The Hindu Business Line : BHEL on strong wicket thanks to healthy order position

Brokers say the counter is likely to be re-rated on the bourses. The stock has appreciated by almost 5 per cent from around Rs 543 levels (BSE) as on August 2 to its current levels of Rs 568.

BHEL is India's dominant producer of power and industrial machinery and a leading EPC company with 14 plants and 8 service centres. The company claims to have fully established technology to produce `subcritical' sets up to 500MWs and has the capability of producing sets up to 1000 MWs in collaboration with Siemens.

It is also said to be in the process of planning a 45-per cent increase in its power generation equipment capacity to meet higher demand.

According to a Merrill Lynch report, dominant market leadership, large domestic base, economies of scale and its proximity to key customers provide BHEL a competitive edge over and above the price and purchase preferences.

Further, a well-established presence, 65 per cent of India's power capacity, also offers BHEL replacement and spare business, which is high margin. Replacement and spare business is said to contribute to more than 10 per cent of the company's sales. "Given the strong order intake until the first quarter FY05 and a likely new order pipeline, we expect a 14-per cent growth YoY in its order book for FY05," adds the report.

BHEL is expected to bag at least two of the three power projects from NTPC that is to come up for tendering. "In fact its strong order book position is primarily on account of the fact that BHEL's historic ratio of bagging NTPC orders is around 60-70 per cent," a senior analyst with a reputed brokerage said.

However, industry sources maintain that competition, in particular Chinese competition, could put pressure on margins, say three years down the line. Chinese producers of power equipment have been eyeing Indian market.

Recently, Dongfang Electric had bagged two orders in West Bengal. Competition from this segment is expected to increase, say analysts.

The stock ended the day at Rs 568.40 up 1.15 per cent with around 1.6 lakh shares traded.