BHEL reported strong results for 4QFY2010 and FY2010, with revenues growing 28.6% and profits growing 41.7% for the quarter. Operating margins expanded due to lower raw material costs, though this was partially offset by higher other expenses. Order inflows grew 45.1% for the quarter. For FY2010-2012, revenues are expected to grow at a CAGR of 19.7% and profits at 21.5%. However, the analyst maintains a Neutral rating due to structural concerns in the industry.

1. 4QFY2010 Result Update I Capital Goods
May 28, 2010
BHEL NEUTRAL
CMP Rs2,319
Performance Highlights Target Price -
Bharat Heavy Electricals (BHEL) reported a strong 4QFY2010 performance, Investment Period -
with a 28.6% and 41.7% yoy growth in its top and bottom-line, respectively, in
line with the provisional results announced earlier. Currently, the stock trades at Stock Info
21.2x FY2011E EPS and at 17.8x FY2012E EPS. We maintain our Neutral view
Sector Capital Goods
on the stock.
Market Cap (Rs cr) 113,520
Operating margin expansion drives bottom-line growth: BHEL posted a healthy
Beta 0.8
top-line growth of 28.6% yoy to Rs13,559cr (Rs10,540cr) for 4QFY2010, on
the back of strong execution of the healthy order book. For the full year 52 WK High / Low 2,585/1,940
FY2010, the top-line grew by 25.3% yoy to Rs32,880cr (Rs26,234cr).
Avg. Daily Volume 120,599
On the operating front, the company reported a continued expansion in the Face Value (Rs) 10
EBITDA Margin by 225bp to 18.3% (16.1%). This was primarily driven by lower
raw material costs, which reduced by 484bp to 59.2% (64.0%) of net sales, on BSE Sensex 16,863
account of benefits of lower commodity prices. However, other expenses Nifty 5,067
increased sharply by 89.7% yoy, negating the positive impact on the margins.
The rise was primarily led by the ~Rs453cr of provision against pension Reuters Code BHEL.BO
schemes, coupled with changes in the accounting policy related to the provision
Bloomberg Code BHEL@IN
for doubtful debts. Additionally, the employee costs also came in higher than
the earlier guidance of the management. Shareholding Pattern (%)
Consequently, the bottom-line grew by 41.7% yoy to Rs1,910cr (Rs1,348cr) for Promoters 67.7
the quarter. For the full year FY2010, the net profit grew by 37.4% yoy to MF/Banks/Indian FIs 15.2
Rs4,311cr (Rs3,138cr).
FII/NRIs/OCBs 15.3
Outlook and Valuation Indian Public 1.8
The Indian power equipment market is in the midst of a structural change, with Abs. (%) 3m 1yr 3yr
intensifying competition, both from the domestic and the overseas players. Sensex 2.6 18.0 17.1
During FY2010-12E, we expect the company to post a top-line and bottom-line
CAGR of 19.7% and 21.5%, respectively. At the CMP, the stock is quoting at BHEL (1.4) 9.5 70.3
21.2x FY2011E EPS and at 17.8x FY2012E EPS. Given the structural long-term
concerns, we maintain our Neutral view on the stock.
Key Financials
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 26,212 32,880 40,095 47,111
% chg 35.8 25.4 21.9 17.5
Adj. Net Profit 3,126 4,311 5,359 6,364
% chg 9.3 37.9 24.3 18.8
Operating EBITDA (%) 13.9 16.9 18.1 18.1
EPS (Rs) 63.9 88.1 109.5 130.0
P/E (x) 36.3 26.3 21.2 17.8
P/BV (x) 8.8 7.1 5.7 4.6
RoE (%) 26.4 29.9 30.0 28.6
RoCE (%) 28.9 33.3 31.8 30.4
Puneet Bambha
EV/Sales (x) 3.9 3.2 2.5 2.1
Tel: 022 – 4040 3800 Ext: 347
EV/EBITDA (x) 24.8 18.6 12.8 10.6
E-mail: puneet.bambha@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. BHEL I 4QFY2010 Result Update
Segment-wise Performance
During the quarter, the power division was the key driver, registering a robust 29.6%
yoy top-line growth to Rs11,155cr (Rs8,608cr). On a positive note, the industry
division also picked up pace during the quarter, registering revenue growth of
15.9% yoy to Rs3,149cr (Rs2,716cr). Margins of both the divisions improved during
the quarter, with the power division margin increasing 731bp to 27.4% (20.1%),
and the industry division margin rising 404bp to 25.6% (21.5%).
Exhibit 1: Segment-wise Performance
Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY10 FY09 % chg
Revenue
Power 11,155 8,608 29.6 26,861 21,344 25.8
Industry 3,149 2,716 15.9 7,879 7,250 8.7
Total Revenues 14,304 11,324 26.3 34,740 28,594 21.5
EBIT
Power 3,058 1,731 76.7 6,317 3,862 63.6
Industry 805 584 37.7 1,643 1,215 35.2
Total EBIT 3,863 2,315 66.9 7,960 5,076 56.8
Revenue Mix (%)
Power 78.0 76.0 77.3 74.6
Industry 22.0 24.0 22.7 25.4
EBIT Margin (%)
Power 27.4 20.1 23.5 18.1
Industry 25.6 21.5 20.8 16.8
Source: Company, Angel Research
Exhibit 2: 4QFY210 Performance
Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY10 FY09 % chg
Net Sales 13,559 10,540 28.6 32,880 26,234 25.3
Raw Material 8,027 6,751 18.9 19,307 15,969 20.9
(% of Net Sales) 59.2 64.0 58.7 60.9
Employee Cost 1,743 1,408 23.9 5,153 4,113 25.3
(% of Net Sales) 12.9 13.4 15.7 15.7
Other Expenses 1,301 686 89.7 2,854 2,351 21.4
(% of Net Sales) 9.6 6.5 8.7 9.0
Total Expenditure 11,072 8,844 25.2 27,315 22,433 21.8
EBITDA 2,487 1,696 46.6 5,566 3,801 46.4
EBITDA (%) 18.3 16.1 16.9 14.5
Interest 18 8 119.8 34 31 9.1
Depreciation 165 101 63.4 458 334 37.0
Other Income 594 507 17.0 1,516 1,413 7.4
Profit before Tax 2,898 2,095 38.4 6,591 4,849 35.9
(% of Net Sales) 21.4 19.9 20.0 18.5
Total Tax 989 747 32.4 2,280 1,711 33.3
(% of PBT) 34.1 35.7 34.6 35.3
Reported PAT 1,910 1,348 41.7 4,311 3,138 37.4
(% of Net Sales) 14.1 12.8 13.1 12.0
Source: Company, Angel Research
May 28, 2010 2

