% 70% 50% 30% 10%
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
-30% -50%
Exhibit 21: Foreign Investments into India

25,000 20,000 15,000 10,000 5,000 0
Mar-00
Mar-03
Mar-06
Sep-07
Jun-02
Jun-05
Dec-00
Dec-03
Sep-01
Foreign Investments into India (US $ mn)
Sep-04
Dec-06
Jun-08
Mar-08
-10%
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Capital Goods
Financial Overview
Strong Top-Line Growth
Top-line to grow at a CAGR of 27.9% During FY2008-10E, we expect the company to post a CAGR of 27.9% in its Top-Line aided by the increased capacity, advance procurement action for critical components, higher manpower and acquisition of BHPV.
Exhibit 22: Revenue Growth

35,000 30,000 25,000 28.9% 29.6% 26.1% 30 40.4% 45 40 35
(Rs cr)
15,000 10,000 5,000 0 FY2006 FY2007 FY2008 Net Sales (LHS) FY2009E Growth (RHS) FY2010E
20 15 12.0% 10 5 0
Notably, after the strong CAGR of 29% from FY2004-07, the company posted a modest growth of only about 12% in FY2008. This was mainly attributed to the constraints in the entire supply chain of critical components including Forgings, Castings and Balance of Plant equipment etc. Further, there were delays from the customer's side also. However, the strategic steps taken by BHEL would ensure the higher revenue growth in the ensuing years. Besides ramping up the capacity from 6,000 MW to 10,000 MW, it increased its recruitment drive with the employee number increasing for the first time after more than a decade of reduction. To tackle the issue of critical components, the company is following an advanced manufacturing action leading to slight built up of inventory along with plans to upgrade the Central Foundry Forge Plant (CFFP) at Haridwar, Further the acquisition of BHPV would also boost the execution capabilities of the company.
Exhibit 23: Employee Number

60,000 55,000 50,000 45,000 40,000 35,000 FY2000
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
Employee Number
Source: Company, Angel Research November 2008 January 30,7, 2008 For Private Circulation Only - - SebiRegistration No :: INB 010996539 For Private Circulation Only Sebi Registration No
(%)
20,000
25
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Capital Goods
Operating Leverage to drive Margins

During FY2008, the core EBIDTA margins of the company declined from 18.6% to 17.0% mainly driven by the Staff cost provisioning as per the Sixth Pay Commission guidelines. Going forward in FY2009E, we expect the margins to be dip further despite the increased capacity primarily due to the higher Raw Material costs and increased provisioning for Staff cost to be provided in FY2009 also. Sixth Pay Commission Provisioning: The Company has been providing employee cost provisioning from the past few quarters to account for the wage revision expected as per the Sixth Pay Commission guidelines. During the first quarter of current fiscal, company re-estimated its employee costs provisioning with effect from Jan1st, 2007 to Mar 31st, 2009 and calculated the total figure of Rs1,907cr. Since the company has already provided Rs594cr during the previous five quarters, the remaining provisioning of Rs1,313cr is being provisioned across the four quarters of FY2009.
Exhibit 24: Employee Cost Provisioning

450 400 350 300 383.0 383.0
Average Provisioning of Rs 211.9 Cr

266.0
328.3
(Rs cr)
250 200 150 100 50 0 Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q1FY09 82.0 82.0 82.0 82.0
218.8
Q2FY09
Q3FY09E
Q4FY09E
Employee Cost Provisioning
Exhibit 25: Profitability Trend

7,000 6,000 5,000 20 19 18.6% 18.6% 18 17.1% 4,000 16 3,000 2,000 1,000 0 FY2006 FY2007 FY2008 Net Profit (LHS) FY2009E FY2010E 15.7% 15 14 13 12 17.0% 17
(Rs cr)
Operating EBITDA (LHS)
Operating EBITDA% (RHS)
(%)
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Capital Goods
However in FY2010, we expect the margins to bounce back as the employee provisioning would cease and the positive impact of operating leverage would show its effect. Notably, the main catalyst in the operating leverage of BHEL would be the declining employee costs to sales ratio. Declining Employee cost to Sales - A main catalyst in driving margins
25.0 21.7% 20.4% 20.0 17.3% 16.3% 15.0 14.0% 13.7% 16.8% 14.1%
Exhibit 26: Employee Costs as % of Sales
(%)
10.0 5.0 0.0 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009E FY2010E
Employee Cost as % of Net Sales
Exhibit 27: Turnover per Employee

