>BHEL: 14th India Investor Conference (MERRILL LYNCH)

Key takeaways were:
■ India’s #1 power equipment major with ~54% share:
BHEL plants light two out of the three Indian homes and have ~54% share, even in XI plan (FY08-12). Its competitive advantages are its efficient, rugged, indigenously produced power equipment and after sales services, which give clients consistent high PLF / availability – key to superior RoE. BHEL remains our top pick on improving visibility of 23% EPS CAGR over FY09-12E, led by multi-year capex cycle driving backlog at 4x FY10E sales, peaked costs and improved competitiveness.
BHEL strategy to retain its market leadership in world’s 2nd largest and the most exciting power market being keenly contested by global majors are detailed below:

■ Upgrade product suit: Super-critical, ACGT & Nuke turbines
BHEL has upgraded its technology and ratings across the product e.g. It acquired technology for super-critical boilers upto 1GW from Alstom, TG from Siemens, CFBC boiler from Lurgi, Germany and advance class gas turbines with up to 289MW (ISO) from GE, USA. It is in final stages of finalizing Nuke turbine technology of up to 1.6GW in JV with Nuke Power Corp. of India. It has also developed 300MW, and 600MW sub-critical sets on its own to fight Chinese competition.

■ Focus on Private IPPs to retain market share
Its focus on private IPPs has led to some big order wins - JP (2x250MW & 3x660MW), IndiaBulls (10x270MW), JSPL (4x600MW) and Hindalco (6x150MW).

Expanding capacity to meet burgeoning backlog (US$27bn): It is expanding capacity to 15GW v/s 10GW by FY10E and 20GW by FY12E.

■ New wage settlement = Improve cost competitiveness:
BHEL has signed a 10 year wage agreement, which will cut its labor costs ~250bps in 2 years and boost competitiveness / operating leverage. BHEL is likely to have 50K people for 15GW v/s 43K for 10GW.

■ JVs with customers to enter new products
BHEL has entered into JVs with its customers to secure market share in supercritical & Nuke technology - TNEB 2x800MW, Mahagenco 2x660MW / 800MW and 2x660 MW / 800MW with Karnataka and Nuke Power (NPCIL).

To read the full report: BHEL