Bharat Heavy Electricals Limited (BOM:500103)

The Economic Times  Mar 1  Comment 
Sell Bharat Heavy Electricals Ltd. at a price target of Rs 87.0 and a stop loss at Rs 91.5 from entry point.
The Hindu Business Line  Feb 21  Comment 
State-run power equipment maker BHEL has bagged a Rs 1,034-crore gas turbine-based captive power plant order from HPCL. Bharat Heavy Electricals Ltd (BHEL) said in a regulatory filing today
The Economic Times  Feb 21  Comment 
Sell Bharat Heavy Electricals Ltd. at a price target of Rs 83.0 and a stop loss at Rs 99.5 from entry point.
Reuters  Feb 8  Comment 
Indian power plant equipment maker Bharat Heavy Electricals Ltd posted a nearly 64 percent rise in third-quarter net profit, but missed analysts' expectations.
The Economic Times  Jan 29  Comment 
Buy Bharat Heavy Electricals Ltd. at a price target of Rs 114.0 and a stop loss at Rs 100 from entry point.
The Economic Times  Jan 15  Comment 
Buy Bharat Heavy Electricals Ltd. at a price target of Rs 115.0 and a stop loss at Rs 95 from entry point.
The Economic Times  Jan 11  Comment 
Buy Bharat Heavy Electricals Ltd. at a price target of Rs 110.0 and a stop loss at Rs 100 from entry point.
The Economic Times  Jan 8  Comment 
Buy Bharat Heavy Electricals Ltd. at a price target of Rs 110.0 and a stop loss at Rs 98 from entry point.
The Economic Times  Jan 5  Comment 
Buy Bharat Heavy Electricals Ltd. at a price target of Rs 110.0 and a stop loss at Rs 95 from entry point.
The Economic Times  Jan 2  Comment 
Buy Bharat Heavy Electricals Ltd. at a price target of Rs 100.0 and a stop loss at Rs 93.9 from entry point.


Bharat Heavy Electricals Limited (BHEL), a public sector undertaking, is the largest engineering and manufacturing enterprise in India in the energy-related/infrastructure sector.

The company was set up at Bhopal under the name of Heavy electrical (India) in collaboration with AEI, UK. Subsequently, three more plants were set up at Hyderabad, Hardwar and Trichy.

BHEL manufactures over 180 products under 30 product groups and caters to sectors like power generation & transmission, industry, transportation, telecommunication, renewable energy, etc. The company has 14 manufacturing divisions, four power sector regional centres, over 100 project sites, eight service centres and 18 regional offices.

The company has installed equipment for over 90,000 MW of power generation and has supplied over 225,000 MVA transformer capacity and other equipment operating in the transmission & distribution network up to 400 kV (AC & DC).

Between January 92 and February 92, the government disinvested a portion of its share holding in the company.

Business Overview

Business and Financial Metrics

BHEL revenues and net profit
BHEL revenues and net profit[1]

From FY2005 to FY2009, sales revenues have grown from Rs 10,682 crore to Rs 28,504 crore, at average annual rate of over 41.7%.[1] In the same period, net profit grew by over 57% average annual growth rate from Rs. 953 crore to Rs. 3,138 crore.[1] As the company runs on an order backlog of over three years sales value, the global economic downturn had no effect on it.[2] The company is also insulated from any adverse conditions prevailing in the international markets as it generates 95% of its revenues from domestic projects.[3]

BHEL fixed asset to turnover, quick and current ratio
BHEL fixed asset to turnover, quick and current ratio[4]

The company has not made any significant capital investments from FY 2005 to FY 2009, hence due to depreciation, the fixed assets to turnover ratio has gone up from 2.67 in March 2005 to 5.2 in March 2009.[4] On 6th May 2009, BHEL announced plans to invest 12,000 crores in capacity expansion to effectively execute the backlog orders.[5] The company has only 0.01% long term debt to equity ratio also because of the nature of the business the company has to maintain an inventory of over 9 months, this has resulted in to pressure on the current ratio and the quick ratio, both of which have gone down from 1.63 to 1.36 and 1.22 to 1.02 respectively.[4]