0.80 0.70 0.60 0.60 0.50
(Rs cr)
0.74
0.49 0.44 0.34 0.24 0.16 0.20
0.40 0.30 0.20 0.10 0.00 FY2003 FY2004 FY2005
FY2006
FY2007
FY2008
FY2009E
FY2010E
Turnover per Employee
Return Ratios to Remain Robust

During FY2006-08, the ROE of the company has increased from 25.1% to about 29.2%.This was primarily driven by an increase of 230 bps in Net Profit Margins from 12.5% in FY2006 to 14.8% in FY2008.Going forward, we expect the company to maintain high ROEs on back of the healthy Net Profit Margins and a slight increase in the Asset Turnover ratio. However, the Asset Turnover ratio and the resultant ROE would have increased by a greater magnitude but for the increasing pressure on the Net Working Capital of the company. It is pertinent to note that due to the impending slowdown and the increased execution risks, we have factored in the longer working capital cycle for BHEL in our estimates.
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Exhibit 28: Return Ratios

34 32.6% 32 30 30.0% 30.9% 31.3% 32.8%
30.5% 29.2% 28.0%
(%)
28 26 24 22 20 FY2006 24.7% 25.1%
FY2007
FY2008 ROE ROCE
FY2009E
FY2010E
Would maintain high ROEs on back of the healthy Net Profit Margins
Exhibit 29: DuPont Analysis

FY2006 Net Profit / Sales Sales / Avg Assets Avg Assets / Avg Equity ROE
FY2007 14.0% 2.1 1.0 30.0%
FY2008 14.8% 2.0 1.0 29.2%
FY2009E 13.4% 2.1 1.0 28.0%
FY2010E 14.4% 2.1 1.0 30.5%
12.5% 1.9 1.1 25.1%
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Key Upside Risks

Chinese Equipment - Quality Concerns Loom Large There has always been a question mark over the quality and the performance parameters of the Chinese equipment. And now with the problems emerging at the Chinese equipment powered Sagardighi (2*300 MW), Durgapur (1*300 MW) and Yamunanagar (2*300 MW) Projects, the concerns are gaining further steam. Media reports suggest that the Financial Institutions including Power Finance Corporation and Rural Electrification Corporation are also increasingly wary of funding such projects using Chinese equipment. Notably, the much awaited audit report by the CEA also highlighted several problems with Chinese equipment though it did not prevent usage of the same. We believe that at present we do not have much track record of the performance of Chinese equipment in the country and in a year or two, as and when more such plants become operational, the real picture would emerge. Nevertheless, the quality concerns need a close monitoring and going ahead if there are increasing problems with the Chinese equipment, it might pose a key upside risk to our valuations and warrant re-rating of the stock. Regulatory Changes - Domestic Manufacturing May be a Compulsion The government has been planning a Regulatory change to make local manufacturing mandatory for supplying Power Equipment in the Indian markets. For decades, the BHEL had a virtual monopoly in the Industry and any such Regulatory changes which increase entry barriers would favor BHEL and limit its market share loss. Economic Recovery The current adverse macro-environment is expected to affect the corporate Capex plans and in turn slowdown the order inflows for the entire Capital Goods sector including BHEL. However, if the economy recovers faster than expected with liquidity crunch easing and Interest rates and Inflation cooling-off to a more reasonable level, we may need to revisit our Target Price. Nuclear Deal - Favorable Development The inking of Indo-US Nuclear deal has further opened up huge opportunity for players like BHEL to participate in the Nuclear power program of the country. Our Industry check suggests that several Regulatory and safety issues still need to be sorted out and it would take at least couple of years before the actual Revenue from the same starts flowing in for most of these companies. Nonetheless, any material favorable development arising from opportunities in this space pose an upside risk to our estimates.
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Outlook and Valuations

