Buy BHEL, target Rs 3250: HSBC

HSBC Global research has maintained buy ratng on BHEL with target price of Rs 3250 implying upside potential of 55% in its January 24, 2008 report. "We expect BHEL to report an EPS CAGR of 36% over FY07-10e driven by 31% revenue growth and 110bps margin improvement over the same period. BHEL already has a 69.6% share of the thermal business in the 11th Five- Year Plan. We believe the risk to our forecasted revenue growth is low because 62% of the 11th Plan project has already been ordered, resulting in an outstanding order backlog of Rs 724 billion, which is 4x FY07 revenue. The operating leverage and already awarded project, at better pricing, will help BHEL to improve the margin by c110bps over FY07 10e. Valuation supported by strong order book. At our 12-month target price of Rs 3,250, BHEL will be trading at 26xFY10e which is based on strong revenue growth visibility provided by the 58% y-o-y increase in the order book," according to HSBC Global research report.


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