BHEL (BHEL IN; Mkt Cap USD26b, CMP Rs2,460, Buy)
- 1QFY11 earnings above estimates but revenues disappoint: BHEL posted 1QFY11 net revenue of Rs65b (+16% YoY), but below our estimate of Rs72b (up 29% YoY). PAT of Rs6.7b (up 42% YoY) was higher than our estimate of Rs5.5b (up 22% YoY). Adjusted EBITDA margin of 15% (+434bp YoY) was higher than our estimate of 11.8% (+119bp). RM costs declined 457bp YoY in 1QFY11 and other expenses were flat. The decline in raw material costs was driven by lower commodity prices (as fixed price contracts account for ~50% of the order book).
- Order intake down 15% YoY; expect intake of 16GW; 4% growth in FY11: BHEL's order book as at June 2010 was Rs1,480b (+19% YoY, +3% QoQ). In 1QFY11, BHEL posted order intake of Rs108b, down 15% YoY. Order intake in FY11 will be robust, given: (i) bulk tendering of super critical projects (11 sets of 660MW each), (ii) project awards by joint ventures (with Madhya Pradesh 2X660/800 at Khandwa and with Maharashtra for 2X660MW at Latur), and (iii) accelerated awards by private players/state utilities/CPSUs.
- Valuation and view: We have revised our revenue estimates downwards by 5% and 10% for FY11 and FY12 respectively. PAT estimates were unchanged for FY11, and have been revised downwards by 5% for FY12. Our revised EPS estimates are Rs119 (+24% YoY, adjusted) for FY11 and Rs147 (+24% YoY). Our revised price target is Rs2,934, an upside of 19% from current levels. Maintain Buy.