>BHEL: Gross sales seen at Rs400-410bn in FY11E (CITI)

■ Gross sales seen at Rs400-410bn in FY11E — This mgmt estimate compares to official "base target" of Rs380bn and official "excellent target" of Rs395bn. To what extent sales actually exceed Rs400bn is a function of execution and client preparedness. Our gross sales estimate of Rs422bn now appears to have downside risk.

■ Trying to maintain RM % of sales at FY10 levels — Raw materials (RM) % of sales was ~60% in FY10 and can be maintained at the same levels in FY11E, though internal stretch targets are to reduce it to 58%. We assume 76bps increase.

■ Staff costs — These were Rs51.53bn in FY10. BHEL expects this to go up 10% in FY11E to Rs56.68bn, plus Rs1.5bn of pension provisions, implying FY11E staff cost of Rs58.18bn. Our estimates are Rs1.1bn higher at Rs59.26bn.

■ Rs600bn of inflows in FY11E — BHEL has won ~Rs90bn of orders in 1QFY11, a bit low vs. FY11E guidance, but this should be made up in next 9 months. In FY10, BHEL factored in the NTPC-DVC block tender in the guidance of Rs600bn, and despite the same slipping over to FY11E, still managed Rs590bn.

■ Chinese imports into India could be curbed — Against domestic manufacturers’ demands of duties of ~15% on Chinese equipment, the Arun Maira committee recommended ~10%. Ministry of Heavy Industries was demanding this be implemented immediately and Ministry of Power wanted this to be implemented only post FY12E. We believe duty of ~ 5% could be imposed in next budget. CEA might also specify technical norms (both sub and supercritical) for all power
plants in India which may curb Chinese imports. Mgmt maintains that the market is large enough only for 2 of the 3 – BHEL, domestic suppliers & Chinese.

■ 30GW/year market — This based on BHEL is winning 16-17GW annually and maintaining ~55% market. Out of 100GW in XIIth Plan, 62GW has been ordered. But 100GW number is not cast in stone and can be revised up in FY12E.

To read the full report: BHEL