Engineering & Capital Goods: India

Equity Research INDIA
May 6, 2020
BSE Sensex: 31454
Engineering & Capital Goods
ICICI Securities Limited
is the author and
distributor of this report Migrant worker exodus – the achilles heel
Gradual opening up of interstate travel will lead to an exodus of migrant workers
Sector update from urban to rural areas impacting the timelines and cost of construction projects.
As per our analysis of our coverage universe, L&T, KEC, Kalpataru, BHEL, GE-T&D
Capital Goods etc have dependence on subcontractors to execute projects. Covid-19 outbreak and
the necessity to transfer benefits through formal means of payment via bank
accounts will result in structural shift in how companies tackle migrant workers.
Factoring in a near- to medium-term impact on the cost structure, we have
Top picks recalibrated our earnings for companies having subcontracting exposure.
Accounting for the recent movement in stock price, we downgrade KEC to HOLD
 L&T and VA Tech to REDUCE, while upgrade GE-T&D to ADD. Our top picks are: L&T,
(BUY; TP: Rs1,035) Siemens India, and GE Power India.
 Siemens  Migrant worker exodus to impact cost and timelines of projects: As per empirical
(BUY; TP: Rs1,335) data collated by Ajeevika Bureau, as on 2014, there are ~120mn migrant workers in
India, of which ~40mn are employed by construction projects. Urban infrastructure
 GE Power India
projects like metros etc have higher requirements of migrant workers compared to
(BUY; TP: Rs537) road projects. We believe with gradual opening up of travel, majority of migrant
workers will move back to their native places and are likely to return post the
monsoon. This will impact the cost and timelines of project execution.
 Formalisation of social security net to pose structural problems in handling
migrant workers: Till date, migrant workers’ payment and other requirements were
taken care by contractors with no direct linkage to the company. But the recent
requirement of formal transfer of government aid directly to bank accounts will lead to
formalisation of these migrants and can structurally change the way remunerations
take place in future. Once formalised, they have to be provided social security with
adherence to minimum wage and other benefits. We believe this can lead to an
increase in the overall cost of project execution and impact margins in near to medium
term.
 Prefer companies with strong balance sheets: Taking cognisance of near- to
medium-term risks, we believe, companies like L&T, Siemens etc will be able to tackle
the situation due to strong balance sheets, while companies like BHEL, VA Tech etc
will be under stress given their high receivables and weak cashflows.
Valuation summary
CMP M-Cap TP Upside P/E (x)
(Rs) (Rs bn) Rating (Rs) (%) FY19 FY20E FY21E FY22E
L&T 837 1,175 BUY 1,035 23.7 13 12 13 10
BHEL 23 80 HOLD 24 3.2 7 8 11 7
Siemens 1,070 381 BUY 1,335 24.8 43 35 39 33
Engineers India 65 41 BUY 103 58.5 11 11 10 9
Cummins India 366 101 BUY 412 12.5 14 16 20 18
Thermax Ltd 700 83 HOLD 675 -3.5 26 30 31 24
ISGEC 236 17 BUY 317 34.2 14 11 12 9
GE T&D 78 20 ADD 83 6.4 9 - 47 20
Research Analysts: KEC International 206 53 HOLD 199 -3.4 11 10 13 11
Kalpataru Power 217 34 BUY 299 37.8 8 7 10 8
Renjith Sivaram Techno Electric 199 22 HOLD 214 7.6 12 12 11 9
renjith.sivaram@icicisecurities.com
+91 22 6637 7340 AIA Engineering 1,547 146 BUY 1,521 -1.7 29 26 31 27
Vipin Goel Voltas 438 145 HOLD 503 14.8 28 27 25 21
vipin.goel@icicisecurities.com Blue Star 505 49 REDUCE 440 -12.9 23 26 29 21
+91 22 6637 7397 GE Power India 415 28 BUY 537 29.3 17 47 25 13
VA Tech Wabag 117 6 REDUCE 99 -15 6 11 14 6
Source: Company data, I-Sec research
Please refer to important disclosures at the end of this report
Engineering & Capital Goods, May 6, 2020 ICICI Securities
Table 1: Change in target price and recommendations
Previous Revised
Rating TP (Rs) Rating TP (Rs)
L&T BUY 1,165 BUY 1,035
BHEL HOLD 21 HOLD 24
Siemens BUY 1,383 BUY 1,335
Thermax Ltd HOLD 684 HOLD 675
GE T&D HOLD 85 ADD 83
KEC International BUY 184 HOLD 199
Kalpataru Power BUY 338 BUY 299
VA Tech Wabag HOLD 82 REDUCE 99
Table 2: Earnings revision

FY21E FY22E
Change Change
Previous Revised Previous Revised
Rs mn (%) / (days) (%) / (days)
L&T – Consolidated
Revenue 14,52,253 14,52,253 - 16,81,061 16,81,061 -
EBIDTA 1,68,964 1,56,782 (7.2) 2,00,985 1,91,908 (4.5)
PAT 92,582 81,180 (12.3) 1,15,940 1,05,411 (9.1)
L&T – Standalone
Revenue 8,45,488 8,45,488 - 9,75,815 9,75,815 -
EBIDTA 79,880 66,027 (17.3) 97,463 84,391 (13.4)
PAT 62,999 52,333 (16.9) 76,779 66,843 (12.9)
Siemens (Sep. yr. ending)
Revenue 1,19,227 1,19,227 0.0 1,28,943 1,28,943 0.0
EBIDTA 12,300 11,880 (3.4) 14,385 13,945 (3.1)
PAT 10,068 9,755 (3.1) 11,746 11,416 (2.8)
Thermax Ltd
Revenue 51,071 51,071 - 57,199 57,199 -
EBIDTA 3,730 3,683 (1.3) 4,686 4,692 0.1
PAT 2,718 2,682 (1.3) 3,465 3,469 0.1
GE T&D
Revenue 28,832 28,832 - 31,726 31,726 -
EBIDTA 1,579 1,564 (1.0) 2,267 2,240 (1.2)
PAT 436 425 (2.6) 1,003 983 (2.0)
Kalpataru Power
Revenue 70,132 70,132 - 77,021 77,021 -
EBIDTA 6,522 6,191 -5.1 7,856 7,302 -7.1
PAT 3,852 3,447 -10.5 4,765 4,293 -9.9
Chart 1: Sub-contracting cost trend for our capgoods universe

60 LT BHEL ENGR TMX KPP KECI GETD
Sub-contracting cost as % of sales
50
40
30
20
10
-
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
2
The above chart is a trend of subcontracting cost as percentage of sales for our
capgoods universe. The subcontracting composition varies as per the mix of projects
in the order book. FY09/10 onwards, there has been a considerable increase in EPC
turnkey execution orders which is reflected in the higher mix of subcontracting. For
FY21E, we believe, there can be an increase in subcontracting cost due to cost
pressure due to migrant labour related issues.
We believe the subcontracting cost will increased due to higher incentives required to
be doled out to attract the migrant labours to return from their native and the impact of
time and cost overruns on the projects which are under execution. In most of the
domestic contracts pandemic isn’t covered as a Force Majeure, hence, this is likely to
impact the overall project cost.
Subcontracting cost proportion of BHEL and Thermax are relatively low compared to
others which we believe is a reflection of the lower proportion of pure EPC contracts
they have executed.
3
Migrant Labour – A brief overview
According to NSSO, construction sector is the most predominant sectors employing

labour migrants. 36.2% of short duration migrants that work in the construction sector,
followed by the agriculture-related sector (20.4%), and manufacturing (15.9%).
India has ~120mn interstate migrant workers and construction sector deploys ~50mn.
Table 3: Estimate of total employment (in millions)
Sectors 99-2000 2004-05 2011-12
Agriculture 240.3 257.7 225.4
Mining and Quarrying 2.3 2.5 2.6
Manufacturing 43.9 56.1 60.8
Utilities 1.0 1.2 1.6
Construction 17.6 26.0 49.9
Trade, Hotel etc. 40.9 49.8 56.1
Transport, Storage, and Communication 14.5 18.7 21.0
Financing, Insurance, Real estate, and business services 5.0 7.8 12.9
Community, social and personal services 33.0 37.7 40.9
Total 398.4 457.6 471.4
Source: IHDIndia, I-Sec research
Middlemen, known as Jamadar/contractor has a huge influence in terms of controlling,

mediating and recruitment of migrant workers. These contractors are responsible for
wage payments as well as work supervision. The company management extend tacit
support to contractors which allow them from avoiding any direct recruitment of the
workers and the related cost.
In most cases, the contractor pays advance amount to workers before they reach the
actual work destination which acts as a surety for the migrant worker. The amount and
the percentage of advance varies across sector and skill level. Till now this
arrangement was a win-win for the contractor and the company as this does away any
responsibility that comes with direct recruitment of informal workers in terms of
minimum wages and related social security requirements. In majority of cases, the
contractor also acts as supervisor of the workers.
However, recently the government has directed the subsidies to be routed through
bank accounts and this requires formalisation of migrant workers. We believe, this can
lead to additional cost on the companies in addition to the amount they are spending
towards providing basic hygiene, food, shelter etc. This can also likely pose as a
structural threat to the prevailing system of contractors acting as the sole caretakers of
migrant workers.
4
Larsen &Toubro (BUY – TP: Rs1,035)

Factoring in for increased subcontracting cost due to non-availability of migrant labour, we
cut L&T standalone earnings by 17% and 13% for FY21E and FY22E, respectively and
L&T consolidated earnings by 12% and 9% for FY21E and FY22E, respectively. L&T has
been incurring 25% of revenue as subcontracting cost both for the standalone and the
consolidated entity (ex-services). We expect this to increase going forward due to the
recent crisis of migrant workers impacting the overall margins.
We maintain BUY with a revised target price of Rs1,035 (earlier: Rs1,165). Our estimates
are adjusted for the discontinued operations of electricals and automation division. We
have also adjusted FY20E balance sheet to factor-in the acquisition of 60.6% stake in
Mindtree. We have consolidated the financials of Mindtree in our FY20E/FY21E estimates.
We value the 60.6% stake as per the current market cap of Mindtree. We also bake in the
valuation of E&A business assuming 20% tax rate on Rs140bn transaction post subtracting
Rs23bn as net asset held for sale.
We value L&T by the SoTP methodology. We value standalone business multiple at 20x
FY20E earnings, given the strong balance sheet and business moat in terms of execution
capabilities with control on working capital and RoCE. Hydrocarbon business has been
valued separately, assigning 25x FY21E earnings, and ‘other businesses’ are valued as
per industry norms. We arrive at an SoTP-based target price of Rs1,035 where the
standalone business is valued at Rs419, and other subsidiaries, associates and BOT
assets at Rs617 per share.
Table 4: Earnings revision (consolidated)
FY21E FY22E
Rs mn Previous Revised YoY (%) Previous Revised YoY (%)
Revenue 14,52,253 14,52,253 - 16,81,061 16,81,061 -
EBIDTA 1,68,964 1,56,782 (7.2) 2,00,985 1,91,908 (4.5)
PAT 92,582 81,180 (12.3) 1,15,940 1,05,411 (9.1)
Table 5: Earnings revision (standalone)