Historically, BHEL has been trading at wide forward P/E band range, depicting the cyclical nature of the industry. We have bifurcated the same into different phases to understand the fair P/E multiple for BHEL. During April 2001 - Mid of FY2004, when both the power capacity addition as well as the GDP growth of the country was on a lower range, the stock traded in a P/E range of 5x-10x. This was backed by an EPS CAGR of 19.0% and the average ROEs of only about 14.3%. In addition the order book coverage ratio was also hovering on a lower range of 1.5x-2.3x.
Exhibit 30: 12-month forward rolling P/E Band
Source: Capitaline, Angel Research
However, after the introduction of Electricity Act 2003 and the subsequent reforms, the things started changing for good in the power sector. This coupled with a high GDP growth and the buoyant capital markets spelled good times for the company. During April 2004 - March 2008, the stock traded at an average P/E of 19x-20x, supported by the EPS CAGR of 38.1% and the high average ROEs of about 25-26%. Besides the order book coverage ratio also zoomed from 2.7x in FY2004 to an all time high of 4.0x in FY2008, sustaining the premium valuations for the company. During FY2008-10E, we expect the company to post a CAGR of 27.9% and 26.0%, in its Top-line and Bottom-line respectively. The average ROEs are also expected to remain strong at about 29.3% while the order book coverage ratio is expected to decline gradually in the ensuing years. Hence, we consider that the present situation warrants a valuation multiple between both the above extreme scenarios.
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We arrive at a fair valuation zone of around 14x-15x P/E multiple for the company in the backdrop of the unfavorable broader economic environment, increasing competitive pressure and higher execution concerns. Further, even after factoring in the strong financial performance of the company, at Rs1,405, the stock is commanding valuations of 15.2x FY2010E EPS and 9.4x FY2010E EBITDA, limiting further upside on the stock. We Initiate Coverage on the stock with a Neutral View.
Exhibit 31: 12-month forward rolling EV/EBITDA Band
Source: Capitaline, Angel Research
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Annexure 1: List of Projects Ordered on Chinese Companies for Likely Benefit during 11th / 12th Plan
S No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Project Raghunathpur Yamuna Nagar Rajiv Gandhi TPS Mettur Ext Sagardighi Durgapur Anpara C Rosa I Jalipa Lignite Pathadi Adani Power, Mundra Ratnagiri Torangallu Lanco Nagarjuna Sterlite Energy Rosa II Adani Power, Mundra Sasan UMPP Developer DVC HPGCL HPGCL TNEB WPDCL DPL Lanco Reliance Power Raj West Power Lanco Adani JSW Jindal Lanco Sterlite Energy Reliance Power Adani Reliance Power Sector Centre State State State State State Private Private Private Private Private Private Private Private Private Private Private Private Capacity (MW) 1,200 600 1,200 600 600 300 1,000 600 1,080 600 1,320 1,200 600 1,015 2,400 600 1,320 3,960 20,195 Supplier REL (Main Equipment by Shanghai Electric) REL (Main Equipment by Shanghai Electric) REL (Main Equipment by Shanghai Electric) BGR Energy (Main Equipment by Dongfang) Dongfang Dongfang Dongfang Shanghai Electric Dongfang China / Zelam, Malaysia Dongfang China / Zelam, Malaysia SCMEC Shanghai Electric Shanghai Electric Dongfang SEPCO III Shanghai Electric SEPCO III Shanghai Electric
Total Capacity Ordered to Chinese Players Source: CEA, Angel Research
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Annexure 2: Summary of Capacity (MW) Addition Proposed During 11th Plan

Hydro Total Thermal Coal Central Sector State Sectpr Private Sector All-India Central Sector State Sectpr Private Sector All-India Central Sector State Sectpr Private Sector All-India Central Sector State Sectpr Private Sector All-India Central Sector State Sectpr Private Sector All-India 1,030 1,832 0 2,862 7,624 1,530 3,491 12,645 8,654 3,362 3,491 15,507 0 0 0 0 8,654 3,362 3,491 15,507 2,740 4,732 1,000 8,472 18,756 16,169 10,552 45,477 21,496 20,901 11,552 53,949 0 1,100 3,734 4,834 21,496 22,001 15,286 58,783 2,000 4,380 1,000 7,380 17,280 12,754 7,435 37,469 19,280 17,134 8,435 44,849 0 1,100 3,260 4,360 19,280 18,234 11,695 49,209 Lignite 0 0 0 0 750 450 1,080 2,280 750 450 1,080 2,280 0 0 0 0 750 450 1,080 2,280 THERMAL BREAKUP GAS/ LNG 740 352 0 1,092 726 2,964 2,037 5,727 1,466 3,316 2,037 6,819 0 0 474 474 1,466 3,316 2,511 7,293 Liq Fuel 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 220 0 0 3,990 6,564 1,000 Nuclear Total
A. PROJECTS COMMISSIONED
220 11,554 3,160 29,540 0 17,699 0 14,043 3,160 61,282 3,380 33,530 0 24,263 0 15,043 3,380 72,836 0 0 0 0 0 1,100 3,734 4,834
B. PROJECTS UNDER CONSTRUCTION
TOTAL (A+B)
C.ADDITIONAL PROJECTS UNDER CONSTRUCTION
TOTAL CAPACITY FEASIBLE AT PRESENT (A+B+C) 3,380 33,530 0 25,363 0 18,777 3,380 77,670
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Annexure 3: Key Order Inflows for BHEL in FY2009

