With the Indian market for power equipment one of the largest in the world, Bhel is well poised to ride the coming infrastructure wave, its study said. Bhel is India's largest electrical equipment company and the 12th biggest electrical company in the world, it pointed out.
"We believe Bhel is a core part of the Indian story, given the breadth of its consumer base, which, in addition to electric utilities, includes the entire gamut of process industries in India, as well as the railways and defence forces," it said.
It expected the net earnings growth to slow in 1997 to nine per cent because of higher taxes and the profit before tax to increase to 23 per cent indicating that the long term growth story remained strong. It projected 21.6 per cent annual growth between 1997 and 1999.
In Morgan Stanley's view, Bhel stock is the cheapest in the Indian electrical equipment sector and also is attractively valued compared with its international peers.
Bhel's main competitive advantage as a power equipment supplier is that it differs comparable technology at he lowest cost, the study said. Bhel has won more than 86 per cent of all power equipment orders awarded under international competitive bidding in
India. Its outstanding orders currently exceed Rs 10,000 crore, it noted.
The growth in Bhel's industry division revenues of 17.9 per cent a year from 1991 to 1995 was negated by the slump in revenues in the power division. With the industry division set to take off, the study estimated 19 per cent overall annual revenue growth by 1999.
"We believe that Bhel has significant operating leverage, which should allow an improvement in the operating margin from around 14.5 per cent in 1996 to 17.5 per cent by 1999," it said.
India's current electricity shortfall of 9.2 per cent would grow up. As the power sector development will be critical for sustained industrial expansion, there is likely to be a direct correlation between Bhel's growth and the country's economic performance, the study pointed out. If the investment inflows required to build the necessary infrastructure for growth materialises, Bhel's revenues are assured, it said.
Bhel is one of only three or four completely integrated suppliers of power plant equipment in the world and offers the entire set of equipment required for a power plant, including boilers, turbines and transmission equipment. Some of the projects awarded to others in the past could now come to Bhel, it pointed out.
It said Bhel has unmatched manufacturing facilities and its plant and machinery alone will be worth more than Rs 10,000 crore. Its in-house planning, heavy engineering design and manufacturing sectors were excellent and it would be difficult to offer indigenous competition to Bhel, the study said.
The study said Bhel did not need funds for capacity expansion and even if there was an equity issue it would provide funds for supply-side financing. "As the returns are usually quite high in supply-side financing of power equipment, we do not see any cause for investor concern. Moreover, the capital inflow would put company in a much stronger position in the bidding for new power contracts," it said.
