Coming to fundamentals it is seen that on account of the poor state of the entire power sector, BHEL’s receivables have remained high. The company’s receivables stood at Rs.35,900 crore, more than its annual revenue of Rs.30,667.63 crore in March 2015. However, its management pointed out that about 50% of it is deferred debt which will be due for collection once certain milestones are achieved and the remainder are collectibles, of which over Rs.10,000 crore are more than a year old.
The Kotak Securities says FY16 will be a strong year for Bhel with orders booked at Rs.28,300 crore and the company is L1 in about Rs.17,000 crore, most of which are expected next year. For the first nine month of the current fiscal, Bhel’s order inflow was Rs.35,000 crore which translates to around 9-10 GW of power equipment’s. JM Financial has pointed out that the company’s management hopes to end the year with 15-16 GW on inflows versus 4-5 GW in the previous year.
Consensus estimates of analysts suggest that the company can touch a revenue of around Rs 36,000 crore by FY18.
Moreober, BHEL is a debt-free company and if the government’s measures of Make in India and other electricity reforms are to take off, the company is ideally positioned to capitalise on it. Though 80% of current revenue and order book is from power sector (largely generation), BHEL has taken other initiative to augment growth in future in the other segments.
Industrials which accounts for nearly 20% of the revenue and order book and caters to segment like power transmission, railways, water treatment, defence and solar is likely to see action in the near to medium future.
The government’s initiative of strengthening the state electricity boards through UDAY is likely to see order flows increasing in the transmission sector rather than generation.
BHEL has significant presence in the field of power transmission in India with a wide range of transmission systems and products in its portfolio. The company is one of the leading players in transformers in the country and has started booking in big orders in the space.
In order to capitalise on the solar sector, the company is capitalising on its knowledge in the sector. BHEL manufactures space grade solar panel and space grade batteries in association with ISRO. All Indian satellites launched by ISRO are equipped with BHEL manufactured solar panels since 2002 and batteries since 2005. The company is planning to ramp up its cell & module production capacity and enhance EPC capabilities to address the domestic market demand.
In railways BHEL provides electrical propulsion system and its controls and accounts for more than 40% of electric locomotives in operation by Indian Railways. The company is augmenting its locomotive capacity and tying up with global companies to meet the increased demand from dedicated freight corridor.
BHEL is an established supplier for defence equipment. The company is working closely with various defence research institutes of the country to develop new products under the Make in India programme. It has also tied up to address the business opportunity of producing six submarines for Indian Navy.
While it is still early days for the industrial segment to provide the next leg of growth opportunity, but the BHEL is well placed to capitalise on the opportunity.
The company is available at less than its book value (RRs139.26), with nearly half of its market capitalisation in cash as per last balance sheet. Dividend yield at current price level is still around 1.08% thus giving some more room before it becomes very attractive.
Recently, there were some media reports that the state-run power gear maker BHEL had beaten Chinese rivals to bag a contract for building $1.6-billion coal-fired power plant in Bangladesh, giving the Narendra Modi government's "Make in India" initiative a shot in the arm and writing down a reference for similar projects worldwide.
BHEL has also beaten India's L&T to emerge as the lowest bidder for the plant to be built at Khulna, some 450 km south-west of capital Dhaka. The contract would be the biggest overseas power project for BHEL, which does not have a major footprint abroad. More importantly , the Bangladesh contract would help lay down a new reference for BHEL and qualify it to compete for projects worldwide.
The contract would also breathe life back into the company's order book, which has remained flat in the absence of greenfield projects being undertaken in recent times, especially in the private sector.
But the victory comes with a hefty dose of financial steroid in the form of interest equalisation support from the government and commitment of 70% funding at a concessional interest rate. The financial package was available to L&T also. The government bears part of the interest burden under the interest equalisation scheme so that the borrower does not pay the entire interest. The package includes a 20-year dollar-denominated loan at 1% above the benchmark Libor.
The government also supported BHEL by persuading Bangladesh to scrap a contentious clause in the bid. Initially, the project promoters--Bangladesh India Friendship Power Company, a joint venture between NTPC and Bangladesh Power Development Board wanted to qualify only suppliers who had a 500 mw plant operating overseas.
This would have disqualified Bhel since it does not have any power plant of that size operating abroad.
However, this clause was scrapped after New Delhi took up the matter with Dhaka. The contract marks a reversal of fortune for BHEL, which has been lagging Chinese competitors who usually sweeten their bids with soft financing and credit lines for other projects from the go vernment.
The groundwork for the power plant was laid during the 2010 visit of Bangladesh PM Sheikh Hasina to India. An agreement envisaging wide-ranging energy ties between the two sides was signed during the visit. India has laid a transmission line to link the grids of the two countries and supplying 500 mw through it.
Besides, on the Budget day, the FM announced some measures, which are likely too be a major boost for power sector--at least some sentimental push. This may result in more power equipment orders for the company. The Finance Minister Arun Jaitley said the government has a target of 100% village electrification by May 1, 2018.
Note: The scrip of BHEL was recommended to the Premium Group members during market hours, today (Friday).