FY21E FY22E
Rs mn Previous Revised YoY (%) Previous Revised YoY (%)
Revenue 8,45,488 8,45,488 - 9,75,815 9,75,815 -
EBIDTA 79,880 66,027 (17.3) 97,463 84,391 (13.4)
PAT 62,999 52,333 (16.9) 76,779 66,843 (12.9)
Chart 2: Operating expense breakup trend for L&T standalone
RM Sub-contracting costs
Employee costs Other operating costs
100 Subcontracting growth YoY (%) - RHS 70
90 10 60
11 11 11 10 11 12 12 11 12 12 11 11
80 6 12 11 10 12 12
6
Costs as% of sales
7 6 6 7 8 7 8 8 7 8 8 8 50
70 6 6 7 8
23 22 40
60 19 18 21 24 21 20 24 23 23 25 27 28 28
24 26 26
50 30
40 20
30 54 53 52 52 50 47 47 49 48 46 47 10
20 45 44 44 46 46 45 45
10 -
0 -10
FY06
FY05
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E
5
While other operating costs as percentage of sales since FY05 has varied in range
10%-12%, the subcontracting cost as proportion of sales has gradually increased
during same period (from 19% in FY07 to 25% in FY19). The increase in
subcontracting cost is a reflection of the higher mix of EPC related jobs under
execution as the company has diversified more towards infrastructure related jobs.
However, in the near to medium term, the subcontracting cost proportion is expected
to increase due to cost pressures.
Chart 3: L&T Consolidated – Sub-contracting cost as % of ex-services revenue
Sub-contracting costs as % of ex-services revenues
29.0 27.4 27.0

27.0 25.6
24.8 25.0 25.2 25.0
25.0
22.5 22.9
23.0
21.0
19.0
17.0
15.0
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

Table 6: Operating expense breakup trend for L&T standalone
(Rs bn) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Revenue 439 532 516 565 570 638 657 746 870 826 845 976
Growth (% YoY) 19 21 -3 10 1 12 3 14 17 -5 2 15
Raw Mat 207 261 246 261 268 290 288 325 398 376 380 439
Sub-contracting costs 94 106 122 133 132 156 168 196 220 219 237 270
Employee costs 28 37 39 47 42 50 51 56 61 63 66 74
Other operating costs 52 63 55 58 62 78 80 84 103 95 95 107
Provision 1 2 -0 1 1 7 5 8 1 1 1 1
Total operating cost 383 469 462 499 505 580 592 669 783 755 779 891
% of sales
Raw Mat 47 49 48 46 47 45 44 44 46 46 45 45
Employee costs 6 7 7 8 7 8 8 8 7 8 8 8
Provision 0 0 -0 0 0 1 1 1 0 0 0 0
Growth YoY (%)
Raw Mat 20 26 -6 6 3 8 -0 13 22 -6 1 15
Sub-contracting costs 8 13 15 9 -0 18 8 17 12 -0 8 14
Employee costs 19 29 5 21 -11 20 3 9 8 4 4 12
Other operating costs 42 23 -13 5 6 25 3 5 23 -8 -0 13
Provision -41 18 -110 -746 -2 553 -34 61 -88 34 8 0
L&T recently allocated Rs5bn per month to support ~160,000 contract workers by
continuing to pay their wages during the lockdown and providing basic amenities at
labor camps.
6
Table 7: Valuation summary
Value
Valuation Value (Rs/s
Method multiple (Rs bn) h)
Construction Business
L&T Standalone FY21E PER (x) 20 587 419
International Ventures (L&T FZE) FY21E PER (x) 12 56 40
Mindtree Market cap 88 63
Electrical & Automation Valuation Sale at 20% capital gains tax 117 83
Hydrocarbon
Hydrocarbon Engineering FY21E PER (x) 25 239 170
Service Segments
L&T Infotech Market cap 202 144
L&T Technologies Market cap 93 66
Finance Market cap 77 55
L&T Realty FY21E PBV (x) 2 1 1
Asset Ownership / Project Developer
Infrastructure Development P/BV 1 30 22
Hyderabad Metro DCF 5 4
Seawoods FY21E PER (x) 10 6 4
Nabha Power P/BV 1 23 17
Manufacturing Ventures
Power Equipments FY21E PER (x) 25 2 1
Shipbuilding FY21E PBV (x) 2 6 5
Special Steel and Heavy Forgings FY21E PBV (x) 2 6 4
L&T Komatsu FY21E PER (x) 18 4 2
Audco India FY21E PER (x) 15 16 6
Less: Holding Company Discount 10
Total 1,035
Table 8: Key assumptions (consolidated)

(Rs bn) FY17 FY18 FY19 FY20E FY21E FY22E
Revenue
Heavy Engineering 34.5 16.4 25.1 31.4 30.8 35.6
Growth(%) 5.9 (52.6) 53.7 25.1 (2.2) 15.7
Electrical & Automation 53.7 55.1 60.9 59.7 60.3 68.2
Growth(%) (0.6) 2.6 10.6 (2.0) 1.0 13.0
Power 69.4 62.1 39.8 26.0 20.1 44.0
Growth(%) 8.0 (10.5) (35.8) (34.8) (22.7) 119.1
Infrastructure 539.2 634.2 732.0 724.5 720.7 844.6
Growth(%) 6.7 17.6 15.4 (1.0) (0.5) 17.2
Hydrocarbon 96.3 117.6 151.8 166.9 165.9 188.2
Growth(%) 11.7 22.1 29.1 10.0 (0.6) 13.5
IT & Technology Services 98.9 113.6 145.5 214.8 256.4 289.4
Growth(%) 9.7 14.9 28.1 47.6 19.4 12.9
Financial Services 85.5 100.6 126.4 137.0 130.4 142.8
Growth(%) 11.0 17.8 25.6 8.4 (4.8) 9.5
Developmental Projects 43.7 42.9 50.7 52.3 50.5 54.1
Growth(%) (5.5) (1.7) 18.0 3.3 (3.4) 7.0
Defence - 32.2 38.5 38.5 38.5 38.5
Growth(%) 19.5 - - -
Others 108.6 44.4 59.3 55.2 58.0 63.8
Order Inflow
Heavy Engineering 78.6 58.1 40.7 36.6 35.1 35.1
Growth(%) 242.5 (26.1) (30.0) (10.0) (4.0) -
Electrical & Automation 57.2 56.6 60.1 67.9 66.6 73.2
Growth(%) 4.5 (1.1) 6.3 13.0 (2.0) 10.0
Power 28.7 24.5 30.1 120.0 60.0 61.2
Growth(%) (1.2) (14.6) 22.9 299.3 (50.0) 2.0
Infrastructure 784.9 873.1 956.5 841.7 833.3 950.0
Growth(%) (7.5) 11.2 9.6 (12.0) (1.0) 14.0
Hydrocarbon 185.3 157.5 279.3 251.4 201.1 221.2
Growth(%) 77.3 (15.0) 77.4 (10.0) (20.0) 10.0
Defence engg. - - 30.1 21.0 17.9 19.7
Growth(%) (30.0) (15.0) 10.0
Others (Engg service, shipbuilding and Property) 42.5 104.0 51.3 52.8 50.2 55.2
Growth(%) (20.9) 144.9 (50.7) 3.0 (5.0) 10.0
7
Financial summary (consolidated)
Table 9: Profit & loss statement Table 11: Cashflow statement
(Rs mn, year ending March 31) (Rs mn, year ending March 31)
FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E
Total Income 14,10,071 14,28,577 14,52,253 16,81,061 Operating Cashflow 92,205 1,15,878 1,00,843 1,26,204
Operating Expenses 12,46,824 12,55,024 12,95,471 14,89,154 Working Capital Changes (87,345) (47,647) (1,02,248) (47,128)
EBITDA 1,63,247 1,73,553 1,56,782 1,91,908 Capital Commitments (31,811) (1,43,319) (35,526) (39,079)
% margins 11.6 12.1 10.8 11.4 Free Cashflow (26,951) (75,089) (36,931) 39,997
Depreciation & Cashflow from Investing
Amortisation 20,840 24,012 23,113 25,425 Activities (78,183) (60,528) (50,520) (56,012)
EBIT 1,42,407 1,49,541 1,33,669 1,66,483 Issue of Share Capital - - - -
Gross Interest 18,060 24,022 25,680 27,472 Buyback of shares - - - -
Other Income 18,515 20,800 13,048 13,912 Inc (Dec) in Borrowings 1,80,311 1,57,492 97,567 1,05,409
Recurring PBT 1,42,862 1,46,319 1,21,037 1,52,923 Interest paid (18,060) (24,022) (25,680) (27,472)
Add: Extraordinaries 2,948 (936) - - Dividend paid (22,432) (39,904) (32,472) (42,164)
Less: Taxes 43,433 33,653 30,259 38,231 Extraordinary Items/Others 2,250 22,332 25,680 27,472
Less: Minority Interest & Chg. in Cash & Bank
Share in associates 13,325 11,970 9,598 9,281 balance 36,935 (19,719) (22,356) 47,230
Net Income (Reported) 89,051 99,760 81,180 1,05,411 Source: Company data, I-Sec research
Adjusted Net Income 86,104 1,00,696 81,180 1,05,411
Table 12: Key ratios
(Year ending March 31)
Table 10: Balance sheet FY19 FY20E FY21E FY22E
(Rs mn, year ending March 31) Per Share Data (in Rs.)
FY19 FY20E FY21E FY22E Diluted adjusted EPS 63.5 71.1 57.9 75.1
Assets Recurring Cash EPS 87.8 96.8 81.2 99.9
Total Current Assets 21,94,674 22,56,906 24,08,660 27,15,389 Dividend per share (DPS) 18.0 14.0 14.0 14.0
of which cash & cash Book Value per share (BV) 444.7 505.9 558.2 622.3
eqv. 1,17,262 97,543 75,187 1,22,417
Total Current Liabilities Growth Ratios (%)
& Provisions 8,31,514 8,08,029 8,16,324 9,58,770 Operating Income 17.6 1.3 1.7 15.8
Net Current Assets 13,63,160 14,48,877 15,92,336 17,56,619 EBITDA 19.7 6.3 (9.7) 22.4
Investments 2,78,923 3,02,463 3,02,463 3,02,463 Recurring Net Income 18.3 16.9 (19.4) 29.8
Other Non-Current Diluted adjusted EPS 20.8 12.0 (18.6) 29.8
Assets 2,90,320 3,73,239 4,08,765 4,47,844 Diluted Recurring CEPS 18.8 10.2 (16.1) 23.0
Net Fixed Assets - - - -
Goodwill 18,269 78,669 78,669 78,669 Valuation Ratios
Total Assets 19,50,672 22,03,248 23,82,233 25,85,594 P/E 13.3 11.8 14.5 11.2
P/CEPS 9.6 8.7 10.4 8.4
Liabilities P/BV 1.9 1.7 1.5 1.4
Borrowings 12,55,552 14,13,043 15,10,610 16,16,019 EV / EBITDA 13.4 14.0 16.2 13.6
Deferred Tax Liability 3,111 2,357 2,357 2,357 EV / Operating Income 1.5 1.7 1.8 1.5
Minority Interest 68,261 78,261 86,261 94,261 EV / Operating FCF (pre -
Equity Share Capital 2,806 2,806 2,806 2,806 Capex) 448.6 35.6 32.9
Face Value per share
(Rs) 2.00 2.00 2.00 2.00 Operating Ratios
Reserves & Surplus 6,20,943 7,06,781 7,80,199 8,70,152 Raw Material/Sales (%) 37.4 34.7 35.0 35.6
Net Worth 6,23,748 7,09,586 7,83,005 8,72,957 SG&A/Sales (%) 20.1 20.7 20.3 20.1
Total Liabilities 19,50,672 22,03,248 23,82,233 25,85,594 Other Income / PBT (%) 13.0 14.2 10.8 9.1
Source: Company data, I-Sec research Effective Tax Rate (%) 30.4 23.0 25.0 25.0
NWC / Total Assets (%) 63.9 61.3 63.7 63.2
Note*: We have not factored in the cash accrued from Schneider deal in Inventory Turnover (days) 16.6 17.5 22.0 20.0
FY21E; hence we have included it in our valuation Receivables (days) 95.9 93.0 100.0 96.0
Payables (days) 123.8 108.9 94.8 98.2
Net D/E Ratio (x) 2.0 2.0 1.9 1.9
Return/Profitability Ratios (%)

