Bharat Heavy Electricals Limited (BHEL) is one of the largest engineering enterprises of its kind in India. BHEL is the largest domestic capital goods manufacturer in India and the 12th largest in the world. The international competitors of BHEL are General Electric, Siemens, Alsthom and ABB. BHEL offers a wide spectrum of equipment, systems and services in the field of power, transmission, industry, transportation, oil & gas, non-conventional energy sources and telecommunication. Power constitutes 52.5 per cent of its business. The company has 14 manufacturing divisions, 8 service centers and 4 power sector regional centers. Its first plant was set up at Bhopal in 1956 under technical collaboration with AEI, UK followed by three more major plants at Hardwar, Hyderabad and Tiruchirapalli with Russian and Czechoslovak assistance.

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BHEL manufactures over 200 products under 30 major product groups. The company has installed equipment for over 64,000 mw of power generation for utilities, captive and industrial users. Its strengths are comparable product range and cost competitiveness with foreign manufacturers. The company enjoys a crucial advantage of depreciated assets. The company is cost-competitive when it comes to power plant equipment and has bagged a number of power project orders placed in India against open international competitive bidding.

The company has joint venture with Siemens for servicing old Indian fossil fuel power plants and with GE for designing of heavy-duty gas turbines. A thirty-two thermal power stations equipped with Bhel’s generating sets have been given productivity awards by the power ministry. Of these power stations, eight have received gold medals. The awards have been given for meritorious and efficient performance based on account of reduced inputs.

Bharat Heavy Electricals is mulling to pick up equity stake or even buy out forgings ventures in Eastern Europe and China. BHEL’s chairman and managing director, K Ravi Kumar said the company was looking at a Romanian firm and others in East Europe. He also said that Chinese firms are also being looked at. He further said that the company was also keeping its options open on the idea of picking up stake in the proposed Areva-Bharat Forge forgings venture. By adopting this strategy, BHEL aims at blocking some capacity to tide over a shortage of forgings and casting being faced by the company.

Company announced an investment of Rs 120 billion over the next four years to pick up equity in power projects and to boost its capacity to support the generation of about 20,000 MW. The company said that funding will come from internal accruals as BHEL is a cash-rich company. BHEL’s current manufacturing capacity can support power generation of 10,000 MW. It includes 2,500 MW of hydro electricity production, and 500 MW captive power plants for the industrial sector. A thousand MW is exported and the power plants coming up can generate 6,000 MW. By the end of this fiscal, the company hopes to make equipment for generating 15,000 MW.

As part of India’s largest solar power-based island electrification project in india, Bharat Heavy Electricals (BHEL) has successfully commissioned two grid-interactive solar power plants of 100 KWp each in Lakshadweep. With this, the company has commissioned a total of eleven solar power plants in the Lakshadweep islands, adding over 1 MW of solar power to the power generating capacity of the coral islands in the Arabian Sea. The plants have been set up at Chetlat and Amini islands of Lakshadweep. BHEL has earlier commissioned solar power plants of various ratings up to 150 KWp at the islands of Agatti, Andrott, Bangaram, Bitra, Kadmat, Kalpeni, Kavaratti, Kiltan and Minicoy.

Bharat Heavy Electricals (BHEL) has achieved yet another milestone in the Middle East region with a prestigious export order for two gas turbine generating units of 126 MW each from the Sultanate of Oman. Valued at Rs 3,750 million, the order envisages supply and supervision of  erection and commissioning of two numbers state-of-the-art gas turbine generating units of 126 MW each for a power project being set up by Petroleum Development Oman (PDO) at Amal, nearly 700 kms from Muscat.

Company has secured prestigious contract worth Rs 40.15 billion (USD 845 million) from Hindalco Industries. The order is for the supply and erection of the main plant package for its upcoming captive power plant (6x150 MW) at Aditya Aluminium in Sambalpur district of  Orissa. The order comes close on the heels of an order placed on BHEL by Hindalco recently for a similar boiler and turbine generator package for its captive power plant at Mahan Aluminium in Singrauli district of Madhya Pradesh.

Valuation:

At current market price, stock is trading at 22.68 P/E multiple of its FY2010 estimated earnings. We recommend investors to buy “BHEL” with medium to long term investment horizon.