bharat heavy electrical limited

Omkar, Akash, Akshay, Mohd. Safwan, Mayank, Vikas

Company Overview

Industry Overview

63.06%

2.25%5.26%

10.43%

14.18%

4.82% Promoter & Promoter Group

Mutual fund / UTI

FI/ Banks

Insurance company

FPI

Indivuidual

Introduction

Main Features• One of the Largest Engineering & Manufacturing Company

• 10,000 MW+ Power Project Commissioned/Synchronized

• Hydropower Project Commissioned 100% By BHEL

• Consistent Dividend Paying Company

Shareholder’s Structure

Financial Profile Valuation Risk Analysis Conclusion

Market Profile as on 10/10/2016Share Price Rs.135.9552 Week Low - High (Rs.) 90.40 - 219.70

Market Capitalization (Rs.in crore)

33275.12

P/B Ratio (2016) 1.01

Face value (Rs.) 2

Source: Annual Report, Team Calculations

2011 2012 2013 2014 2015 20160

10000

20000

30000

40000

50000

60000

4333749509.78 50156.48

40337.92

30947.0426586.51

Turnover (Rs. in crore)

Source: Annual report 2015-16Industry

OverviewFinancial Profile

Company Overview Valuation Risk Analysis Conclusion

2010-11 2011-12 2012-13 2013-14 2014-15 2015-160

20000400006000080000

100000120000140000160000180000

6050

7

2209

6

3165

0

2800

7

3081

4

4372

7

1641

00

1353

00

1151

00

1015

00

1010

00

1107

30

Orders Received and Orders Outstanding(Rs. in crore)

Orders Recieved Order Outstanding


11-12 11-12 13-14 14-15 15-160

2000

4000

6000

8000

10000

12000

14000

16000

8138 9298 8563 8230

13061

27230

27032000

1180

Contribution to India's Utility Power Generation Capacity ( in MW)

Capacity Addition Synchronization

BHEL 55%

Non-BHEL 45%

Installed Capacity- Utility* 2,65,598 MW (31.03.16)

BHEL58%

Non-BHEL42%

Generation – Utility* 896 BU (2015-16)

Recommendation

Reasons

• Backlog of order book• EBITDA Margin (Y-o-Y)• Execution of JDU project and

intense competition

Recommendation

Company Overview

Industry Overview


80%

11%

9%

Sector wise Order Book Outstanding

Power Sector Indusry Sector International Operation

SELL

Businesses Description

Company Overview

Industry Overview


201520142013201220112001 - 101991 - 001981 - 901971 - 801964 -70

Incorporated as ‘Bharat Heavy Electricals Limited’ with 100% ownership of “GOI”

Added plants to manufacture Ceramic Insulators, Boiler Auxiliaries, Industrial Valves and NCES products

Crossed Market Cap. of over INR 1 trillion (US$16.7 bn)

Manufacturing Capacity augmented to 10,000 MW per annum

Cumulative installed capacity of worldwide projects crossed 1,00,000 MW

Commissioned India’s first Ultra High Voltage AC 1200 kV Transformer

Realized the capability to deliver 20,000 MW p.a. of power equipment

Cumulative power projects installed worldwide crossed 1,50,000 MW

First indigenously manufactured 800 MW Boiler synchronised for APPDCL at Krishnapatnam

Bagged its first export order for boilers (2x60 MW) for Thermal Power

Station in MalaysiaSetup of Corporate R&D division

The company has been earning profits continuously since 1971-72 and paying dividends uninterruptedly since 1976-77

Converted into a public limited company

Entered into a gas turbine JV with GE

Listed on NSE and BSE

Ranked as the 9th Most Innovative Company in the World by Forbes

Becomes the first company in India to develop and manufacture 1200 kV, 333 MVA Transformers

Commissioned new rating 525 MW thermal sets first time in India

Crossed INR 500 bn (US$ 8.3 bn) Turnover mark

First BHEL made 660 MW Supercritical unit commissioned

First indigenously manufactured Supercritical set of rating 660 MW commissioned by BHEL at NTPC Barh-5

Developed breakthrough Fuel Flexible Boiler design

Industry Overview

Competiton

Buyer

SupplierNew Entrants

Substitute

1

2

3

4

5

The capital goods & engineering turnover in India is expected to reach US$ 125.4 billion by FY17

Mechanical and Engineering industries during April 2000 to March 2016 stood at around US$ 3,068.1 million, as per data released by the Department of Industries Policy and Promotion (DIPP)

Reduced the basic customs duty from 10 per cent to 5 per cent on forged steel rings used in the manufacture of bearings of wind operated electricity generators