Recurring Net Income Margins 6.1 7.0 5.6 6.3
RoCE 8.9 8.2 6.4 7.3
RoNW 14.7 15.1 10.9 12.7
Dividend Payout Ratio 28.4 19.7 24.2 18.6
Dividend Yield 2.1 1.7 1.7 1.7
EBITDA Margins 11.6 12.1 10.8 11.4
8
Engineering & Capital Goods, April 09, 2020 ICICI Securities
BHEL (HOLD – TP: Rs24)
BHEL is constantly looking at diversification opportunities; however, the huge size of

thermal power projects is unlikely to be replaced by any other segment with a medium-
term perspective. High receivables remain a concern and this is expected to continue
given the adverse change in payment terms by NTPC and the challenging liquidity
scenario in some of the major state electricity boards like Telangana, Tamil Nadu, etc.
The company has recently floated an expression of interest inviting partnership from
global companies and use its idle facilities and capabilities for setting up a manufacturing
base in India.
Given the value unlocking potential through foreign manufacturing partnership, we raise
forward P/E multiple from 10x to 11x FY21E and revise the target price to Rs24 (earlier:
Rs21). We maintain our HOLD rating on the stock given the overall challenging macro
environment, low RoEs and delay in order finalisation.
Table 13: Operating expense breakup trend for BHEL

(Rs bn) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Revenue 422 480 484 391 302 255 284 288 303 260 251 302
Growth (% YoY) 27 14 1 -19 -23 -16 12 1 5 -14 -3 20
Raw Mat 198 243 237 188 138 131 145 127 139 126 120 148
Employee costs 54 55 58 59 55 54 54 61 63 63 61 67
Provision 27 14 16 23 16 21 14 23 11 1 0 3
Total operating cost 337 381 390 346 281 268 274 269 282 244 238 282
% of sales
Raw Mat 47 51 49 48 46 52 51 44 46 49 48 49
Employee costs 13 11 12 15 18 21 19 21 21 24 24 22
Provision 6 3 3 6 5 8 5 8 4 0 0 1
Growth YoY (%)
Raw Mat 16 23 -2 -21 -26 -5 10 -12 9 -9 -5 23
Sub-contracting costs 14 14 13 3 -18 -17 3 12 13 -29 2 20
Employee costs 3 1 5 3 -8 -1 0 12 3 - -3 10
Other operating costs 27 26 19 -12 11 -9 -10 -20 30 -15 8 7
Provision -391 -48 12 44 -29 28 -30 58 -53 -93 -76 -
Chart 4: Operating expense breakup trend

Raw Mat Sub-contracting charges
Employee costs Other Op. cost
50
100 40
Costs as% of sales
13 10 11 10
7 12 10 10 30
80 6 8 8
11 8 8 8 7 8 21 20
20 16 6 19 21 24 24 22
14 14 16 11 12 15 18 21
60 17 8 13 10
9 8 9 11 12 11 11 11 11
8 8 9 7 8 12 12 13 -
40 -10
46 49 47 48 54 51 47 51 49 48 46 52 51 46 49 48 49 -20
20 44
-30
0 -40
FY16
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20E
FY21E
FY22E
9
The subcontracting cost as proportion of sales has gradually increased from 8% in FY05
to 13% in FY19 implying the change in execution mix towards more of EPC projects.
Certain periods although have anomalies in terms of mismatch in terms of growth in

operating costs and revenues. In FY08, revenues grew 12% YoY while subcontracting
costs declined 12% YoY and provisions grew three folds to Rs8bn.
In FY10 while revenues grew 25% YoY, other operating cost increased only 6% YoY. Net
provisions for the same period declined to Rs(9.3bn) due to Rs26bn in provisions write
backs.
Similarly, in FY17, while revenues grew 11.6% YoY, other operating cost declined by18%
YoY to Rs27bn (adjusting for forex loss of Rs2.7bn). Provisions also declined 30% YoY
to Rs14.4bn in the same period.
Table 14: Key assumptions (standalone)

(Rs bn)
FY17 FY18 FY19 FY20E FY21E FY22E
Revenue
Power 224.4 225.9 204.1 186.5 164.3 189.5
Growth (%) 12.9 0.7 (9.6) (8.6) (11.9) 15.3
Industry 60.5 49.7 59.4 60.6 60.6 69.7
Growth (%) 3.7 (17.8) 19.6 2.0 - 15.0
Overseas 3.6 2.9 29.9 3.7 3.8 4.4
Growth (%) 2.8 (17.4) 915.7 (87.6) 2.0 15.0
Total 288.4 278.5 293.5 250.9 243.8 293.6
Growth (%) 10.7 (3.4) 5.4 (14.5) (2.8) 20.5
Order Inflow
Power 72.6 333.4 154.9 139.8 165.7 198.9
Growth (%) (81.2) 359.2 (53.5) (9.8) 18.5 20.0
Industry 61.8 75.1 70.2 73.7 36.8 36.8
Growth (%) 20.6 21.6 (6.6) 5.0 (50.0) -
Overseas 100.5 0.8 13.5 11.9 8.9 8.9
Growth (%) (12.0) (25.0) -
Total 234.9 409.3 238.6 225.3 211.4 244.6
Growth (%) (46.3) 74.3 (41.7) (5.6) (6.2) 15.7
Order Backlog
Power 872.2 979.7 930.5 883.8 885.1 894.4
Growth (%) (14.8) 12.3 (5.0) (5.0) 0.1 1.1
Industry 63.0 88.4 99.1 112.2 88.4 55.5
Growth (%) 2.2 40.4 12.1 13.2 (21.2) (37.2)
Overseas 199.7 197.5 181.1 189.3 194.4 199.0
Growth (%) 94.2 (1.1) (8.3) 4.5 2.7 2.3
Total 1,134.8 1,265.7 1,210.8 1,185.2 1,167.9 1,148.9
Growth (%) (4.5) 11.5 (4.3) (2.1) (1.5) (1.6)
10
Engineering & Capital Goods, April 09, 2020 ICICI Securities
Financial summary (standalone)

