BHEL - Investment case
- Company Overview - BHEL
- BHEL - PSU is India’s dominant producer of power & industrial machinery since 1964
- 200 GW+ installed capacity (70% power generation in India from BHEL Installed capacity in India)
- Key beneficiary - Aim to achieve 50% market share from non power segment (30% presently)
- Attractively placed for capacity addition of high growth sectors – Decarbonization, Green Hydrogen, Transportation, Aerospace & Defense with impetus on “Make in India” & “Atmanirbhar Bharat”
- Market Cap – INR 88k Crs, Revenue INR 24K Crs, P/B – 3.4x
- Order book - 1.2 lac Crs
- 503 patents filed in FY23 - Total IP - 5,443
- Selling shovels during a gold rush
- Minimal Thermal capex investment for during 2017-24 period (<5 GW pa)
- Leading to deficit in 2024-27 period
- Focus on capacity addition – Thermal, Solar, Wind
- At the bottom cycle from financials, upward cycle has begun
- Investment case
Good
- Uptick in thermal capacity addition due to strong electricity demand, uptick in spot market prices and no major capacity addition in next 3 years
- No major presence of Chinese / International BTG supplier – major beneficiary last time
- Strong order inflow from Central, State & Private sector utilities
- Improvement in order terms – commodity cost pass-through – learning from last upcycle
- Reduction in manpower – 50k to 30k
- 30% order book in non power sector & management focus on developing non power sector order book – Target 50%
- Decrease in competitive intensity will lead to better margins
Better
- Decarbonization opportunities – FGD, Green Hydrogen, Renewable generation
- Defense & Aerospace opportunities – Cryogenic component, Batteries and other components for Chandrayan -3, indigenization of imported parts
- Transport opportunities – Railways & Urban Transportation - 80 Vande Bharat trains Kavach etc.
Best
- Efficient capital management from shareholder perspective
- Improvement in efficiency at part with best global OEMs
- Improvement in execution capabilities
- Recovery and resolution of sticky receivables through mutual agreement, arbitration & other mechanisms
- Ability to make significant break-through in decarbonization and green hydrogen sectors
- Technical analysis
Price uptrend continuation with all time high volumes
- Risk
- Being an PSU, majority shareholder may influence business decision, capital allocation strategy
- Historically faced with sub par execution skills and delay in delivery, may not scale up due to such issues
- Profitability may be impacted, or receivables may not come through due to any reasons, as seen in last cycle
Disclaimer: Education purpose only, Not an Investment advice or recommendation.
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