Share holding pattern: The promoters own 67.72% of BHEL. FIIs with focus on Indian infrastructure segment have invested in the company and own 15.45% of the company. Banks and financial institutions own another 4.45%. ICICI Pru Infrastructure Fund - Retail Plan, SBI Magnum Tax Gain Scheme, DSP BlackRock India T.I.G.E.R. Fund - Regular Plan and UTI Infrastructure Advantage Fund - Series are the mutual funds invested in the firm, with 0.184%, 0.136,0.125 and 0.097% ownership respectively.[6]

Bharat heavy electricals limited share holding pattern [7]
Entity Percentage
President of India 67.72%
FII's 15.45%
Banks Fin. Inst. and Insurance 4.45%
Private Corporate Bodies 4.18%
General public 1.69%
NRI's/OCB's/Foreign Others 0.11%
Others 0.05%

Business segments

BHEL is a heavy engineering company with focus on infrastructure projects related to electrical applications. It operates in the following two segments.

Power segment :(77.3% of revenues)

In FY 2009-10 the power segment’s revenue grew 23.1% to Rs. 54.3 bn. EBIT for the segment stood at Rs. 11.2 bn. The segment contributed 77.3% to the total revenues.[8] BHEL has its main expetise in coal-based Thermal Power Plants. BHEL's domestic market share in the coal-based thermal power plant segment is 75%, 65% in nuclear-based thermal plants, 50% in hydro-based thermal power plants.[9] However, in the emerging gas-based combined cycle thermal plants, which have short gestation period, the company has a relatively low market share of just 18%.[9] This is due to presence of other competitors with same level of expertise in this emerging field. BHEL also provides services of erecting plants and executing projects on a turnkey basis. The cumulative capacity of power generating equipment supplied by BHEL outside India is over 3000 MW.[9]

Industrial segment :(22.7% of revenues)

In order to reduce the dependence on power utility providers, the company widened its focus area and hence product base. The company manufactures equipments for industrial users, railways and several other industries including telecommunications, metallurgical and process industry.[9] This segment consist of transportation, non conventional energy and R & D related activities of the company.[10]

In FY 2009-10 the industrial segment’s revenue grew 6.6% yoy to Rs. 15.9 bn. EBIT for the segment stood at Rs. 2.7 bn. The segment contributed 22.7% to the total revenues.[8]

Key Trends and Forces

Infrastructure modernisation efforts of India would increase the sales

As of 2007, India faced over 15,000 Mw of electricity shortfall against a demand of over 1,00,000 Mw.[11] This has resulted in to the government taking steps to upgrade the power infrastructure in the country.[12][13] Of the USD 23 billion that is planned to be spent on the infrastructure development, 41% will be spent on the power sector.[14] BHEL has a 65% market share in the countries total installed capacity.[15] Because of its long history, indigenous production and expertise in the power sector, the company is given preference in order placement.[16]

In-spite of the global economic downturn, the heavy engineering industry in India continued to have high capacity utilization rates.[14] The industrial sector grew by over 9.2% in 2009.[17] This has led the industry in to making capital expenditures. BHEL has diversified in to other non power related heavy industries which are at a growth phase in India.[18][19]

Increase in raw material and manpower cost would reduce the the profit margin

Raw material cost constitutes around 58% of the sales value.[20] Increase in raw material prices result in subsequent decrease in the profit margin associate with any project. Although BHEL maintains an inventory of 9 months of basic raw material, increase in raw material cost would affect the profit margin because the inventory is only for the basic components and many of the components are to be sourced as per the specific requirements of the project.[21][22] Also since the projects are long term in nature the deals include the risk on change in commodity prices. Increased raw material costs also increase the risk of BHEL loosing the orders to Chinese competition as their business model is based on standardisation which enables them to maintain stockpiles of required raw material at the lowest prices.[21]