Spending on engineering services is projected to increase to US$ 1.1 trillion by 2020

Source: http://www.ibef.org/industry/engineering-india.aspx

Industry Overview

Company Overview

Industry Overview


Source: Team Calculations

PORTER’S FIVE FORCES

BHEL vs COMPETITORS

2011 2012 2013 2014 2015 2016-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%29.83%

27.75%

21.73%

10.89%

4.16%-2.76%

22.15%17.67% 16.85%

12.49% 13.63% 12.28%

ROE

BHEL PEERS MEDIAN ROE

1 LARSEN & TOUBRO

2 SIEMENS INDIA

3 BHEL

4 ABB INDIA

5 THERMAX

Source: YAHOO FINANCE

Industry Overview

Company Overview


Source: Yahoo FinanceSource: Annual Report, Team Calculations

Financial Profile

2011 2012 2013 2014 2015 2016-2000

0

2000

4000

6000

8000

10000

12000

9604.2911153.5

10511.1

6129.85

3308.98

-514.25

EBITDA (Rs. in crore) & EBITDA Margin (%)

23.11%

23.62%

22.07%

15.97%

11.20%

-2.05%

Financial Profile

Industry Overview

Company Overview

Financial Profile

2011 2012 2013 2014 2015 2016

-4000

-2000

0

2000

4000

6000

8000

10000

120009060.16999999

99910353.54 9557.71000000

001

5146.93

2231.66

-1449.89

EBIT(Rs. in crore)

2011 2012 2013 2014 2015 2016-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00% 26.40% 27.21%

22.59%

10.89%

4.82%

-3.17%

ROCE (%)

2011 2012 2013 2014 2015 2016-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%29.83%

27.75%

21.73%

10.47%

4.16%

-2.76%

Return On Equity (%)

Valuation Risk Analysis Conclusion


Return On Equity (ROE, Five components)

Company overview

Financial Profile

Industry Overview Valuation

DuPont Analysis

2011 2012 2013 2014 2015 201656.00%58.00%60.00%62.00%64.00%66.00%68.00%70.00%72.00%

66.75%68.33%

70.13%69.02%

66.32%

61.86%

Tax Burden

2011 2012 2013 2014 2015 201692.00%

94.00%

96.00%

98.00%

100.00%

102.00%

104.00%

99.40% 99.50%98.69%

97.42%95.89%

101.85%

Interest Burden

2011 2012 2013 2014 2015 2016

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00% 21.80% 21.92% 20.07%

13.41%

7.55%

-5.77%

Operating Profit Margin(EBIT/NET REVENUE)

2011 2012 2013 2014 2015 20160.00%

10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%

70.14% 70.73% 67.90%

52.74%43.15%

37.69%

Total Assets Turnover

2011 2012 2013 2014 2015 20160.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

350.00%294.04%

263.18%230.35% 220.27%

200.87% 201.77%

Equity Multiplier (Financial Leverage)

Risk Analysis Conclusion


Company overview

Financial Profile

Industry Overview

2011 2012 2013 2014 2015 20162.502.602.702.802.903.003.103.203.303.40 3.35

3.14 3.103.21

2.82 2.80

Inventory Turnover Ratio

2011 2012 2013 2014 2015 201695

100105110115120125130135

109

116 118114

129 131

Inventory (Days)Activity Ratio

Valuation Risk Analysis Conclusion

2011 2012 2013 2014 2015 20160.00

0.50

1.00

1.50

2.00

2.502.04 2.03

1.71

1.341.09 0.99

Receivables Turnover Ratio

2011 2012 2013 2014 2015 20160

50100150200250300350400

179 179213

272

335368

Days of Receivables Outstanding

2011 2012 2013 2014 2015 20160.00

0.50

1.00

1.50

2.00

2.50

3.00

3.502.88

2.462.21

1.551.12 0.97

Working Capital Turnover

2011 2012 2013 2014 2015 20160

50

100

150

200

250

300

165129 133

234

285

207

Cash Conversion Cycle (Days)


Other Ratios

2011 2012 2013 2014 2015 20160.00

0.50

1.00

1.50

2.00

2.50

3.002.61

0.76

1.13 1.27

1.74

2.67

Order Received /Raw Material

Company overview

Financial Profile

Industry Overview Valuation Risk Analysis Conclusion

2011 2012 2013 2014 2015 20160.000.200.400.600.801.001.201.401.601.80

1.40

0.450.63 0.69

1.00

1.64

Order Received/ Sales

2011 2012 2013 2014 2015 2016-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%41.94% 42.87%

34.82%

16.17%

7.36%

-4.93%

Return On Capital

2011 2012 2013 2014 2015 2016-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