3. BHEL I 4QFY2010 Result Update
Order Flows
The order inflows for 4QFY2010 grew by 45.1% yoy to Rs22,614cr (Rs15,580cr).
For the full year FY2010, the order inflows were flat at Rs59,031cr (Rs59,687cr). The
company expects order booking to maintain its momentum during the current
financial year as well, and has guided for inflows of Rs59,000-60,000cr. The order
backlog for the quarter increased 22.9% yoy and 7.3% qoq to Rs1,43,800cr.
Exhibit 3: Quarterly Order Inflow
25,000
22,614
20,000
15,580 16,000
14,500 14,500 15,107
15,000
(Rs cr)
12,400
10,000
8,017
5,000
0
Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410
Source: Company, Angel Research
Exhibit 4: Quarterly Order Backlog
160,000
143,800
140,000 134,000
124,403 125,800
113,584 117,000
120,000
104,000
100,000 95,000
(Rs cr)
80,000
60,000
40,000
20,000
0
Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410
Source: Company, Angel Research
May 28, 2010 3

4. BHEL I 4QFY2010 Result Update
Outlook and Valuation
The Indian power equipment market is in the midst of a structural change, with
intensifying competition, both from the domestic and the overseas players. During
FY2010-12E, we expect the company to post a top-line and bottom-line CAGR of
19.7% and 21.5%, respectively. At the CMP of Rs2,319, the stock is quoting at 21.2x
FY2011E EPS and at 17.8x FY2012E EPS. Given the structural long-term concerns,
we maintain our Neutral view on the stock.
Exhibit 5: 12-month Forward Rolling P/E Band
4,500
4,000 36x
3,500
28x
Sh are Price (Rs)
3,000
2,500
20x
2,000
1,500
12x
1,000
500
0
Apr-01
Oct-01
Apr-02
Oct-02
Apr-03
Oct-03
Apr-04
Oct-04
Apr-05
Oct-05
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Source: C-line, Angel Research
Exhibit 6: BHEL - Premium/Discount to Sensex P/E
100%
80%
60%
40%
20%
0%
-20%
-40%
Oct-04
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Source: C-line, Angel Research
May 28, 2010 4

