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Sunday, April 3, 2011

Auto (Auto sector closes FY2011 with a bang)

Investor's Eye
[April 01, 2011] 

Summary of Contents
BHEL Q4FY2011 preview note
  • Q4FY2011 revenue to grow by 25.2% YoY: Bharat Heavy Electricals Ltd (BHEL) would announce its Q4FY2011 provisional results on April 4, 2011. We estimate the company?s revenue for Q4FY2011 would rise by 25.2% year on year (YoY) to Rs16,979.9 crore on sound execution of its boiler-turbine-generator orders. 
  • Margin expected to improve by 191 basis points: The effect of the higher raw material cost would be offset by a lower employee cost. The employee cost is expected to be lower on account of a favourable base effect as the company is not expected to make any fresh provision for prior-period wages. Hence, we expect the margin to improve to 20.3% from 18.3% in Q4FY2010. We estimate the net profit would grow to Rs2,455.0 crore. 
  • Order inflow the key thing to watch: We feel that the order inflow would be the most important monitorable in the results as the company needs to bag orders worth Rs23,000 crore in Q4FY2010 to achieve its target of Rs60,000 crore. BHEL has announced orders worth Rs13,667 crore so far in Q4FY2011. We believe that the target might be missed by 5% for a delay in the NTPC bulk tendering, but the same should flow in during FY2012. We are also enthused by the Rs1,590-crore order that BHEL has bagged for an 800KV 6,000MW HVDC line. 
  • Maintain Buy: The stock is trading at the five-year low multiple of 15.6x FY2012 earnings per share (EPS). The valuation is even lower than that recorded in the 2008 recessionary period. We feel that in spite of the recent run-up in the stock, its valuation is still very attractive. The stock remains our preferred pick in the capital goods space and we maintain our Buy recommendation on the stock with a price target of Rs2,707 (20x FY2012E). 

Auto sector closes FY2011 with a bang
  • Indian consumers lapped up a record number of mobility machines in March 2011, defying the threat from macro head winds. Automobile volumes grew strongly across the board led by passenger cars, commercial vehicles and two-wheelers. Most segments reported a higher double-digit growth year on year (YoY) and mid-single digit growth month on month (MoM). 
  • Barring a few exceptional cases of volume decline, we were surprised by the across-the-board enthusiasm for automobiles. Personal mobility has now become the key component of discretionary spending. Exciting products and great choices have added aspirational value whereas higher discounts and deteriorating public infrastructure have lured many more into owning an automobile.

Click here to read report: Investor's Eye
Bharat Heavy Electricals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,707
Current market price: Rs2,114

The Sharekhan Research Team 

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