Date Client Project/ Location 28-Apr-08 26-May-08 9-Jun-08 20-Jun-08 26-Jun-08 Chhattisgarh State Electricity Board HMEL Pragati Power Corporation Limited Damodar Valley Corporation ONGC Korba, Marwa Bhatinda Pragati III Bokaro TPS 3 * 500 MW 1 * 153 MW 1 * 500 MW Configuation Capacity (MW) 1,500 153 1,371 500 Contract Value (Rs cr) 3,368 1,150 3,588 1,840 506 Main Plant Package Captive Power Plant Combined Cycle Power Plant Turnkey Contract Refurbishment and Upgradation of Onshore Drilling Rigs 30-Jun-08 11-Jul-08 16-Jul-08 PEEGT, Ministry of Electricity, Syria Tamil Nadu Electricity Board TNEB International Energy Resources (IER), UAE 25-Jul-08 04-Aug-08 MSPGCL Nam Chien Hydro Power Project UAE Maharashtra Vietnam 2 * 42 MW 2 * 500 MW 2 * 100 MW 84 1,000 200 160 2,690 200 Gas Turbine Generating Units BTG Package Electro-mechanical equipment package 05-Aug-08 08-Aug-08 APPDCL Nyaborongo Hydro Electric Power Project 26-Aug-08 International Energy Resources (IER), UAE 29-Aug-08 09-Sep-08 GVK Power Ltd ONGC Tripura Power Co. Pvt. Ltd (OTPC) 25-Sep-08 Steel Authority of India Limited (SAIL) 30-Sep-08 Rajasthan Rajya Vidyut Utpadan Nigam Ltd (RRVUNL) 21-Oct-08 23-Oct-08 Satluj Jal Vidyut Nigam Limited NTPC Rajasthan Himachal Pradesh Barh - II 2 * 250 MW 6 * 68.67 MW 2 * 660 MW 500 412 1,320 990 641 1,474 Main Plant Package Electro-mechanical package Steam Turbine Generators with supercritical parameters Source: Company, Angel Research Rourkela 338 Three Turbo-blower Packages Palatana 2 * 363.3 MW 726.6 2,200 Combined Cycle Gas Turbine UAE Goindwal Sahib 2 * 42 MW 2 * 270 MW 84 540 140 1,155 Gas Turbine Generating Units Main Plant Package Rwanda, East Africa 2 * 14 MW 28 400 Turnkey Contract Krishnapatnam 2 * 800 MW 1,600 2,500 Supercritical Boilers Syria Tamil Nadu 2 * 200 MW 1 * 600 MW 400 600 2,080 2,175 Turnkey Contract EPC Contract Nature of Work
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Profit & Loss Statement

Y/E March Net Sales % chg Total Expenditure Operating EBITDA % of Net Sales Other Income Depreciation & Amortisation Interest PBT % of Net Sales Tax Effective Tax Rate (%) Extraordinary items Adj PAT % chg FY2007 17,237.5 28.9 14,037.6 3,199.9 18.6 852.4 273.0 43.3 3,736.1 21.7 1,321.4 35.4 0.5 2,414.2 44.1 FY2008 FY2009E 19,304.6 12.0 16,023.8 3,280.9 17.0 1,482.2 297.2 35.4 4,430.4 22.9 1,571.1 35.5 (0.9) 2,860.3 18.5 25,024.5 29.6 21,105.8 3,918.7 15.7 1,597.5 335.2 20.0 5,161.0 20.6 1,806.4 35.0 0.0 3,354.7 17.3
Rs crore
FY2010E 31,566.5 26.1 25,706.6 5,859.9 18.6 1,577.6 436.1 20.0 6,981.4 22.1 2,443.5 35.0 0.0 4,537.9 35.3
Balance Sheet
Y/E March SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Total Loans Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-progress Investments Deferred Tax Assets (Net) Current Assets Current Liabilities Net Current Assets Miscellaneous Expenses Total Assets 4,135.1 3,146.3 988.7 302.5 8.3 935.2 20,980.0 14,337.1 6,642.9 0.0 8,877.6 4,443.5 3,462.2 981.3 658.0 8.3 1,337.9 27,704.7 19,820.8 7,883.9 0.0 10,869.4 5,272.5 3,738.3 1,534.2 829.0 88.3 1,337.9 34,763.1 25,302.1 9,461.0 0.0 13,250.4 244.8 8,543.5 8,788.3 89.3 8,877.6 489.5 10,284.7 10,774.2 95.2 10,869.4 489.5 12,665.7 13,155.3 95.2 13,250.4 FY2007 FY2008 FY2009E
Rs crore
FY2010E
489.5 16,115.5 16,605.0 95.2 16,700.2
7,368.6 4,174.4 3,194.2 232.9 168.3 1,337.9 40,587.7 28,820.8 11,766.9 0.0 16,700.2
Cash Flow Statement

