Bharat Heavy Electricals Ltd (BHEL)
has successfully commissioned a 250 MW thermal power unit in Bihar. The unit has been commissioned at Barauni Extension thermal power project of Bihar State Power Generation Company Limited. Located at Barauni in Begusarai district of Bihar, Barauni Extension power project has two units (Units 8&9) of 250 MW each. The other unit (Unit 9) is also in advanced stages of execution and is expected to be commissioned shortly.
Notably, this project is being set up by BHEL on the ash dyke of old thermal units. This calls for special civil engineering for ground improvements and by successful commissioning of the unit, BHEL has demonstrated its exceptional engineering and execution capabilities. This utilization of the unproductive ash dyke for this purpose also addresses the issue of land scarcity.
The project was awarded to BHEL on Engineering, Procurement & Construction (EPC) basis, including complete engineering, manufacturing and supply of equipment; erection & commissioning and civil works of all the plant utilities. Major equipment for the project has been manufactured by BHEL at its Haridwar, Trichy, Bhopal, Ranipet, Hyderabad, Jhansi and Bengaluru plants, while the construction of the plant has been undertaken by the company's Power Sector - Eastern Region. At Barauni, in addition to setting up of new units of 250 MW, BHEL is also carrying out Renovation & Modernisation (R&M) of two existing units (Units 6&7) of 110 MW, which were earlier set up by BHEL more than 30 years ago. While the R&M of Unit 7 has been completed, work on Unit 6 is in advanced stages of completion.
BHEL has so far commissioned around 4,400 MW capacity of power plant in Bihar for various power developers, accounting for about 84% of the total installed capacity in the state. In addition to Barauni Extension thermal power project and R&M of earlier units in Bihar, BHEL is also executing 4x250 MW and 3x660 MW thermal power projects at Nabinagar, Bihar. The stock is currently trading at Rs102.75, down by Rs0.5 or 0.48% from its previous closing of Rs103.25 on the BSE. The scrip opened at Rs104.1 and has touched a high and low of Rs105.5 and Rs101.65, respectively.
BHEL is India’s largest power plant equipment manufacturer with 20,000 MW pa manufacturing capacity. It is the market leader in generation equipment space with 55% market share of the total installed power capacity. BHEL derived 79.2% of its revenue from power segment, and remaining from the industrial segment (transmission, transportation, renewables, defence) in FY17.
We expect revenues to grow at a 7% CAGR over FY17-19E, mainly on account of higher order inflows in FY18E. Its Rs10,000 crore order of 1,320 MW plant in Bangladesh also bodes well for revenue growth. This coupled with capacity expansion from 15,000MW to 20,000MW, and improving cost control is expected to improve EBITDA margins by 300 bps to 7% by FY19E. However, we also see headwinds remain over increase in employee costs with seventh pay commission implementation. Going ahead, we see recovery in the power segment, and clearing of backlog orders will aid to PAT growth. Thereby, we expect PAT to grow at a 110% CAGR over FY17-19E due to lower base. However, slow clearances and other financial issues for clearing new orders remain key risks for BHEL.