Saturday, 23 June 2012

BHEL - Worth Looking At?

It is a surprise, even to myself, that the last two stocks that I looked at are either PSU or state owned. (Previous one - Tide Water Oil). This week I was looking at BHEL - Bharat Heavy Electricals Ltd. I don't want to dwell on the merits and demerits of the company, it is perhaps all too well known.


It is a jewel-in-the-crown company, which basically means, it is there for the government to milk it dry before it either goes belly up or is sold to a private player!!! The company has an order book of around 1.3 lakh crores at the end of Mar 2012. It has also recently received orders from the NTPC for a super thermal power plant in Madhya Pradesh. BHEL has had trouble due to competition from China. Some of the Indian power companies have gone ahead and bought cheaper equipment from Chinese vendors, who also bundle in cheap financing. There is an expectation that the government might increase import duty or add an anti-dumping duty on power equipment, which would go a long way in boosting the company's position. Also, the government might just wake up from its slumber and order some big ticket reforms in the power area (unlikely, but possible).


On the valuation front, the stock is available at a dividend yield of over 2.8%, PE of 7.5 and a P/B of 2.0. The price of 220 is close to its 5 year low of 196 reached in 2008. The problem is with the the promoters (the government of India) - the worst promoter you can think off, so take some valuation points off for them. But still worth a look at this price. But only for a time horizon of 5 years or more. 

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