Dependence on domestic sales leaves the company vulnerable to any economic downturn in the Indian economy

BHEL exports as a percent of sales
BHEL exports as a percent of sales[1]

Exports constitute only around 5 to 6% of the total sales of BHEL, this makes the company vulnerable to downturn in the domestic market. The company has been making efforts to reduce its risk by diversifying its portfolio of business segments and increasing its exports.[23] The company has identified key export markets where it plans to increase its business to 5 times its existing value by 2012.[24] The company is also exploring the mergers and acquisitions route both in India and abroad to increase its exports.[24]


  • Larsen & Toubro - Larsen & Toubro manufacturs capital goods for industries. The Group operates in four segments: Engineering and Construction segment provides products and services in civil, mechanical, electrical and instrumentation engineering to core sectors/infrastructure industries. Machinery and Industrial segment manufactures industrial machinery and equipment. Other segment includes financial services, leasing, software development, toll collecting activity, generation of power and steam for captive consumption, manufactures ready mix concrete, property development, manufactures and sells undercarriage assemblies and marketing of welding/industrial products, construction equipment and earth moving equipment.[25] The company has its headquarters in Mumbai, India.[26]
  • Suzlon Energy - Head quartered in Pune, Maharashtra, the company provides integrated products in wind energy. It operates in four segments namely: Sale of WTG, Gear Box, Foundry and Forging and Others. The Group designs, develops and manufactures WTGs; wind resource mapping; identifying suitable sites for wind farms; installation of WTGs; providing after sales and O&M services. It also manufactures rotor blades, gear boxes, generators, control panels and towers in-house. The Group operates in India, USA, China, Europe, Netherlands, Germany, Denmark and Australia.[27] The group has 10.5% market share in wind turbine market.[28]
  • BEML -The company manufactures rail coaches and spare parts, and mining equipment at its Bangalore Complex. It operates in three segments: Mining & Construction, Defense, and Rail & Metro. The Company has eight manufacturing units located at Bangalore, Kolar Gold Fields and Mysore, including a subsidiary steel foundry in Tarikere, Chikmagalur District. It also has operations in approximately 55 countries, including Syria, Tunisia, Jordan, Suriname, South Africa, the United Kingdom, Sri Lanka and Bangladesh.[29] During the fiscal year ended March 31, 2009 (fiscal 2009), it launched Aero Space Manufacturing Division for manufacture and supply of ground handling equipment, toolings and components for aerospace application.[30]
  • BGR Energy - This company offers end to end products and services ranging from product manufacturing to turnkey project execution. It undertakes Turnkey EPC Contract for complete power plant or as per customer needs comprising of complete Mechanical, Electrical, C&I, and Civil works of the project.[31]
  • AIA Engineering - It specialises in the design, development, manufacture, installation and servicing of high chromium wear, corrosion and abrasion resistant castings used in the cement, mining and thermal power generation industries. Vega Industries is a wholly owned subsidiary of AIA Engineering, exclusively supplying its products, providing customer support and technical services to customers from its offices worldwide.[32]
  • Alfa Laval -Alfa Laval develops, manufactures and sells special products and world-class technical products. The products fine applications in heating, cooling, separation and fluid handling of products such as oil, chemicals, water, beverages, foodstuffs, starch and pharmaceuticals. The company has approximately 11,400 employees in more than 50 countries covering over 100 markets.[33]
  • Praj Industries -It manufactures turnkey plants and equipment for fermentation and distillation systems, worldwide. The Group provides customized engineering and manufacturing products and services, systems and services with a strong infrastructure in design and engineering which enables to respond to specific needs of output in accordance with process needs. The services offered by the customized engineering and manufacturing group include detailed engineering for fabricated equipment , rotary and package equipment, instrumentation, electrical and layouts and piping.[34]
  • Walchandnagar - It is a diversified High-tech heavy engineering project execution company with a strong engineering and project management and manufacturing infrastructure to undertake projects and supply of machinery and equipments in the fields of nuclear power , aerospace, defense, steam generation plants, independent power projects, turnkey cement plants, EPC projects for mineral processing bulk material handling for heavy processes, industrial, planetory and marine gearboxes, turnkey sugar projects. It also manufactures gray iron and ductile iron ( S.G.Iron) castings and standard and precision pressure and temperature gauges. [35]
  • Sanghvi Movers -Sanghvi Movers Limited is a crane hiring company in India. The Company’s main business is operation of cranes, which accounted for 98.11% of the revenues. It is engaged in the business of providing hydraulic and crawler cranes to various industries in the infrastructure areas with a fleet of 324 medium- to large-size hydraulic trucks mounted telescopic and lattice boom cranes and crawler cranes with lifting capacity ranging from 20 tons to 800 tons. The Company has also been earning regular income from the business of power generation from windmills commissioned in Jaisalmer, Rajasthan and Chitradurga, Karnataka.[36]