Total Income 3,03,490 2,60,161 2,51,453 3,01,737 Operating Cashflow 14,785 14,942 12,534 17,275
Operating Expenses 2,82,070 2,43,790 2,37,771 2,81,936 Working Capital Changes (50,574) (24,628) (4,814) (16,315)
EBITDA 21,420 16,370 13,683 19,802 Capital Commitments (4,056) (3,994) (5,000) (5,000)
% margins 7.1 6.3 5.4 6.6 Free Cashflow (39,846) (13,680) 2,720 (4,039)
Depreciation & Amortisation 4,748 4,642 5,926 6,126 Cashflow from Investing
EBIT 16,672 11,729 7,756 13,675 Activities 23,205 - - -
Gross Interest 2,869 5,165 3,615 3,796 Issue of Share Capital (16,283)
Other Income 6,776 5,774 5,859 5,951 Buyback of shares
PBT before exceptionals 20,579 12,338 10,000 15,830 Inc (Dec) in Borrowings 24,955 427 - -
Add: Extraordinaries/ Interest paid 2,117 (677) 873 692
Exceptionals - - - - Dividend paid 7,873 4,618 4,030 4,828
Add: Share in associates Extraordinary Items/Others (38,748) (9,235) (8,060) (9,657)
PBT 20,579 12,338 10,000 15,830 Chg. in Cash & Bank balance (36,725) (18,548) (437) (8,176)
Less: Taxes 8,425 2,714 2,520 3,989 Source: Company data, I-Sec research
Less: Minority Interests
Net Income (Reported) 12,154 9,623 7,480 11,841
Adjusted Net Income 12,154 9,623 7,480 11,841 Table 18: Key ratios
Source: Company data, I-Sec research (Year ending March 31)
FY19 FY20E FY21E FY22E
Table 16: Balance sheet Per Share Data (in Rs.)
Diluted adjusted EPS 2.2 3.5 2.8 2.1
(Rs mn, year ending March 31) Recurring Cash EPS 4.3 4.9 4.1 3.9
FY19 FY20E FY21E FY22E Dividend per share (DPS) 1.3 1.9 1.1 0.9
Assets Book Value per share (BV) 88.8 90.2 91.6 92.7
Total Current Assets 4,23,579 4,28,201 4,28,180 4,82,781
of which cash & cash Growth Ratios (%)
eqv. 75,033 56,486 56,049 47,873 Operating Income 4.4 5.3 (14.3) (3.3)
Total Current Liabilities & EBITDA 82.0 10.9 (23.6) (16.4)
Provisions 3,04,634 2,94,671 2,98,512 3,54,947 Recurring Net Income 62.6 50.7 (20.8) (22.3)
Net Current Assets 1,18,945 1,33,530 1,29,668 1,27,834 Diluted adjusted EPS 8.4 58.9 (20.8) (22.3)
Investments 6,694 6,694 6,694 6,694 Diluted Recurring CEPS (21.0) 11.9 (15.6) (6.0)
Other Non-Current Assets
Net Fixed Assets 32,024 31,377 30,450 29,324 Valuation Ratios
Goodwill P/E 10.5 6.6 8.3 10.7
Total Assets 1,57,663 1,71,600 1,66,812 1,63,852 P/CEPS 5.3 4.7 5.6 6.0
P/BV 0.3 0.3 0.3 0.2
Liabilities EV / EBITDA (1.6) 1.4 3.0 3.7
Borrowings 25,527 25,955 25,955 25,955 EV / Operating Income (0.1) 0.1 0.2 0.2
Deferred Tax Liability (1,81,863) (1,73,343) (1,82,010) (1,91,111) EV / Op. FCF (pre -Capex) (2.4) (0.9) (5.1) 6.5
Minority Interest
Equity Share Capital 6,964 6,964 6,964 6,964 Operating Ratios
Face Value per share Raw Material/Sales (%) 56.0 58.5 59.2 59.0
(Rs) 2.00 2.00 2.00 2.00 SG&A/Sales (%) 10.5 10.6 10.5 11.7
Reserves & Surplus 3,07,035 3,12,025 3,15,904 3,22,044 Other Income / PBT (%) 43.8 32.9 46.8 58.6
Net Worth 3,13,999 3,18,989 3,22,868 3,29,008 Effective Tax Rate (%) 49.1 40.9 22.0 25.2
Total Liabilities 1,57,663 1,71,600 1,66,812 1,63,852 NWC / Total Assets (%) 18.4 27.9 44.9 44.1
Source: Company data, I-Sec research Inventory Turnover (days) 82.0 100.9 120.5 135.1
Receivables (days) 184.3 149.4 150.0 150.0
Payables (days) 138.7 141.5 142.2 133.4
Net D/E Ratio (x) (0.3) (0.2) (0.1) (0.1)

RoCE 2.9 4.2 4.0 2.9
RoNW 2.5 3.8 3.0 2.3
Dividend Yield (%) 5.7 8.2 4.8 3.7
EBITDA Margins 6.7 7.1 6.3 5.4
11
Siemens (BUY – TP: Rs 1,335)
There persists a challenging outlook in terms slowdown of capex-related ordering in
the infrastructure sector. Slowdown in automotive segments is impacting the overall
growth in automation. We expect project bought out related expense to increase and
have cut earnings by 3.1% for FY20E and 2.8% for FY21E. Given the recent fall in
valuation, we maintain BUY with a revised target price of Rs1,335 (earlier: Rs1,383).
Focus on margins, predictable cashflows from digitisation and short-cycle demand is

expected to support medium- to long-term growth. We value the company’s core
earnings at 50x FY21E P/E, assume 20x FY21E multiple for the C&S Electric
business, and add back the cash. This works out to an SoTP-based target price of
Rs1,335. The stock currently trades at 34x FY21E P/E, lower than (-1) standard
deviation, providing comfort from a valuation perspective.

FY17 FY18 FY19 FY20E FY21E
PAT 7,079 8,939 10,869 9,755 11,416
Tax rate 32.1 32.0 33.8 25.2 25.2
Other income 2,547 2,800 3,946 3,791 4,170
Operating PAT 5,349 7,035 8,256 6,919 8,297
P/E (x) 50
Value 4,14,858
Cash & Cash Equivalent (excl DDT) 41,722
Gross value 4,56,580
Value per share 1,282
C&S electric PAT 948

P/E (x) 20
Value 18,963
Value per share (Rs) 53
Total Value per share (Rs) 1,335

Source: I-Sec research
FY20E FY21E
Rs mn Earlier Revised YoY (%) Earlier Revised YoY (%)
Revenue 1,19,227 1,19,227 0.0 1,28,943 1,28,943 0.0
EBIDTA 12,300 11,880 (3.4) 14,385 13,945 (3.1)
PAT 10,068 9,755 (3.1) 11,746 11,416 (2.8)
Raw Mat Project bought outs Employee costs Other Op. cost
120
100
Costs as% of sales
6 6 8 9 10
9 9 6 7 7 10 11 13 11 9 9 8
80 6 5 5 7 8 9 12
7 7 13 13 12 13 13
13 12 11
60 21 31 31
51 45 43 38 38 38 25 20 17 18 23 23 24 22
40
52 46 46 48 49 47 45 45 45 47
20 37 39 44
29 35 33 35
0
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
12
Financial summary
(Rs mn, year ending Sep 30) (Rs mn, year ending Sep 30)
FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E
Operating Expenses 1,14,090 1,22,081 1,07,347 1,14,998 Working Capital Changes (7,274) 983 (6,648) 6,569
% margins 10.3 10.8 10.0 10.8 Free Cashflow (677) 8,885 (800) 14,468
Depreciation & Amortisation 1,967 2,173 2,510 2,752 Cashflow from Investing
EBIT 11,194 12,584 9,370 11,192 Activities (144) 4,802 5,149 (16,789)
Gross Interest 82 114 120 100 Issue of Share Capital - - - -
Other Income 2,800 3,946 3,791 4,170 Buyback of shares - - - -
PBT before exceptionals 13,912 16,416 13,041 15,262 Inc (Dec) in Borrowings - - - -
Add: Interest paid (82) (114) (120) (100)
Extraordinaries/Exceptionals - - - - Dividend paid (2,493) (2,493) (3,739) (3,739)
Add: Share in associates - - - - Extraordinary Items/Others (860) 1,376 (760) (760)
PBT 13,912 16,416 13,041 15,262 Chg. in Cash & Bank balance (4,256) 12,456 (271) (6,920)
Less: Minority Interests - - - -
Net Income (Reported) 8,939 10,869 9,755 11,416
Adjusted Net Income 8,939 10,869 9,755 11,416 Table 24: Key ratios
Source: Company data, I-Sec research (Year ending Sep 30)
FY18 FY19 FY20E FY21E
Diluted adjusted EPS 25.1 30.5 27.4 32.1
(Rs mn, year ending Sep 30) Recurring Cash EPS 30.6 36.6 34.4 39.8
FY18 FY19 FY20E FY21E Dividend per share (DPS) 7.0 7.0 10.5 10.5
Total Current Assets 1,10,744 1,24,089 1,27,038 1,18,734
of which cash & cash eqv. 36,457 48,913 48,642 41,722 Growth Ratios (%)
Total Current Liabilities & Operating Income 12.1 7.5 (12.9) 8.1
Provisions 59,438 61,668 58,241 63,426 EBITDA 25.2 12.1 (19.5) 17.4
Net Current Assets 14,849 13,508 20,156 13,586 Recurring Net Income 26.3 21.6 (10.3) 17.0
Investments 1,042 1 1 20,001 Diluted adjusted EPS 26.3 21.6 (10.3) 17.0
Other Non-Current Assets 17,610 15,528 14,169 15,128 Diluted Recurring CEPS 20.6 19.6 (6.0) 15.5
Net Fixed Assets 13,096 12,486 12,723 12,171
Goodwill - - - - Valuation Ratios
Total Assets 83,054 90,436 95,691 1,02,607 P/E 42.6 35.1 39.1 33.4
P/CEPS 34.9 29.2 31.1 26.9
Borrowings - - - - EV / EBITDA 26.2 22.5 28.0 24.3
Deferred Tax Liability - - - - EV / Operating Income 2.8 2.5 2.8 2.6
Minority Interest - - - - EV / Operating FCF (pre -Capex) 816.6 27.0 170.8 20.4
Equity Share Capital 712 712 712 712
Face Value per share (Rs) 2.00 2.00 2.00 2.00 Operating Ratios
Reserves & Surplus 82,342 89,724 94,979 1,01,895 Raw Material/Sales (%) 67.5 68.1 68.5 69.0
Net Worth 83,054 90,436 95,691 1,02,607 SG&A/Sales (%) 10.8 9.4 8.6 7.6
Total Liabilities 83,054 90,436 95,691 1,02,607 Other Income / PBT (%) 20.1 24.0 29.1 27.3
NWC / Total Assets (%) 12.4 10.9 15.1 10.1
Inventory Turnover (days) 32.7 29.2 40.0 38.0
Payables (days) 96.9 98.3 94.4 98.7
Net D/E Ratio (x) (0.4) (0.5) (0.5) (0.4)

RoCE 11.2 12.6 10.6 11.6
RoNW 11.2 12.5 10.5 11.5
Dividend Yield (%) 0.7 0.7 1.0 1.0
EBITDA Margins 10.3 10.8 10.0 10.8
13
Thermax Ltd (HOLD – TP: Rs675)
Demand in H1FY21E is likely to be slow due to the ongoing coronavirus-related

impact. Delay in collections and support to small vendors is also expected to stretch
the working capital cycle. Performance of the overseas subsidiaries in Europe and
South-East Asia is also likely to be impacted by the Covid-19 pandemic.
Factoring in the increased subcontracting cost, we marginally cut earnings by 1.3%
for FY21E. The stock is trading at 31.1x FY21E earnings and given the recent
correction in valuation we maintain HOLD with a revised TP of Rs675 (earlier:
Rs684).
Improvement in gross margins, turnaround in overseas subsidiaries and large order
finalisations will be the key rerating catalysts for the stock.
Table 25: Earnings revision (consolidated)