38.86%44.41%

40.99%

22.08%

9.57%

-6.22%

Earnings Yield


Company overview

Financial Profile

Industry Overview Valuation Risk Analysis Conclusion

2011 2012 2013 2014 2015 20160.00

0.50

1.00

1.50

2.00

2.50

1.74 1.701.83

2.042.19 2.22

CURRENT RATIO

2011 2012 2013 2014 2015 20160.000.200.400.600.801.001.201.401.601.802.00

1.30 1.231.41

1.65 1.73 1.76

QUICK RATIO

2011 2012 2013 2014 2015 20160.00

0.10

0.20

0.30

0.40

0.50

0.60

0.39

0.230.28

0.46 0.440.48

CASH RATIO

Solvency Ratios


Valuation

FORWARD MULTIPLES

Industry overview Valuation Risk Analysis ConclusionCompany

overviewFinancial Profile

Relative Valuation

1.32 1.24

2.84 2.65

2.26 1.96

3.82 3.47

2.39 2.10

PEER GROUP SELECTION CRITERIA

• Companies major business is in power sector• Capital goods producer and engineering

BHEL

ABB INDIA

LARSEN & TURBO

SIEMENS INDIA

THERMAX

Price/Book value

1.01

8.10

3.32

8.61

4.19

5.04

P/REVENUE

2016 2017(E)

EV/REVENUE

2016 2017(E)

0.93

2.84

2.44

3.64

2.382.45

0.87

2.65

2.12

3.31

2.092.21 2.52 2.28INDUSTRY AVERAGE

2016




FCFF Analysis

Tax Rate 38.14%After Tax Kd 17.94%Ke 8.17%Debt Weightage 0.36%Equity Weightage 99.64%

WACC 8.21%

Assumption: FCFF Growth Rate -4.50% CAGR (NET SALES)

2017E 2018E 2019E 2020E1 2 3 4

FCFF 3335.67 3255.79 3177.88 3133.68Terminal Value 30692.28Present Value of Free Cash Flow 3082.59 2780.49 2508.04 2285.52PV of Terminal Value 22385.13

Total Present Value of Cash Flow 33041.79

Less: Net Debt 9959.7

Value of Equity 23082.09No of Shares Outstanding 244.76

EQUITY VALUE PER SHARE (Rs.) 94.30Source: Team Calculations

ROCE

Capital Employed

CapexCost of Capital

Margin Of Safety

-20%

0%

20%

WEALTH CREATION

Motilal Oswal’s Five Forces of Wealth Creation ©



Source: www.marketsmojo.com

BHEL vs NIFTY 50

5 YEARS RETURN 1 YEAR RETURN



Risk Analysis

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

33.40% 25.00% 41.70%

Sector-wise Contribution To Installed Generation Capacity, FY 2016

State Sector Central Sector Private Sector

Source :www.pwc.in/assets/pdfs/publications/2016/round-the-clock-power-supply.pdf

BHEL vs POWER SECTOR

CO

NTR

IBU

TIO

N

UDAY scheme (Ujwal DISCOM Assurance Yojana) as of march 2015, the

aggregated accumulated losses of discoms are, Rs 3.8 lakh crore and their

outstanding debt is Rs 4.3 lakh crore.

IPDS (Integrated Power Development Scheme) is basically a new avatar of

R-APDRP scheme in which funds are provided for reduction of AT&C

losses, up gradation of infrastructure, it based billing and auditing system and

collection efficiency.

DDUGJY (Deendayal Upadhyaya Gram Jyoti Yojana) focuses on feeder

separation for rural households and agricultural.



Source: Power for All, MoP



59.0%

7.0%

4.0% 10.0%

ESTIMATED SECTOR- WISE COAL CONSUMPTION IN INDIA(2016-2017)

ELECTRICITY IRON & STEEL CEMENTOTHERS NON- ELECTRICITY

BHEL vs POWER SECTOR

The Coal Sector is Burdened with Taxes such as payment for

District Mineral Foundation (DMF), payment of National Mineral

Exploration (NMET), both as a percentage of Royalty, and Clean

Energy Cess that has been Increased to INR 400 per tonne for

2016-17

State-owned CIL's 66 projects are facing delays due to reasons

including land acquisition problem as well as rehabilitation and

resettlement issues

Loss of Rs. 1.85 Lakh cr. Estimated by CAG (Comptroller and

Auditor General) in coal allocation

Source :www.dnaindia.com/money/report-coal-india-s-66-coal-mine-projects-facing-delays

Source: .pwc.in/icc-coal-report

Order Back Log Unsound Financial Position

Decreasing Operational Efficiency

SELL

CONCLUSION



bharat heavy electrical limited

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