Y/E March Profit before tax Depreciation Income taxes paid Others Cash from operations Free cash flows (Inc) / Dec in Invesments Others Inc / (Dec) in Share Capital Inc / (Dec) in Debt Dividend and dividend tax Others Other adjustments Net Inc / (Dec) in Cash Opening cash balance Closing cash balance FY2007 3,736.1 273.0 (1,484.3) (361.2) 3,206.4 2,775.4 0.0 446.8 0.0 (468.9) (692.5) (43.3) (342.5) 1,674.9 4,134.0 5,808.9 FY2008 FY2009E 4,430.4 297.2 5,161.0 335.2
Rs crore
FY2010E 6,981.4 436.1 (2,533.6) (2,443.5) (1,021.0) 1,419.5 (1,500.0) (80.5) (80.0) 1,041.0 0.0 0.0 (1,088.2) (20.0) (1,108.2) 0.0 (227.7) 7,769.6 7,541.9
Key Ratios
Y/E March Per Share Data (Rs) EPS Cash EPS DPS Book value per share Operating Ratios Operating EBITDA (%) NPM (%) Debt / Equity (x) Order Backlog / Sales (x) Return ratios (%) RoE RoCE Dividend payout Valuation ratios (x) P/E P/E (Cash EPS) P/BV EV/Sales EV/EBITDA 28.5 25.6 7.8 3.5 16.9 24.0 21.8 6.4 3.1 16.3 20.5 18.6 5.2 2.4 13.8 15.2 13.8 4.1 1.9 9.4 30.0 30.9 24.8 29.2 32.6 26.1 28.0 31.3 24.8 30.5 32.8 20.5 18.6 14.0 0.01 2.9 17.0 14.8 0.01 4.0 15.7 13.4 0.01 3.8 18.6 14.4 0.01 3.5 49.3 54.9 24.5 179.5 58.4 64.5 15.3 220.1 68.5 75.4 17.0 268.7 92.7 101.6 19.0 339.2 FY2007 FY2008 FY2009E FY2010E
(Inc) / Dec in Working Capital 1,042.8
1,336.1 (2,193.5) (1,973.8) (1,806.4) (957.2) (1,186.2) 3,132.7 2,468.8 0.0 1,022.5 0.0 5.9 (873.4) (35.4) (903.0) (11.2) 2,577.1 5,808.9 8,386.0 310.1 (689.9) (80.0) 1,147.1 0.0 0.0 (973.6) (20.0) (993.6) 0.0 (616.4) 8,386.0 7,769.6 (663.9) (1,000.0)
(Inc) / Dec in Fixed Assets (431.0)
Cash flow from Financing (1,204.7)
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Fund Management & Investment Advisory P. Phani Sekhar Siddharth Bhamre Devang Mehta Research Team Hitesh Agrawal Sarabjit Kour Nangra Vaishali Jajoo Harit Shah Deepak Pareek Pawan Burde Vaibhav Agrawal Girish Solanki Shailesh Kanani Anand Shah Sulabh Agrawal Puneet Bambha Raghav Sehgal Jaydeep Mavani Amit Vora Richa Chandak Aniruddha Mate Shweta Boob V Srinivasan Amit Bagaria Neha Idnany Sandeep Wagle Ajit Joshi Brijesh Ail Prasad Kushe Vaishnavi Jagtap Milan Sanghvi Mileen Vasudeo Commodities Research Team Amar Singh Samson P Anuj Gupta Girish Patki Commodities Research Team (Fundamentals) Badruddin Mandar Pote Bharathi Shetty Bharat Patil
022 - 4040 3800 / 2835 9600) phani.sekhar@angeltrade.com siddarth.bhamre@angeltrade.com devang.mehta@angeltrade.com hitesh.agrawal@angeltrade.com sarabjit@angeltrade.com vaishali.jajoo@angeltrade.com harit.shah@angeltrade.com deepak.pareek@angeltrade.com pawan.burde@angeltrade.com vaibhav.agrawal@angeltrade.com girish.solanki@angeltrade.com shailesh.kanani@angeltrade.com anand.shah@angeltrade.com sulabh.agrawal@angeltrade.com puneet.bambha@angeltrade.com raghav.sehgal@angeltrade.com jaydeep.mavani@angeltrade.com amit.vora@angeltrade.com richa.chandak@angeltrade.com aniruddha.mate@angeltrade.com shweta.boob@angeltrade.com v.srinivasan@angeltrade.com amit.bagaria@angeltrade.com neha.idnany@angeltrade.com sandeep@angeltrade.com ajit.joshi@angeltrade.com brijesh@angeltrade.com prasad.kushe@angeltrade.com vaishnavi.jagtap@angeltrade.com milan.sanghvi@angeltrade.com vasudeo.kamalakant@angeltrade.com amar.singh@angeltrade.com samsonp@angeltrade.com anuj.gupta@angeltrade.com girish.patki@angeltrade.com badruddin@angeltrade.com mandar.pote@angeltrade.com bharathi.shetty@angeltrade.com bharat.patil@angeltrade.com