(Rs mn)
FY21E FY22E
Revenue 51,071 51,071 - 57,199 57,199 -
EBIDTA 3,730 3,683 (1.3) 4,686 4,692 0.1
PAT 2,718 2,682 (1.3) 3,465 3,469 0.1
90 120
16 14 13 14 12 12 12 14 12 13 14 13
80 17 15 15 16 15
17 100
Costs as% of sales
70 9 9 9 11 13 13 13 14 16 15
9 8 10 2 14 15 15 80
1 10 1 1 8 2 6
60 1 2 2 6 11 13 11 11
11 9 12 12 60
50
40
40
30 65 63 64 66 63 20
60 60 60 60 56 54 56 55
53 51 52 51 52
20 -
10 -20
0 -40
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E
Table 26: Key assumptions

{Rs mn)
FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Revenues
Energy 43,072 36,248 34,971 47,995 48,715 41,407 45,548
Growth (YoY %) - (15.8) (3.5) 37.2 1.5 (15.0) 10.0
Environment 7,208 6,997 6,938 8,283 7,455 6,336 7,826
Growth (YoY %) - (2.9) (0.8) 19.4 (10.0) (15.0) 23.5
Chemical 3,276 3,319 3,610 4,151 4,359 3,923 4,433
Growth (YoY %) - 1.3 8.8 15.0 5.0 (10.0) 13.0
Net segment revenues 52,656 45,897 44,856 59,732 59,671 50,766 56,861
PBIT margins (%)
Energy 8.8 8.9 8.1 6.7 6.0 5.5 6.4
Environment 2.5 5.4 4.2 6.8 5.0 5.0 5.0
Chemical 15.7 17.8 15.0 14.9 17.0 17.0 17.0
Total 8.5 9.2 8.2 7.4 6.8 6.4 7.1
14
Total Income 59,732 59,732 51,071 57,199 Operating Cashflow 3,417 2,596 2,533 3,253
Operating Expenses 55,157 55,365 47,388 52,507 Working Capital Changes (4,482) 222 163 362
% margins 7.7 7.3 7.2 8.2 Free Cashflow (5,635) 1,019 1,586 1,905
Depreciation & Amortisation 920 1,083 1,155 1,233 Cashflow from Investing
EBIT 3,654 3,283 2,527 3,460 Activities 7,226 1,506 547 612
Other Income 1,499 1,199 1,199 1,319 Buyback of shares - - - -
PBT before exceptionals 5,010 4,356 3,600 4,652 Inc (Dec) in Borrowings 28 - - -
Extraordinaries/Exceptionals (896) - - - Dividend paid (834) (1,072) (1,072) (1,072)
Add: Share in associates (11) (11) (11) (11) Extraordinary Items/Others (4,311) (777) 113 177
PBT 4,104 4,345 3,590 4,642 Chg. in Cash & Bank balance (3,670) 550 1,047 1,496
Less: Taxes 849 1,525 907 1,172 Source: Company data, I-Sec research
Less: Minority Interests (10) - - -
Net Income (Reported) 5,045 2,821 2,682 3,469 Table 30: Key ratios
Adjusted Net Income 3,209 2,821 2,682 3,469
Per Share Data (in Rs.)
Table 28: Balance sheet Diluted adjusted EPS 26.9 23.7 22.5 29.1
Total Current Assets 47,371 46,842 43,404 47,750
of which cash & cash eqv. 11,441 11,991 13,039 14,535 Growth Ratios (%)
Total Current Liabilities & Operating Income 33.2 - (14.5) 12.0
Provisions 35,557 34,737 30,428 33,696 EBITDA 14.1 (4.5) (15.7) 27.4
Net Current Assets 373 114 (63) (481) Recurring Net Income 39.5 (12.1) (4.9) 29.3
Investments 543 597 657 722 Diluted adjusted EPS 39.5 (12.1) (4.9) 29.3
Other Non-Current Assets 6,566 7,201 7,898 8,665 Diluted Recurring CEPS 32.1 (5.4) (1.7) 22.5
Net Fixed Assets 13,189 13,904 13,859 14,336
Goodwill 331 324 318 311 Valuation Ratios
Total Assets 32,443 34,132 35,708 38,089 P/E 26.0 29.6 31.1 24.0
P/CEPS 20.2 21.4 21.7 17.7
Borrowings 2,201 2,201 2,201 2,201 EV / EBITDA 16.2 16.9 19.7 15.1
Deferred Tax Liability 99 75 77 78 EV / Operating Income 1.3 1.2 1.4 1.2
Minority Interest - 17 17 17 EV / Op FCF (pre -Capex) (64.3) 26.1 26.9 19.7
Reserves & Surplus 29,918 31,614 33,188 35,568 Raw Material/Sales (%) 55.9 54.6 51.0 51.5
Net Worth 30,143 31,839 33,414 35,794 SG&A/Sales (%) 23.6 24.3 26.2 25.3
Total Liabilities 32,443 34,132 35,708 38,089 Other Income / PBT (%) 29.9 27.5 33.3 28.4
NWC / Total Assets (%) 0.0 1.5 0.0 0.0
Payables (days) 91.3 91.6 91.7 91.6
Net D/E Ratio (x) (0.3) (0.3) (0.3) (0.3)

RoCE 14.3 8.8 8.0 9.7
RoNW 11.2 9.1 8.2 10.0
Dividend Yield (%) 1.0 1.3 1.3 1.3
15
GE T&D (ADD – TP: Rs83)
Order intake and execution challenges are expected to impact the near to medium
term performance of the company. GE T&D may need to raise additional debt in the
near term given the increased working capital stress on balance sheet due to
coronavirus situation. We believe, most of these are factored-in together with the
company’s technological leadership and relatively higher level of localisation vs peers.
Company will stand to benefit when the tide turns. Long-term opportunity in terms of
green energy corridor, Leh-Ladakh HVDC, Bangladesh HVDC, etc. are the long-term
growth drivers.
Factoring in increase in subcontracting cost, we have cut our earnings by 2.6% and
2% for FY21E and FY22E respectively. However, given the sharp fall in valuations and
inherent technology leadership, we upgrade the stock to ADD (from Hold) with a
revised SoTP-based target price of Rs83 (earlier: Rs85).
The stock is currently trading at 47x FY21E earnings. Given sharp correction and
headwinds in terms of both growth and margins, we believe the stock is currently fairly
valued.
(Rs mn)
FY21E FY22E
Revenue 28,832 28,832 - 31,726 31,726 -
EBIDTA 1,579 1,564 (1.0) 2,267 2,240 (1.2)
PAT 436 425 (2.6) 1,003 983 (2.0)
30
100
Costs as% of sales
16 16 16 15 20
10 13 14 13 14 13 15
80 13
9 10 10 9 11 10 9 13 12 10
9
60 -
35 32 26 31 30 30
37 39 45 48 51 -10
40
-20
20 34 37 40 40 36 36
30 29 23 -30
21 19
0 -40
FY15
FY12
FY13
FY14
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E

Table 32: Order intake assumptions
Rs mn FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Order inflows 34,210 43,087 39,237 37,496 28,122 22,498 30,372
% growth -9.6% 13.8% -8.9% -4.4% -25.0% -20.0% 35.0%
Closing Order backlog 79,697 81,151 71,260 64,000 60,117 53,783 52,429
% growth -2.0% 1.8% -12.2% -10.2% -6.1% -10.5% -2.5%
Order backlog / Sales 2.41 2.00 1.62 1.52 1.88 1.87 1.65
Book/Bill (%) 41.4% 49.9% 61.5% 65.9% 53.2% 53.6% 60.5%
% Execution 35% 42% 44% 47% 41% 40% 46%
16
Financial summary
Table 33: Profit & Loss statement Table 35: Cashflow statement
(Rs mn, year ending Mar 31) (Rs mn, year ending Mar 31)
Total Income 42,188 32,005 28,832 31,726 Operating Cashflow 3,999 (87) 1,421 1,909
Operating Expenses 37,929 31,621 27,268 29,485 Working Capital Changes (7,505) (1,535) 498 (831)
EBITDA 4,355 384 1,564 2,240 Capital Commitments 29 (1,649) (500) (500)
% margins 10.3 1.2 5.4 7.1 Free Cashflow (3,478) (3,271) 1,419 578
Depreciation & Amortisation 832 827 815 855 Cashflow from Investing
EBIT 3,523 (443) 749 1,385 Activities 2,840 15 550 550
Other Income 583 400 550 550 Buyback of shares - - - -
PBT before exceptionals 3,442 (774) 568 1,314 Inc (Dec) in Borrowings (195) 2,800 (105) (500)
Extraordinaries/Exceptionals - (536) - - Dividend paid (461) (77) (256) (256)
Add: Share in associates - - - - Extraordinary Items/Others (2,760) 1,220 (33) (52)
PBT 3,442 (1,310) 568 1,314 Chg. in Cash & Bank balance (4,718) (44) 844 (301)
Less: Taxes 1,219 (66) 143 331 Source: Company data, I-Sec research
Less: Minority Interests - - - -
Net Income (Reported) 2,223 (1,245) 425 983
Adjusted Net Income 2,127 (843) 425 983
Source: Company data, I-Sec research (Year ending Mar 31)
Diluted adjusted EPS 8.3 -3.3 1.7 3.8
(Rs mn, year ending Mar 31) Recurring Cash EPS 11.6 -0.1 4.8 7.2
of which cash & cash eqv. 603 559 1,402 1,101 Growth Ratios (%)
Total Current Liabilities & Operating Income (3.8) (24.1) (9.9) 10.0
Provisions 26,879 20,175 19,215 20,163 EBITDA 69.6 (91.2) 307.6 43.2
Net Current Assets 4,952 6,299 5,783 6,614 Recurring Net Income 1.9 131.2
Investments 0 - - - Diluted adjusted EPS 1.9 131.2
Other Non-Current Assets 4,354 3,691 3,691 3,691 Diluted Recurring CEPS (0.9) 48.2
Net Fixed Assets 5,177 5,999 5,684 5,328
Total Assets 15,085 16,548 16,560 16,735 P/E 9.4 (23.7) 47.0 20.3
P/CEPS 6.7 (1,295.4) 16.1 10.9
Borrowings 805 3,605 3,500 3,000 EV / EBITDA 4.6 60.0 14.1 9.8
Minority Interest - - - - EV / Operating FCF (pre -Capex) (5.7) (14.2) 11.5 20.3
Total Liabilities 15,085 16,548 16,560 16,735 Other Income / PBT (%) 16.9 (51.7) 96.8 41.9
NWC / Total Assets (%) 15.2 21.0 20.2 21.8
Payables (days) 111.1 71.2 76.0 89.1
Net D/E Ratio (x) 0.0 0.2 0.2 0.1

Recurring Net Income Margins 5.0 (2.6) 1.5 3.1
RoCE 19.0 (0.3) 5.9 8.7
RoNW 16.2 (6.2) 3.3 7.3
Dividend Payout Ratio 0.2 (0.1) 0.6 0.3
Dividend Yield (%) 2.3 0.4 1.3 1.3
17
KEC International (HOLD – TP: Rs199)
We believe, the company’s healthy orderbook, stable traction from Railways and focus
on debt reduction will support 4% FY19-FY22E earnings CAGR. Given the recent rally
in the stock price, we believe the current valuation of 13.5x FY21E earnings are rich.
Hence, we downgrade the stock from BUY to HOLD with a revised target price of
Rs199 (earlier: Rs184). Given that the company will be better placed versus peers and
the likely reduction in competitive intensity from unorganised sector, we marginally
increase our target multiply to 13x from 12x FY21E.