Financial Comparison of the competitors:

Financial metrics FY2009
Name Revenue in Rs Crore Net Profit in Rs Crore Total assets in Rs Crore Return on long term funds
Suzlon Energy[39]7,251-46913,9099.15%
BRG Energy[41]1,9221151,26839.82%
AIA Engineering[42]93111368533.44%
Alfa Laval[43]7999031248.59%
Praj Industries[44]77412945642.73%
Sanghvi Movers[46]35710189323.85%


  1. 1.0 1.1 1.2 1.3 BHEL, rediff money, annual result
  2. , scribd, city analyst report, BHEL risk
  3. money rediff, BHEL, component ratios, Exports as percent of total sales
  4. 4.0 4.1 4.2 rediff money, ratios, BHEL
  5. topnews, BHel announces capacity expansion of 12000crore
  6. Money control, BHEL , MFs invested in BHEL
  7. BHEL share holding pattern, rediff Money wiz
  8. 8.0 8.1 ekmay research, bhel, sector wise performance
  9. 9.0 9.1 9.2 9.3
  10. Bharat Heavy Electricals Ltd, product and services
  11. rediff money, All-India power shortfall highest in a decade
  12. itvoir, Sahara signs MoU with Orissa government to set a Mega Power Plant
  13. economic times, india times,Gehlot announces 4780 MW power projects, 1-12-2009
  14. 14.0 14.1 Engineering Sector, through google docs
  15. Scribd, analyst report, edelweiss
  16. Karvy, swot analysis, Strengths
  17. indian brand equity foundation, manufacturing sector
  18. Bharat heavy electricals ltd , press release
  19. financial times, bhel to diversify in to underwater rigs
  20. rediff money, BHEL, ratios, component ratios, raw material cost
  21. 21.0 21.1 The Hindu, Hindalco asks BHEL not to source components from China, For or against
  22. scribd, analyst report, edelweiss, bhel
  23. Financial express, Bharat Heavy Electricals
  24. 24.0 24.1 Sify, BHEL will grow exports by six times in 5 years
  25. wright reports, company profile, L& T
  26. Linkedin company profile, L&T
  27. wright reports, company profile, suzlong energy
  28. company profile, linked in, suzlon energy
  29. reuters, BEML, company profile
  30. india strategic, BEML, news
  31. linkedin, BGR energy systems company profile
  32. AIA engg, company website
  33. Alfa laval company profile, linkedin
  34. wrightreports, compny profile, Pra industries
  35. walchndnagar company profile, company website
  36. Alacra store, sanghvi movers company profile
  37. money control, BHEL profile
  38. , rediff money, Larsen and Turbo
  39. Suzlon energy, ratios
  40. rediff money, BEML, ratios
  41. BRG Energy, rediff money, ratios
  42. AIA Engg, ratios
  43. , rediff money, Alfa Laval
  44. rediff money, Praj Industries, ratios
  45. rediff money, Walchandnagar, ratios
  46. Rediff money, Sanghvi movers, ratios
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