Fund Manager - (PMS) Head - Investment Advisory AVP - Investment Advisory ( 022 - 4040 3800 / 2835 9600) Head - Research VP-Research, Pharmaceutical Automobile IT, Telecom Oil & Gas Metals & Mining, Cement Banking Power, Mid-cap Infrastructure, Real Estate FMCG , Media Mid-cap Capital Goods, Engineering Retail Research Associate (Automobile) Research Associate (Oil & Gas) Research Associate (Banking) Research Associate (Infra, Real Estate) Research Associate (FMCG , Media) Research Associate (Power, Mid-cap) PMS Research Associate - (PMS) Chief Technical Analyst AVP Technical Advisory Services Manager - Technical Advisory Services Sr.Technical Analyst Sr. Technical Analyst Sr. Technical Advisor (TAS) Technical Advisor (TAS) Research Head (Commodities) Sr. Technical Analyst Sr. Technical Analyst Sr. Technical Analyst Sr. Research Analyst (Agri) Research Analyst (Energy) Research Editor Production
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Ratings (Returns) :
Buy (Upside > 15%) Reduce (Downside upto 15%)
Accumulate (Upside upto 15%) Sell (Downside > 15%)
Neutral (5 to -5%)
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Powai - Pankaj Mungre Tel: (022) 3952 6500
Branch Offices:
Andheri ( L o k h a n d w a l a ) - Te l : ( 0 2 2 ) 2 6 3 9 2 6 2 6 / 3 2 5 5 1 0 1 9 Andheri (W) - Tel: (022) 2635 2345 / 6668 0021 Bandra (W) - Tel: (022) 2655 5560 / 70 Bandra (W) - Tel: (022) 6643 2694 - 99 Borivali (W) - Tel: (022) 2895 2600 / 1 / 2 Borivali (Punjabi Lane) - Tel: (022) 4075 6000/01 Chembur - Tel: (022) 6703 0210 / 11 /12 Chembur - (Basant) - Tel:(022) 3267 9114/ 15 Fort - Tel: (022) 2263 4050-55 Ghatkopar (E) - Tel: (022) 6799 3185 - 88 Kalbadevi - Tel: (022) 2243 5599 / 2242 5599 Kandivali (W) - Tel: (022) 2867 3800/2867 7032 Kandivali - Tel: (022) 2846 1654 / 2056 / 2076 Malad (E) - Tel: (022) 2880 4440 Malad (Natraj Market) - Tel:(022) 28803453 / 24 Masjid Bander - Tel: (022) 2345 5130 /1 / 8 / 42 /48 Mulund (W) - Tel: (022) 2562 2282 Nerul - Tel: (022) 2771 9012 - 17 Powai (E) - Tel: (022) 40262170 / 1 / 2 / 3 Sion - Tel: (022) 3952 7891 Thane (W) - Tel: (022) 2539 0786 / 0650-651 Vashi - Tel: (022) 2765 4749 / 2251 Vile Parle (W) - Tel: (022) 2610 2894 / 95 Wadala - Tel: (022) 2414 0607 / 08 Ajmer - Tel: (0145) 3058 400 Alwar - Tel: (0144) 3982 090 / 99833 60006 Ahmeda. (Bapu Nagar) - Tel : (079) 3091 6900 - 02 Ahmedabad (C. G. Road) - Tel: (079) 4021 4023 Ahmeda. (Gurukul) - Tel: (079) 6522 5510 Ahmedabad (Kalupur) - Tel: (079) 3041 4000 / 01 Ahmedabad (Maninagar) - Tel: (079) 3981 7430 / 31 Ahmeda. (Ramdevnagar) - Tel : (079) 4006 5842 Ahmedabad (Sabarmati) - Tel : (079) 3091 6100 / 01 Ahmedabad (Satellite) - Tel: (079) 4000 1000 Ahmedabad (Shahibaug) -Tel: (079)3091 6800 / 01 Amreli - Tel: (02792) 228 800/231039-42 Amritsar - Tel: (0183) 3987 000 Anand - Tel : (02692) 398 400 / 3 Ankleshwar - Tel: (02646) 652 681-85 Baroda - Tel: (0265) 2226 103-04 / 6624 280 Baroda (Akota) - Tel: (0265) 2355 258 / 6499 286 Baroda (Manjalpur) - Tel: (0265) 6454280-3 Bengaluru - Tel: (080) 4072 0800 - 29 Bhavnagar - Tel: (0278) 2512099 / 755 Bhavnagar (Shastrinagar)- Mobile: 92275 32302 Bhopal - Tel :(0755) 3256 663 / 4024 000 Bikaner - Tel: (0151) 2207 148 / 98281 03988 Chandigarh - Tel: (0172) 4697 400 Deesa - Mobile: 97250 01160 Erode - Tel: (0424) 4065 555 - 65 Faridabad - Tel: (0129) 4281 401 - 23 Gajuwaka - Tel: (0891) 3987 100 - 30 Gandhinagar - Tel: (079) 4010 1010 - 31 Gandhidham - Tel: (02836) 237 135 Gondal - Tel: (02825) 240 693 / 4 Ghaziabad - Tel: (0120) 4185 300 Gurgaon - Tel: (0124) 4712 915 Himatnagar - Tel: (02772) 241 008 / 241 346 Hyderabad - Tel: (040) 4222 2070-5 Hubli - Tel: (0836) 4267 500 - 22 Indore - Tel: (0731) 4238 600 Indore - Tel: (0731) 4232 100 / 31 / 40 Jaipur - (Rajapark) Tel: (0141) 4000 500/94143 Jalgaon - Tel: (0257) 2234 832 Jamnagar(Indraprashta) - Tel: (0288) 3982 510 Jamnagar (Cross Word) - Tel: (0288) 2751 118 Jamnagar (Moti Khawdi) - Tel: (0288) 2846 026 Jamnagar(Madhav Plaza) - Tel: (0288) 2665 708 Jodhpur - Tel: (0291) 3981 400 / 5100 500 Junagadh - Tel : (0285) 2622 483 /2622 484 Keshod - Tel: (02871) 234 027 / 233 967 Kolkata (N. S. Rd) - Tel: (033) 4011 9899 Kolkata (P. A. Shah Rd) - Tel: (033) 40109899 Kota - Tel : (0744) 5100 470 / 2365 200 Mansarovar - Tel:(0141) 3057 700/98280 90009 Mehsana - Tel: (02762) 645 291 / 92 Mysore - Tel: (0821) 4004 200 - 30 Nadiad - Tel : (0268) - 2527 230 / 31 Nashik - Tel: (0253) 3011 501 / 3011 511 New Delhi (Bhikaji Cama) - Tel: (011) 41659711 New Delhi (Lawrence Rd.) - Tel: (011) 3262 8699 New Delhi (Pitampura) - Tel: (011) 4700 2380 New Delhi (Nehru Place) - Tel: (011) 4651 2900 New Delhi (Preet Vihar) - Tel: (011) 4310 6400 Noida - Tel : (0120) 4639900 / 1 / 9 Palanpur - Tel: (02742) 308 060 - 63 Patan - Tel: (02766) 222 306 Patel Nagar - Tel : (011) 45030 600 Porbandar - Tel : (0286) 221 5310 / 31 Porbandar (Kuber Life Style) - Mob.-98242 53737 Pune - Tel : (020) 3093 4400 / 3052 3217 Pune (Camp) - Tel: (020) 3058 2862 / 3 Pune - Tel: (020) 6640 8300 / 3052 3217 Rajamundhry - Tel: (0883) 3982 200 Rajkot (Ardella) Tel.: (0281) 2926 568 Rajkot (University Rd.) - Tel: (0281) 2331 418 Rajkot - (Bhakti Nagar) Tel: (0281) 2361 935 Rajkot - (Indira circle) Tel : 99258 84848 Rajkot (Orbit Plaza) - Tel: (0281) 2463 291-94 Rajkot (Pedak Rd) - Tel: (0281) 2925 055 Rajkot (Ring Road)- Mobile: 99245 99393 Rajkot (Star Chambers) - Tel : (0281) 2233 230 Rajkot - (Star Chambers) - Tel : (0281) 2225 401-3 Salem - Tel: (0427) 4046 555 - 62 Secunderabad - Tel : (040) 6690 5192 / 3 / 4 Surat (Mahidharpura) - Tel: 2402 911 - 915 Surat - Tel : (0261) 2257 990 / 909 Surat (Ring Road) - Tel : (0261) 6696 666 Surendranagar - Tel : (02752) 223305 Udaipur - (0294) 3981 400 Valsad - Tel - (02632) 645 344 / 45 Vapi - Tel: (0260) 2400 210 / 214 / 236 Varachha - (0261) 2551633 - 39 Vijayawada - Tel :(0866) 6636900 / 901/ 902 Warangal - Tel: (0870) 6452 223 / 7
Central Support & Registered Office:G-1, Akruti Trade Centre, Road No. 7, MIDC Marol, Andheri (E), Mumbai - 400 093 Tel : 2835 8800 / 3083 7700
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Angel Broking: Bharat Heavy Electricals