90 11 11 10 70
10 13 9 10 10 12 9 8 9 10 10
80 12 11 7 7 10 60
5 4 7 7 8 8 8
Costs as% of sales
5 4 4 6 7 9 8 8
70 50
24 17 24 20 21 24 22
60 26 22 22 23 21 21 25 25 26 27 40
50 30
40 20
30 58 54 55 54 10
51 46 50 52 50 52 48 49 51 49 48 47 47
20 -
10 -10
0 -20
FY08
FY09
FY06
FY07
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E
Table 37: Segmental assumptions
Rs mn FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Revenues 87,103 87,540 1,00,900 1,10,010 1,19,417 1,13,226 1,24,655
Power T&D (excl SAE) - - 67,890 63,380 67,183 63,824 70,206
Power T&D (SAE) - - 10,250 9,670 14,215 13,504 13,504
Power T&D 72,120 70,310 78,140 73,050 81,398 77,328 83,710
Cables 11,180 10,540 10,090 11,830 10,647 9,582 10,541
Railway 2,100 4,460 8,440 19,180 23,016 20,714 22,372
Water /civil 1,030 860 2,680 4,980 2,988 4,781 7,171
Solar 930 1,590 2,880 3,420 1,368 821 862
Growth YoY (%) 2.8 0.5 15.3 9.0 8.6 (5.2) 10.1
Power T&D (excl SAE) (6.6) 6.0 (5.0) 10.0
Power T&D (SAE) (5.7) 47.0 (5.0) -
Power T&D (1.0) (2.5) 11.1 (6.5) 11.4 (5.0) 8.3
Cables 23.3 (5.7) (4.3) 17.2 (10.0) (10.0) 10.0
Railway 57.9 112.4 89.2 127.3 20.0 (10.0) 8.0
Water /civil (27.0) (16.5) 211.6 85.8 (40.0) 60.0 50.0
Solar 933.3 71.0 81.1 18.8 (60.0) (40.0) 5.0
Order Inflow 87,140 1,23,580 1,50,980 1,40,840 1,19,855 1,08,574 1,16,593
Power TD 71,047 92,685 96,627 87,321 56,759 56,759 59,596
Cables 9,583 9,886 10,569 9,859 9,859 9,859 10,845
Railway 5,384 14,830 39,255 30,985 27,886 29,281 32,209
Water 1,126 6,179 4,529 2,817 25,351 12,676 13,943
Growth YoY (%) 5.9 41.8 22.2 (6.7) (14.9) (9.4) 7.4
Power TD 4.1 30.5 4.3 (9.6) (35.0) - 5.0
Cables (16.8) 3.2 6.9 (6.7) - - 10.0
Railway 118.2 175.4 164.7 (21.1) (10.0) 5.0 10.0
Water 1,269.1 448.9 (26.7) (37.8) 800.0 (50.0) 10.0
18
Financial summary
Operating Expenses 98,506 1,07,629 1,03,623 1,13,520 Working Capital
EBITDA 11,499 11,788 9,603 11,135 Changes (4,993) (10,955) (7,042) 1,055
% margins 10.5 9.9 8.5 8.9 Capital Commitments (318) (997) (1,000) (1,500)
Depreciation & Amortisation 1,171 1,382 1,396 1,410 Free Cashflow 1,669 (1,091) 714 9,842
EBIT 10,328 10,406 8,208 9,725 Cashflow from
Gross Interest 3,119 3,344 2,944 3,241 Investing Activities 2,540 - - -
Other Income 226 120 200 200 Issue of Share Capital - - - -
PBT before exceptionals 7,435 7,182 5,464 6,684 Buyback of shares
Add: Inc (Dec) in Borrowings 574 7,443 3,500 -
Extraordinaries/Exceptionals - - - - Interest paid (3,119) (3,344) (2,944) (3,241)
Add: Share in associates - - - - Dividend paid (238) (718) (839) (1,047)
PBT 7,435 7,182 5,464 6,684 Extraordinary
Less: Taxes 2,571 2,011 1,530 1,871 Items/Others (977) (329) (208) -
Less: Minority Interests - - - - Chg. in Cash & Bank
Net Income (Reported) 4,864 5,171 3,934 4,812 balance 449 1,960 223 5,554
Adjusted Net Income 4,864 5,171 3,934 4,812 Source: Company data, I-Sec research
Table 39: Balance sheet (Year ending March 31)
(Rs mn, year ending March 31) FY19 FY20E FY21E FY22E
FY19 FY20E FY21E FY22E Per Share Data (in Rs.)
Assets Diluted adjusted EPS 18.9 20.1 15.3 18.7
Total Current Assets 1,04,915 1,18,386 1,20,478 1,32,188 Recurring Cash EPS 23.5 25.5 20.7 24.2
of which cash & cash eqv. 2,762 5,150 4,947 9,737 Dividend per share (DPS) 2.7 3.5 3.5 3.5
Total Current Liabilities & Book Value per share (BV) 94.7 110.8 122.0 136.6
Provisions 74,129 74,256 69,509 77,485
Net Current Assets 30,786 44,130 50,969 54,703 Growth Ratios (%)
Investments 132 132 132 132 Operating Income 9.0 8.6 (5.2) 10.1
Other Non-Current Assets 2,037 2,037 2,037 2,037 EBITDA 14.3 2.5 (18.5) 15.9
Net Fixed Assets 9,860 7,720 7,324 7,414 Recurring Net Income 6.1 6.3 (23.9) 22.3
Goodwill - - - - Diluted adjusted EPS 6.1 6.3 (23.9) 22.3
Total Assets 42,816 54,019 60,462 64,287 Diluted Recurring CEPS 6.3 8.6 (18.7) 16.7
Liabilities Valuation Ratios

Borrowings 16,968 24,411 27,911 27,911 P/E 10.9 10.3 13.5 11.1
Deferred Tax Liability 1,497 1,134 1,190 1,250 P/CEPS 8.8 8.1 10.0 8.6
Minority Interest - - - - P/BV 2.2 1.9 1.7 1.5
Equity Share Capital 514 514 514 514 EV / EBITDA 5.9 6.1 7.9 6.4
Face Value per share (Rs) 2.00 2.00 2.00 2.00 EV / Operating Income 0.6 0.6 0.7 0.6
Reserves & Surplus 23,837 27,961 30,847 34,612 EV / Op. FCF (pre-capex) 33.9 (764.8) 44.4 6.3
Net Worth 24,351 28,475 31,361 35,126
Total Liabilities 42,816 54,019 60,462 64,287 Operating Ratios
Source: Company data, I-Sec research Raw Material/Sales (%) 49.2 47.5 47.0 46.5
SG&A/Sales (%) 8.8 9.3 9.8 9.8
Other Income / PBT (%) 3.0 1.7 3.7 3.0
Effective Tax Rate (%) 34.6 28.0 28.0 28.0
NWC / Total Assets (%) 65.5 72.2 76.1 69.9
Payables (days) 159.3 145.0 145.0 145.0
Debt/Equity (x) 0.7 0.9 0.9 0.8
Profitability Ratios (%)

Recurring Net Income
Margins 4.4 4.3 3.5 3.9
RoCE 16.4 14.2 10.0 11.1
RoNW 20.0 18.2 12.5 13.7
19
Kalpataru Power (BUY – TP: Rs299)
The sale of Alipurduar BOOT to CLP has been called off as the government haven’t
given approval. The company is now pursuing to close the deal with other interested
buyers. This is expected to impact the near term cash flows and the target of
becoming zero debt by March 2021 is likely to get extended. Factoring in the
cancellation of the deal and higher subcontracting expense, we cut FY21E and FY22E
earnings by 10.5% and 9.9%, respectively and the value the standalone business at
10x FY21E earnings. Current orderbook at Rs149bn (2x TTM sales) provides revenue
visibility, though growth is expected to be delayed due to the lockdown.
Performance of the overseas subsidiaries in Nordic region (Linjemontage) and

domestic logistic subsidiary (Shubham Logistics) are expected to be under pressure.
The recent sharp fall in stock valuation due to the concerns regarding the promoter
group and shares pledged of promoter group provides an investment opportunity in a
long term perspective. Hence, we maintain our BUY rating on the stock with a revised
SoTP target price of Rs299 (earlier: Rs338).
We value the standalone business at Rs223 (10x FY21E earnings), JMC Projects at
Rs29 (market capitalisation as on 5th May’20), Linjemontage at Rs8 (5x FY21E
earnings), Jhajjar transmission BOOT at Rs5 and transmission assets ATL and KMTL
at Rs42 per share combined. With a holding company discount of 20%, we arrive at an
SoTP-based target price of Rs299.
Table 42: Change in estimates

(Rs mn)
FY21E FY22E
Revenue 70,132 70,132 0.0 77,021 77,021 0.0
EBIDTA 6,522 6,191 -5.1 7,856 7,302 -7.1
PAT 3,852 3,447 -10.5 4,765 4,293 -9.9