5. BHEL I 4QFY2010 Result Update
Profit & Loss Statement (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Net Sales 17,238 19,305 26,212 32,880 40,095 47,111
Other operating income - - - - - -
Total operating income 17,238 19,305 26,212 32,880 40,095 47,111
% chg 28.9 12.0 35.8 25.4 21.9 17.5
Total Expenditure 14,038 16,024 22,569 27,315 32,847 38,562
Net Raw Materials 9,487 10,662 16,030 19,307 24,045 28,841
Other Mfg costs 2,181 2,754 3,555 2,854 3,308 3,891
Personnel 2,369 2,608 2,984 5,153 5,495 5,829
Other - - - - - -
EBITDA 3,200 3,281 3,643 5,566 7,247 8,549
% chg 40.2 2.5 11.1 52.8 30.2 18.0
(% of Net Sales) 18.6 17.0 13.9 16.9 18.1 18.1
Depreciation & Amortisation 273.0 297.2 334.3 458.0 579.2 685.9
EBIT 2,927 2,984 3,309 5,108 6,668 7,863
% chg 43.7 1.9 10.9 54.4 30.5 17.9
(% of Net Sales) 17.0 15.5 12.6 15.5 16.6 16.7
Interest & other Charges 43.3 35.4 30.7 33.5 35.0 35.0
Other Income 823.6 1,444.8 1,497.4 1,516.4 1,611.7 1,963.1
(% of PBT) 22.2 32.9 31.4 23.0 19.5 20.0
Others - - - - - -
Recurring PBT 3,707 4,393 4,776 6,591 8,245 9,791
% chg 46.9 18.5 8.7 38.0 25.1 18.8
Extraordinary Expense/(Inc.) (28.9) (37.4) (73.1) - - -
PBT (reported) 3,736 4,430 4,849 6,591 8,245 9,791
Tax 1,321 1,571 1,711 2,280 2,886 3,427
(% of PBT) 35.4 35.5 35.3 34.6 35.0 35.0
PAT (reported) 2,415 2,859 3,138 4,311 5,359 6,364
Add: Share of earnings of
- - - - - -
associate
Less: Minority interest (MI) - - - - - -
Prior period items - - - - - -
PAT after MI (reported) 2,415 2,859 3,138 4,311 5,359 6,364
ADJ. PAT 2,414 2,860 3,126 4,311 5,359 6,364
% chg 44.1 18.5 9.3 37.9 24.3 18.8
(% of Net Sales) 14.0 14.8 11.9 13.1 13.4 13.5
Basic EPS (Rs) 98.6 58.4 63.9 88.1 109.5 130.0
Fully Diluted EPS (Rs) 49.3 58.4 63.9 88.1 109.5 130.0
% chg 44.1 18.5 9.3 37.9 24.3 18.8
May 28, 2010 5

6. BHEL I 4QFY2010 Result Update
Balance Sheet (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
SOURCES OF FUNDS
Equity Share Capital 245 490 490 490 490 490
Preference Capital - - - - - -
Reserves& Surplus 8,544 10,285 12,449 15,426 19,353 24,171
Shareholders Funds 8,788 10,774 12,939 15,915 19,842 24,661
Minority Interest - - - - - -
Total Loans 89 95 149 128 128 128
Deferred Tax Liability (935) (1,338) (1,840) (1,527) (1,527) (1,527)
Total Liabilities 7,942 9,531 11,248 14,516 18,443 23,261
APPLICATION OF FUNDS
Gross Block 4,135 4,443 5,225 7,827 8,722 10,877
Less: Acc. Depreciation 3,146 3,462 3,754 4,171 4,750 5,436
Net Block 989 981 1,470 3,656 3,971 5,440
Capital Work-in-Progress 303 658 1,157 289 895 239
Goodwill - - - - - -
Investments 8 8 52 80 80 80
Current Assets 20,980 27,906 36,901 42,933 50,985 58,863
Cash 5,809 8,386 10,315 9,788 12,720 15,165
Loans & Advances 1,141 1,388 2,424 2,814 3,208 3,769
Other 200 421 350 407 392 509
Current liabilities 14,337 20,022 28,333 32,442 37,488 41,361
Net Current Assets 6,643 7,884 8,568 10,491 13,497 17,502
Mis. Exp. not written off - - - - - -
Total Assets 7,942 9,531 11,248 14,516 18,443 23,261
Cash Flow Statement (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Profit before tax 3,736 4,430 4,849 6,591 8,245 9,791
Depreciation 273 297 334 458 579 686
(Inc)/Dec in Working Capital 1,043 1,336 1,244 (2,450) (75) (1,559)
Less: Other income 447 1,023 983 1,516 970 1,209
Direct taxes paid 1,484 1,974 2,213 2,280 2,886 3,427
Others 42 30 (18) (41) - -
Cash Flow from Operations 3,163 3,097 3,214 762 4,894 4,282
(Inc.)/Dec.in Fixed Assets (431) (664) (1,280) (1,734) (1,500) (1,500)
(Inc.)/Dec. in Investments - - (44) (27) - -
Other income 447 1,023 983 1,516 970 1,209
Cash Flow from Investing 16 359 (341) (245) (530) (291)
Issue of Equity - - - - - -
Inc./(Dec.) in loans (469) 6 54 (22) - -
Dividend Paid (Incl. Tax) 692 873 974 1,334 1,432 1,546
Others (343) (11) (24) 313 - -
Cash Flow from Financing (1,161) (868) (919) (1,356) (1,432) (1,546)
Inc./(Dec.) in Cash 1,675 2,577 1,929 (527) 2,932 2,445
Opening Cash balances 4,134 5,809 8,386 10,315 9,788 12,720
Closing Cash balances 5,809 8,386 10,315 9,788 12,720 15,165
May 28, 2010 6

