>BHEL (INDIA INFOLINE)

COMPANY REPORT
BHEL - BUY
CMP Rs1,402, Target RS1,610

Rs 1.1 trn order book provides strong visibility
Robust investments in the power sector coupled with BHEL's dominance in the power equipment space translated into a robust order book. BHEL's otder book of Rs 1.1 trn, grew by 3.5x over the past five years, is 5.3x FY08 gross revenues provide strong revenue visibility. In order to avoid delays, it is doubling capacity to 20,000 MW by FY 12. Since majority of the orders are from the Government and NTPC, BHEL insulated from lower payment risk and order cancellations. We believe BHEL's order book will continue to grow as fresh investments are announced in the power sector.

Lower commodity prices will positively impact margin
In order to overcome supply chain issues, BHEL stocks its key raw materials for a period of four-six months. For the 9M FY09 steel prices were higher by ~48% yoy. thus negatively impacting margins for the year. However with prices correcting by 51% over the past 7 months and BHEL consuming its high cost inventory in Q4 FY09, we expect its margin to improve in FY10. Also its staff cost will increase marginally as the full impact of sixth pay commission will be accounted for in FY09.

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