90
6 8 6 9 11 11 13 12 11 9 9 11 11 100
80 4 7 8 9 8 12
6 6
Costs as% of sales
5 5 6 6 6 6 7 6 6 7 8 7
70 5 7 6 80
24 18 21
60 20 21 30 27 24 26 26 26 29
27 29 29 32 29 30 60
50
40 40
30 55 56 54 20
51 50 44 45 50 47 46 46
20 43 41 42 42 44 43 43
-
10
0 -20
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E
20
Table 43: SoTP Valuation
Holding
Multiple FY21E Total Value value Value Per
Holding (%) Method (x) (Rs mn) (Rs mn) (Rs mn) Share (Rs)
Kalpataru Power - Standalone FY21E PER 10 3,447 34,473 34,473 223
JMC Projects 67% Market Cap 6,640 4,449 29
Jhajjar KT transco 50% DCF 1,700 833 5
Linjemontage 5 241 1,203 1,203 8
Sale of Transmission assets 100% in ATL 3,645 3,402 22
74% in KMTL 4,350 3,045 20
Shubham Logistics 100.0% 0
Holding company discount (Linjemontage, JMC &
Shubham) 20% 1,130 7
Target Price - 299
21
Financial summary (standalone)
Operating Expenses 63,369 70,098 63,941 69,719 Working Capital Changes (3,191) (4,841) (4,407) (1,364)
EBITDA 7,782 8,224 6,191 7,302 Capital Commitments (1,210) (1,120) (900) (900)
% margins 10.9 10.5 8.8 9.5 Free Cashflow 3,381 2,503 885 5,038
Depreciation & Amortisation 860 1,069 834 842 Cashflow from Investing
EBIT 6,922 7,154 5,358 6,460 Activities 1,808 (1,784) (305) (303)
Gross Interest 1,190 1,488 1,333 1,309 Issue of Share Capital - 3 - -
Other Income 512 614 584 589 Buyback of shares
PBT before exceptionals 6,244 6,281 4,609 5,740 Inc (Dec) in Borrowings (321) 3,000 (2,079) (4,000)
Add: Interest paid (1,190) (1,488) (1,333) (1,309)
Extraordinaries/Exceptionals - 240 - - Dividend paid (449) (464) (542) (542)
Add: Share in associates Extraordinary Items/Others (2,591) (65) 4,814 842
PBT 6,244 6,521 4,609 5,740 Chg. in Cash & Bank balance 638 1,705 1,441 (274)
Less: Minority Interests
Net Income (Reported) 4,013 4,938 3,447 4,293 Table 47: Key ratios
Adjusted Net Income 4,013 4,758 3,447 4,293
of which cash & cash eqv. 1,455 3,159 620 4,326 Growth Ratios (%)
Total Current Liabilities & Operating Income 23.1 10.1 (10.5) 9.8
Provisions 44,918 48,956 41,871 47,522 EBITDA 23.3 5.7 (24.7) 17.9
Net Current Assets 17,143 21,821 22,372 25,832 Recurring Net Income 24.6 17.1 (26.6) 24.5
Investments 6,486 8,800 9,600 10,400 Diluted adjusted EPS 24.6 16.1 (26.6) 24.5
Other Non-Current Assets 8,189 8,866 9,111 5,387 Diluted Recurring CEPS 22.2 17.4 (25.8) 20.0
Net Fixed Assets 5,784 5,835 5,901 5,958
Total Assets 37,601 45,322 46,983 47,577 P/E 8.4 7.2 9.9 7.9
P/CEPS 6.9 5.9 8.0 6.6
Minority Interest - - - - EV / Operating FCF (pre -
Equity Share Capital 307 309 309 309 Capex) 8.4 11.0 22.6 5.5
Face Value per share (Rs) 2.00 2.00 2.00 2.00
Reserves & Surplus 31,215 35,934 39,673 44,268 Operating Ratios
Net Worth 31,522 36,243 39,983 44,577 Raw Material/Sales (%) 73.8 73.3 72.5 72.5
Total Liabilities 37,601 45,322 46,983 47,577 SG&A/Sales (%)
Source: Company data, I-Sec research Other Income / PBT (%) 8.2 9.8 12.7 10.3
Effective Tax Rate (%) 35.7 25.2 25.2 25.2
NWC / Total Assets (%) 22.1 22.5 27.4 25.4
Payables (days) 118.6 115.0 100.0 110.0
Net D/E Ratio (x) 0.1 0.2 0.2 (0.0)

RoCE 20.7 18.7 12.9 14.9
RoNW 13.6 13.9 9.0 10.2
22
VA Tech Wabag (REDUCE – TP: Rs99)
Company currently has net debt of~Rs3bn and working capital days continue to be
high due to slow-moving receivables. Hence, we believe, the company will need to
either raise more debt or reduce working capital days to support revenue growth.
Given the current scenario, there is a limit to which working capital can be reduced as
the slow-moving receivables are taking time to come in. Hence, the high debt levels
can act as impediment to revenue growth.
High receivable days impacting overall cashflow continues and is expected to keep
RoEs at lower levels despite the company being asset-light. Likely financial closure of
the HAM projects under the Namami Gange project with a financial partner who will
fund the majority stake will reduce impact on the balance sheet. The tight liquidity
scenario will remain an impediment to growth given the EPC nature of execution.
VA Tech Wabag currently trades at 14.1x FY21E earnings of Rs8.2 per share. The
recent rally in the stock price has made the valuation expensive. Weak balance sheet
impacted by high debtors will make the company more vulnerable due to the migrant
worker related impact. Hence, we downgrade the stock to REDUCE. We factor-in a
FY19-FY21E revenue CAGR of 3.5% and assign a valuation at 50% discount to 1-
year forward mean with a revised target price of Rs99 (earlier Rs 82)
Table 48: Financial assumptions (consolidated)

(Rs mn) FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20E FY 21E FY 22E
Order Inflow
Municipal EPC 20,411 9,588 25,839 14,757 17,463 30,764 21,535 21,535 21,535
Growth(%) 190.3 -53.0 169.5 -42.9 18.3 76.2 -30.0 - -
Industrial EPC 7,981 10,603 19,717 15,765 8,537 13,279 3,340 3,551 3,783
Growth(%) -26.0 32.9 86.0 -20.0 -45.8 55.5 -74.8 6.3 6.5
O&M 5,147 9,576 5,845 5,676 5,931 4,742 21,521 7,375 7,966
Growth(%) 38.0 86.1 -39.0 -2.9 4.5 -20.0 353.8 -65.7 8.0
Total 33,539 29,767 51,401 36,198 31,931 48,785 46,396 32,461 33,283
Growth(%) 55.6 -11.2 72.7 -29.6 -11.8 52.8 -4.9 -30.0 2.5
Orderbook
Municipal EPC 30,388 25,741 39,857 37,632 36,090 52,616 59,463 63,793 64,190
Industrial EPC 7,891 11,301 21,026 22,495 17,029 18,657 14,052 9,851 7,840
O&M 15,261 17,344 12,199 13,157 14,967 14,650 32,127 33,730 35,524
Total 53,540 54,386 73,082 73,284 68,086 85,923 1,05,642 1,07,374 1,07,554
Growth(%) 25.0 1.6 34.4 0.3 -7.1 26.2 22.9 1.6 0.2
Revenues
Municipal EPC 11,152 12,961 10,178 12,782 14,460 11,892 14,688 17,205 21,137
Growth(%) 43.7 16.2 -21.5 25.6 13.1 -17.8 23.5 17.1 22.9
Industrial EPC 6,790 6,534 10,050 14,210 15,727 11,794 7,945 7,752 5,794
Growth(%) 21.4 -3.8 53.8 41.4 10.7 -25.0 -32.6 -2.4 -25.3
O&M 4,359 4,789 5,193 5,072 4,103 3,545 4,044 5,772 6,172
Growth(%) 63.5 9.9 8.4 -2.3 -19.1 -13.6 14.1 42.7 6.9
Total 22,386 24,352 25,486 32,162 34,573 27,810 27,314 31,428 33,874
Growth(%) 38.3 8.8 4.7 26.2 7.5 -19.6 -1.8 15.1 7.8
23
Operating Expenses 25,868 21,942 22,430 27,891 Working Capital Changes (82) 663 (3,190) 584
EBITDA 1,941 2,019 1,678 2,937 Capital Commitments 68 (175) (175) (175)
% margins 7.0 8.4 7.0 9.5 Free Cashflow 1,111 1,994 (1,488) 1,888
Depreciation & Amortisation 168 160 175 175 Cashflow from Investing
EBIT 1,774 1,859 1,503 2,762 Activities 44 698 28 (959)
Gross Interest 753 1,078 853 1,233 Issue of Share Capital 7 - - -
Other Income 44 120 50 50 Buyback of shares - - - -
PBT before exceptional 1,064 901 699 1,579 Inc (Dec) in Borrowings 1,064 918 (47) (45)
Add: Extraordinaries Interest paid (753) (1,078) (853) (1,233)
/Exceptionals - - - - Dividend paid (219) (218) (218) (218)
Add: Share in associates 33 25 25 25 Extraordinary Items/Others (1,334) (38) (36) (22)
PBT 1,097 926 724 1,604 Chg. in Cash & Bank balance (80) 2,276 (2,615) (590)
Less: Taxes 205 252 175 395 Source: Company data, I-Sec research
Less: Minority Interests (158) 100 100 100
Net Income (Reported) 1,050 574 450 1,109 Table 52: Key ratios
Adjusted Net Income 1,050 574 450 1,109
of which cash & cash eqv. 1,790 4,066 1,452 862 Growth Ratios (%)
Total Current Liabilities & Operating Income (19.6) (13.8) 0.6 27.9
Provisions 20,964 18,311 18,008 22,927 EBITDA (33.5) 4.0 (16.9) 75.1
Net Current Assets 8,147 7,411 10,523 9,858 Recurring Net Income (20.1) (45.4) (21.6) 146.8
Investments 82 82 82 82 Diluted adjusted EPS (20.1) (45.4) (21.6) 146.8
Other Non-Current Assets 5,314 4,965 4,613 6,686 Diluted Recurring CEPS (18.4) (39.8) (14.9) 105.7
Net Fixed Assets 1,488 1,503 1,503 1,503
Total Assets 16,821 18,027 18,172 18,990 P/E 6.0 11.1 14.1 5.7
P/CEPS 5.2 8.7 10.2 4.9
Deferred Tax Liability 128 97 97 97 EV / Operating Income 0.4 0.4 0.5 0.4
Minority Interest 167 172 175 188 EV / Op. FCF (pre -Capex) (13.8) 4.2 (9.0) 6.0
Total Liabilities 16,821 18,027 18,172 18,990 Other Income / PBT (%) 4.1 13.3 7.1 3.2
NWC / Total Assets (%) 25.8 25.0 33.9 27.9
Payables (days) 224.5 223.2 219.7 225.9
Net D/E Ratio (x) 0.4 0.2 0.5 0.5

