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BHEL

Key points
■ Bharat Heavy Electricals Ltd (BHEL) will announce its provisional results on April 02, 2009. We expect the company to report a turnover growth of 31.6% year on year (yoy) and profits to grow at 8.3% yoy.

■ For the full year, the company would be making a provision of Rs1,313 crore for increment in wages, as recommended by the Sixth Pay Commission. For Q4FY2009, the provision would be to the tune of Rs475 crore. We expect the total order inflows for FY2009 to rise by 39%, while the backlog should settle at a 19% growth on a year-on-year (y-o-y) basis.

■ The street would keenly watch as the management issues its formal comment on the company’s performance in FY2010E. We expect the company to guide for a 20- 25% growth in its revenues. The operating margin is expected to improve on the back of lower raw material cost and operating leverage. The order flows would also continue to remain strong. In fact, in a recent conference call, the management has guided for an order inflow to the tune of Rs50,000 crore in FY2010E.

■ In Q4FY2009, the order inflows continued to be firm, as the company acknowledged orders to the tune of Rs13,076 crore. The company recently bagged an order for 700MWe steam generators from the Nuclear Power Corporation of India Ltd (NPCIL), valued at Rs345 crore.

■ BHEL’s strong revenue visibility (with an order book of 4.8x FY2008 revenues) coupled with its strong balance sheet makes it our preferred pick in the sector. At the current market price, the stock trades at 16.9x FY2010E earnings. BHEL’s premium valuation to the Sensex owes much to former’s resilient business model. We maintain Buy call on the stock with a price target of Rs1,546.

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