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Angel Broking: Bharat Heavy Electricals

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Angel Broking

Service Truly Personalized

Jain Irrigation Bharat Heavy Electricals

BSE Sensex Nifty

BSE Code NSE Code Reuters Code Bloomberg Code

500103 BHEL BHEL.BO BHEL@IN

Abs. Sensex (%) BHEL (%)

3yr 21.4 135.9

(34.1) (48.3) (20.8) (50.2)

November 2008 January 30,7, 2008

Bharat Heavy Electricals

Exhibit 1: Business Segments

Source: Company, Angel Research

Exhibit 2: Installed Generation Capacity

80,000 60,000 40,000 20,000 0

FY2005 All India BHEL

Source: Company, Angel Research

November 7, 2008 January 30, 2008

Bharat Heavy Electricals

Business Group offers a good growth opportunity

Source: CEA, Angel Research

November 2008 January 30,7, 2008

Bharat Heavy Electricals

Exhibit 4: Segmental Revenue Breakup

74.0% 73.6% 74.7%

Source: Company, Angel Research

Exhibit 5: Overseas Business Revenue Growth

Source: Company, Angel Research

November 7, 2008 January 30, 2008

Bharat Heavy Electricals

Capacity Expansion Plan

Capacity over a five year

Exhibit 6: Planned Capacity Addition

Source: Company, Angel Research

Significant Strategic Partnerships

November 2008 January 30,7, 2008

Bharat Heavy Electricals

November 7, 2008 January 30, 2008

Bharat Heavy Electricals

Exhibit 7: Planned Power Equipment Capacities

Capacity (MW) 4,000 5,000 10,000 5,000 3,000 NA NA

Year 2010 2011 2010 2013 2010 2011 2011

Chinese Players giving a tough company time to the

Exhibit 8: Share of Chinese Players in the 11th Plan Thermal Orders

Source: CEA, Angel Research

November 2008 January 30,7, 2008

Bharat Heavy Electricals

Exhibit 9: Chinese Remimbi Vs Indian Rupee

Source: Bloomberg, Angel Research

Exhibit 10: 11th Plan Capacity (MW) Addition Summary

Source: CEA, Angel Research

November 7, 2008 January 30, 2008

Bharat Heavy Electricals

Exhibit 11: Capacity (MW) Awarded to BHEL in the 11th Plan

Source: CEA, Angel Research

Exhibit 12: BHEL's Share in the Capacity for 11th Plan

Source: CEA, Angel Research