Mumbai: India’s largest manufacturer of power generation equipment, Bharat Heavy Electricals Ltd (Bhel), which lights three of every four homes in the country, may rise 57% as Asia’s third biggest economy spends $200 billion (Rs7.92 trillion) to keep the power on in Mumbai, New Delhi and Bangalore.
BNP Paribas Asset Management UK Ltd is purchasing shares of the state-run company even as Bhel’s 10-fold stock gain over the past five years sputters.
Other buyers include Templeton Asset Management Ltd, according to regulatory filings. India’s effort to add at least 600 gigawatts of electricity by 2030 to rival China is attracting investors to the turbine and generator maker as a benchmark stock in the world’s second fastest growing economy. Investors are betting a large chunk of new orders will be awarded to India’s only government-controlled maker of power equipment, as it adds manufacturing capacity to cope with a four-year order backlog.
“Bharat Heavy is clearly part of the equation to invest into India’s power sector,” said Chakri Lokapriya, who manages the equivalent of $1.2 billion of stocks across India, China, Russia and Brazil at London-based BNP. “Over the long run, stocks like Bharat Heavy are outperformers.”
Bhel’s stock may climb to a record Rs2,946 in the next year, the average projection of 15 analysts surveyed by Bloomberg.
The stock has declined 27% on the Bombay Stock Exchange (BSE) this year, compared with an 18% drop in the Sensex. Still, “buy” recommendations outnumber holds by 18 to 4. No analyst has a “sell” rating on the stock.
The shares rose 5.52% to close the day at Rs1,981.75 on BSE on Wednesday.
India, which produces 128,182MW of electricity, needs to generate about 13% more power to meet current demand.
The government plans to add more than 76,000MW in the next five years and equipment to produce three-fourths of that is already on order. Utilities will turn on about 10,000MW of capacity by next month.
“Bharat Heavy looks attractive from the growth perspective,” said Mahesh Patil, whose $1 billion equity portfolio at Birla Sunlife Asset Management Co. Ltd in Mumbai includes Bhel. “The opportunities are good and Bharat Heavy should win a lot of contracts,” Patil added.
The capacity addition fattened the company’s order book, forcing some customers to wait four years as it failed to expand its factories fast enough.
The Punjab State Electricity Board and other customers have levied penalties of as much as Rs95 crore as compensation for project delays caused by late equipment deliveries.
Bhel is spending Rs3,200 crore to boost capacity by half, to 15,000MW, by 2009. The expansion will add at least 25% to annual revenue, analysts said. The company may double net income to Rs6,180 crore in the year ending 31 March 2010, on sales of Rs38,400 crore, according to a Bloomberg survey of six analysts.
“There’ll be an exponential growth in India’s power sector,” Devender Singh, joint secretary at the power ministry, said in an interview in Mumbai.
Still, the addition may not be enough to meet a 13% demand shortfall during the peak hours of 6pm to 11pm, leading to blackouts in New Delhi and other major cities and forcing some factories to use backup generators and reschedule production.
The biggest hurdle Bhel may face is manpower. The company needs to hire more than 20,000 people in the next five years to operate the increased factory capacity.
Bhel, which cut about 5,000 jobs in the past five years, asked former employees in October to return to work as orders surged.
Lee Spears in Beijing contributed to this story.