Stock Views on BHEL, MOSER BAER

CITIGROUP on MOSER BAER

Citigroup maintains `Sell' rating on Moser Baer. Moser Baer Projects Private Ltd (MBPPL), promoted by the founders of Moser Baer India Ltd (MBIL, the listed entity), has announced a fund raising of 580 crore from Macquarie SBI Infrastructure Fund. The investors have taken a significant minority stake in MBPPL's 2,520-MW thermal power project at Anuppur in Madhya Pradesh. The first phase of this project with capacity of 1,200 MW will cost 6,240 crore and is fully funded, according to press reports. This recent round of fund raising comes on back of MBPPL having raised 1,350 crore from US-based private equity firm Blackstone in August 2010. Simply put, they are not related at all. MBPPL's principal investors are the promoters of MBIL with the firm managed by professionals. The listed entity MBIL has only a less than 0.1% stake in MBPPL. The news of fund raising may have a positive rub-off effect on the stock price of the listed entity.

BANK OF AMERICA on BHEL

Bank of America reiterates the `Buy' rating on BHEL after 16% underperformance over the last six months. BoA raises the order inflow for FY11E by 8% and reiterates the 8%-above consensus EPS for FY13. The price target is 2,960 and offers 35% potential upside. In this report, BoA evaluates BHEL's long-term structural business case and addresses key market myths, on which they draw five conclusions: (1) BHEL's business case is intact with 10% higher FCFE (Free Cash Flow to Equity) vs Chinese BTG on 24% lower auxiliary consumption and heat rate. (2) It has multiple margin levers till FY13E, securing vendor price cuts on bargaining power, economies of scale and labour productivity. (3) It has made strides in localising SC tech to support margins even after lower pricing, which should be reflected in a flurry of new orders in 2011. It should also prove that ASPs of Chinese orders were a 'noise'. (4) Its work on the next level of technology (ASC) should improve long-term competitiveness . Its focus on railways, T&D, nuke and solar will de-risk dependence on thermal power. (5) The real risks are waning government support on lobby by foreign majors, Chinese/JVs undercutting, a materials spike, delay in levelling the playing field, push-back of railway/nuclear orders, and weak SEB finances.