Karvy initiates coverage on BHEL with target of Rs 2653

Karvy Stock Broking has initiated coverage on BHEL and expects the stock to hit a target of Rs 2653 in next 12-months.


“BHEL is a leading power equipment manufacturer in India and a play on India's increasing power generation requirement. The capacity addition of 10,000 MW (100% of existing) by FY12 is expected to improve execution capability and drive the revenue at a CAGR of 22.3%. The net profits are expected to boost up from 540
bps margin improvement mainly on account of cost control and are expected to increase at a CAGR of 30% to Rs 68.99 bn by FY12.

At the current price of Rs 2,201, the stock is trading at 25.6x FY10E and 19.1x FY11E earnings and EV/EBIDTA it is trading at 15.7x FY10E and 11.3x FY11E. The valuations look attractive given the leadership position and future growth opportunities for the company along with RoCE and RoE of around 37% and 28% respectively. We have used average of P/E and DCF method to value BHEL.

We have valued the BHEL at 25xFY11E earnings translating into PEG of 0.8. Our P/E based valuation per share of Rs 2763 and DCF value per share of Rs 2543 gives the target price of Rs 2653 per share. We rate the stock an Outperformer,” the brokerage report said.

ref:
http://economictimes.indiatimes.com/Views/Recommendations/Karvy-initiates-coverage-on-BHEL-with-target-of-Rs-2653/articleshow/4970787.cms