7. BHEL I 4QFY2010 Result Update
Key Ratios
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Valuation Ratios (x)
P/E (on FDEPS) 47.0 39.7 36.3 26.3 21.2 17.8
P/CEPS 42.2 36.0 32.8 23.8 19.1 16.1
P/BV 12.9 10.5 8.8 7.1 5.7 4.6
Dividend yield (%) 1.1 0.7 0.7 1.0 1.1 1.2
EV/Sales 6.3 5.5 3.9 3.2 2.5 2.1
EV/EBITDA 30.1 28.4 24.8 18.6 12.8 10.6
EV/Total Assets 12.1 9.7 7.9 6.5 5.0 4.0
Per Share Data (Rs)
EPS (Basic) 98.6 58.4 63.9 88.1 109.5 130.0
EPS (fully diluted) 49.3 58.4 63.9 88.1 109.5 130.0
Cash EPS 54.9 64.5 70.7 97.4 121.3 144.0
DPS 24.5 15.3 17.0 23.3 25.0 27.0
Book Value 179.5 220.1 264.3 325.1 405.3 503.8
DuPont Analysis
EBIT margin (%) 17.0 15.5 12.6 15.5 16.6 16.7
Tax retention ratio 0.6 0.6 0.6 0.7 0.7 0.7
Asset turnover (x) 5.1 7.0 10.1 7.4 6.0 5.6
ROIC (Post-tax) (%) 55.8 69.6 82.4 75.1 65.0 61.2
Cost of Debt (Post Tax) (%) 8.6 24.8 16.3 15.8 17.8 17.8
Leverage (x) (0.7) (0.8) (0.8) (0.6) (0.6) (0.6)
Operating RoE (%) 25.1 35.1 30.2 38.8 34.8 34.6
Returns (%)
RoCE (Pre-tax) 39.5 34.5 31.9 35.1 40.6 38.5
Angel RoIC (Pre-tax) 105.0 148.9 226.2 137.1 120.2 110.6
RoE 30.0 29.2 26.4 29.9 30.0 28.6
Turnover Ratios (x)
Asset Turnover (Gross Block) 4.3 4.5 5.4 5.0 4.8 4.8
Inventory / Sales (days) 84 94 95 95 94 92
Receivables (days) 178 204 195 204 200 195
Payables (days) 66 75 72 74 72 71
Working capital cycle (ex-cash)
18 (9) (24) 8 7 18
(days)
Solvency Ratios (x)
Net debt to equity (0.7) (0.8) (0.8) (0.6) (0.6) (0.6)
Net debt to EBITDA (1.6) (2.2) (2.5) (1.7) (1.6) (1.6)
Interest Coverage (EBIT / Int.) 76.2 96.2 124.5 152.5 208.8 246.2
May 28, 2010 7

8. BHEL I 4QFY2010 Result Update
Research Team Tel: 022- 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this
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arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved),
and should consult their own advisors to determine the merits and risks of such an investment.
Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are
inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company
may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as
opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true,
and are for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly,
we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
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use of this information.
Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).
Disclosure of Interest Statement BHEL
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM /
CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
May 28, 2010 8