Sunday, April 19, 2009

BHEL - Pulling Up The Entire Power Sector

At the recent analyst concall Bhel forecast high double digit Revenue and Profit growth of 20 and 25 per cent respectively for FY10. Such a bullish outlook should pull-up the fortunes of ABB, Alstom, Crompton and Bharat Bijlee-all star performers of the Power sector in their own right, making these 5 scrips the top stocks to be owned for the next decade.


Most of the times the rise of a business cycle is dictated by the fortunes of the industry leader. For FY10 and beyond it is Bhel which is standing tall amidst the purveyors of doom and slow-down, and through it's strength Bhel is showing that the entire lot of Turbine, Boiler, Steam Generators, Transformers and Transmission Tower producers will benefit as Bhel upscales manufacturing capacity from the present 15,000 MW per annum to about 20,000 MW per annum.


Such a massive expansion in capacity will equate to a 70 per cent share of the 100,000 MW of additional power generating capacity proposed in the 12th Plan period. Newer plants will be set-up, which can produce Super Critical Boilers of 660 MW and 800 MW and the Trichy plant will have it's annual production capacities tripled to meet burgeoning demand.


Bhel's current order book stands at Rs 59,700 crore aggregating to about 17,000 MW. This order book is a 19 per cent growth over the order book reported at end of March 2008. Such a solid increase in order book defies the professors of recession and confirms that growth in the Power sector is intact.


Most importantly, Bhel recorded a 29 per cent growth in Revenues to Rs 27505 crore and a profit after tax of Rs 3039 crore after substantial rise in wages and providing for Wage Arrears and Gratuity provisions of earlier years.  Considering that Steel prices have come down in the past few months and no more provisions are required for Wage arrears, Bhel's margins should rise in FY10.


The management forecasts a bullish 20 per cent growth in Revenues accompanied by a 25 per cent growth in Profits. What's more important, the ever rising order book of Rs 60,000 crore still represents atleast 2 years production for Bhel.


Add normal order book increase of 20 per cent during the year and viola we have a scenario where Bhel needs to sizeably ramp up peripheral capacity for Transformers and the whole lot of Equipment that goes into building up Power plants.


This growth should be good news for the entire sector led by ABB, Siemens, Crompton, Alstom and Bharat Bijlee-which should see their top and bottomline rise as Bhel continues to grow at high double digits.

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