BHEL - Buy

This public-sector power equipment behemoth is currently facing some challenges. Apart from the high interest rates, the power sector has been hit by bottlenecks in the form of slow-paced reforms, difficulty in getting environmental clearances and establishing coal linkages. Increased competition from Chinese players also seems to be playing spoilsport for many power sector companies in India.

However, Bhel is well-placed to tide over these challenges and appears most attractive from the valuation perspective. With the sheer scale of its operations and high research and development (R&D) capabilities, Bhel is in a position to thwart any competitive pressures. It will also benefit from the recent government clause that prevents companies with no domestic manufacturing facilities from placing bids for super-critical equipment.

The comfortable debt on its books also ensures that it is not adversely impacted by high interest rates. Its impressive order book (around Rs1,640 billion at the end of 2010-11) provides a strong visibility on future earnings. Order inflows are expected to pick up further when the interest rates soften. Bhel is also planning to ramp up its capacity, with plans to increase its equipment manufacturing capacity from the current 15,000MW to 20,000 MW by the end of 2011-12.



Performance :

The scrip has under performed in line with the Capital Goods Index and is likely to move side ways in the near term.

Time Span	Price	Change	%Change
Today	1,746.20	9.70	0.55
Week	1,683.25	53.25	3.16
Month	1,824.90	-88.40	-4.84
Three Months	1,936.00	-199.50	-10.30
Six Months	1,975.00	-238.50	-12.07
One Year	2,478.50	-742.00	-29.93

Our Recommendation :
Buy on steep declines to around 1600 and hold for a period of 2-3 years for a decent returns, long term investors should hold the stock with a strict stop loss of 1600/-

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Ingenious Investor
Equity Research Division

Ravina Consulting
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