RoCE 9.0 8.3 6.5 11.5
RoNW 9.6 5.3 4.1 9.6
Dividend Yield (%) 3.4 3.4 3.4 3.4
24
Revenue (Rs mn) EBITDA Margin (%)
L&T 14,10,071 14,28,577 14,52,253 16,81,061 11.6 12.1 10.8 11.4
BHEL 3,03,490 2,60,161 2,51,453 3,01,737 7.1 6.3 5.4 6.6
Siemens 1,27,251 1,36,838 1,19,227 1,28,943 10.3 10.8 10.0 10.8
Engineers India 24,758 29,550 26,645 29,292 15.2 14.0 11.8 12.2
Cummins India 56,590 51,166 45,699 49,455 15.3 12.7 11.3 12.0
Thermax Ltd 59,732 59,732 51,071 57,199 7.7 7.3 7.2 8.2
ISGEC 41,289 48,088 40,739 43,402 6.0 5.8 6.3 7.3
GE T&D 42,188 32,005 28,832 31,726 10.3 1.2 5.4 7.1
KEC Interntl 1,10,005 1,19,417 1,13,226 1,24,655 10.5 9.9 8.5 8.9
Kalpataru Power 71,151 78,321 70,132 77,021 10.9 10.5 8.8 9.5
Techno Electric 9,886 9,362 11,489 16,949 25.2 23.4 20.4 20.7
AIA Engineering 30,695 28,267 28,555 32,209 21.5 22.8 21.1 21.3
Voltas 71,241 73,686 79,409 87,166 8.6 8.1 8.1 8.8
Blue Star 52,348 54,512 54,512 61,053 6.6 5.8 6.1 7.0
GE Power 19,028 20,675 20,909 27,294 9.4 5.7 5.9 9.2
VA Tech Wabag 27,810 23,961 24,108 30,828 7.0 8.4 7.0 9.5
Total 24,57,533 24,54,316 24,18,260 27,79,990 10.7 10.7 9.7 10.5
Total (Excluding L&T) 10,47,462 10,25,739 9,66,007 10,98,929 9.6 8.8 8.1 9.1
PAT (Rs mn) RoE (%)

L&T 86,104 1,00,696 81,180 1,05,411 14.7 15.1 10.9 12.7
BHEL 12,154 9,623 7,480 11,841 3.8 3.0 2.3 3.6
Siemens 8,939 10,869 9,755 11,416 11.2 12.5 10.5 11.5
Engineers India 3,729 3,827 3,974 4,465 15.9 16.9 17.7 18.8
Cummins India 7,226 6,382 5,030 5,637 17.8 15.3 12.0 13.4
Thermax Ltd 3,209 2,821 2,682 3,469 11.2 9.1 8.2 10.0
ISGEC 1,283 1,613 1,417 1,843 10.0 11.4 9.2 11.1
GE T&D 2,127 (843) 425 983 16.2 (6.2) 3.3 7.3
KEC Interntl 4,864 5,171 3,934 4,812 20.0 18.2 12.5 13.7
Kalpataru Power 4,013 4,758 3,447 4,293 13.6 14.0 9.0 10.2
Techno Electric 1,934 1,854 1,945 2,436 14.5 13.1 13.4 15.5
AIA Engineering 5,108 5,619 4,782 5,317 15.7 15.0 11.5 11.7
Voltas 5,197 5,310 5,822 6,794 13.0 12.4 12.5 13.3
Blue Star 2,065 1,874 1,689 2,307 24.8 21.2 18.9 25.3
GE Power 1,684 596 1,128 2,125 19.6 6.5 11.4 19.1
VA Tech Wabag 1,050 574 450 1,109 9.6 5.3 4.1 9.6
Total 1,50,685 1,60,744 1,35,140 1,74,258 12.0 11.8 9.1 10.9
Total (Excluding L&T) 64,582 60,048 53,961 68,847 9.5 8.5 7.3 8.9
Table 54: Orderbook summary

Order intake (Rs mn) Orderbook (Rs mn)
L&T 17,68,000 16,97,975 15,75,760 17,58,354 29,34,270 31,88,850 33,52,600 34,80,290
BHEL 2,38,590 2,25,339 2,11,423 2,44,627 12,10,759 11,85,231 11,67,873 11,48,864
Siemens 1,27,404 1,32,380 94,500 1,19,328 1,23,528 1,18,790 94,063 84,448
Engineers India 58,905 16,721 19,000 19,250 1,14,145 1,01,315 93,670 83,628
Thermax Ltd 56,330 56,330 47,881 57,457 53,700 50,298 47,108 47,366
ISGEC 67,251 30,000 27,600 47,000 80,000 59,216 43,428 44,355
GE T&D 37,496 28,122 22,498 30,372 64,000 60,117 53,783 52,429
KEC Interntl 1,40,840 1,19,855 1,08,574 1,16,593 2,03,070 2,02,845 1,99,014 1,91,813
Kalpataru Power 83,400 76,200 57,617 63,440 1,40,680 1,38,559 1,26,043 1,12,463
Techno Electric 6,000 18,500 15,000 18,000 15,808 26,039 30,642 32,785
Voltas 35,964 48,858 38,695 38,695 49,760 66,046 69,564 69,564
Blue Star 31,631 36,435 25,505 27,545 24,300 31,880 34,336 29,563
GE Power 37,199 36,200 24,670 25,228 76,570 92,095 95,856 93,789
VA Tech Wabag 48,785 45,926 28,557 29,369 85,923 1,08,524 1,13,654 1,12,944
Total 27,37,795 25,68,841 22,97,279 25,95,258 51,76,512 54,29,804 55,21,634 55,84,302
Total (Excluding L&T) 9,69,795 8,70,865 7,21,518 8,36,904 22,42,242 22,40,954 21,69,033 21,04,011
25
26
(Rs) (Rs) (Rs) (Rs)
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100
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100
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0
GE T&D
May-17 May-17 May-17 May-17
Nov-17 Nov-17 Nov-17 Nov-17
Kalpataru Power
Souce: Bloomberg
KEC International
Price charts
Oct-19 Oct-19 Nov-19 Nov-19
Apr-20 Apr-20 May-20

May-20
(Rs) (Rs) (Rs) (Rs)
100
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May-17 May-17
Blue Star
May-17 May-17
VA Tech Wabag
AIA Engineering

Engineering & Capital Goods, May 6, 2020

Oct-19 Oct-19 Oct-19 Oct-19
Apr-20 Apr-20 Apr-20 Apr-20
(Rs.) (Rs) (Rs.) (Rs)

BHEL
150
250
300
350
200
1000
1200
600
1400
25
50
75
800
0
100
125
400
550
700
850
100
250
1,000
1,150
Thermax
May-17 Dec-18 May-17 May-17
Feb-19
Nov-17 Nov-17 Nov-17
Apr-19
Cummins India
May-18 May-18 May-18

Techno Electric
Jul-19
Sep-19
May-19 Nov-19 May-19 May-19
Nov-19 Jan-20 Nov-19 Nov-19
May-20 Apr-20 May-20 May-20
(Rs) (Rs) (Rs.) (Rs)

L&T
100
150
200
250
0
50
500
600
700
800
300
400
500
600
700
800
400
900
1,000
100
200
900
1,100
800
600
1,000
1,200
1,600
1,800
1,400

GE Power
May-17
Nov-17
May-18
Engineers India

IGSEC Engineering

Oct-19 Oct-19 Oct-19 Nov-19
Apr-20 Apr-20 Apr-20 May-20
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Table 2: Earnings revision

Chart 1: Sub-contracting cost trend for our capgoods universe

Sub-contracting cost as % of sales

Source: Company data, I-Sec research

According to NSSO, construction sector is the most predominant sectors employing

Middlemen, known as Jamadar/contractor has a huge influence in terms of controlling,

Larsen &Toubro (BUY – TP: Rs1,035)

Table 5: Earnings revision (standalone)

Source: Company data, I-Sec research

Sub-contracting costs as % of ex-services revenues

29.0 27.4 27.0

Source: Company data, I-Sec research

Table 8: Key assumptions (consolidated)

Return/Profitability Ratios (%)

BHEL (HOLD – TP: Rs24)

BHEL is constantly looking at diversification opportunities; however, the huge size of

Table 13: Operating expense breakup trend for BHEL

Chart 4: Operating expense breakup trend

Source: Company data, I-Sec research

Certain periods although have anomalies in terms of mismatch in terms of growth in

Table 14: Key assumptions (standalone)

Financial summary (standalone)

Return/Profitability Ratios (%)

Focus on margins, predictable cashflows from digitisation and short-cycle demand is

Table 19: Valuation summary

C&S electric PAT 948

Total Value per share (Rs) 1,335

Source: Company data, I-Sec research

Return/Profitability Ratios (%)

Demand in H1FY21E is likely to be slow due to the ongoing coronavirus-related

Table 25: Earnings revision (consolidated)

Source: Company data, I-Sec research

Table 26: Key assumptions

Return/Profitability Ratios (%)

Source: Company data, I-Sec research

Return/Profitability Ratios (%)

Chart 8: Operating expense breakup trend

Liabilities Valuation Ratios

Profitability Ratios (%)

Performance of the overseas subsidiaries in Nordic region (Linjemontage) and

Table 42: Change in estimates

Chart 9: Operating expense breakup trend

Source: Company data, I-Sec research

Return/Profitability Ratios (%)

Table 48: Financial assumptions (consolidated)

Return/Profitability Ratios (%)

PAT (Rs mn) RoE (%)

Table 54: Orderbook summary

May-19 May-19 May-19 May-19

Oct-19 Oct-19 Nov-19 Nov-19

Apr-20 Apr-20 May-20

(Rs) (Rs) (Rs) (Rs)

May-18 May-18 May-18 May-18

Nov-18 Nov-18 Nov-18 Nov-18

May-19 May-19 May-19 May-19

(Rs.) (Rs) (Rs.) (Rs)

May-18 May-18 May-18

(Rs) (Rs) (Rs.) (Rs)

May-17 May-17 May-17

May-18 May-18 May-18

May-19 May-19 May-19 May-19