We recommend to Buy with a price target of 2900 & 3600. BHEL LTD., We recommend to Buy with a price target of 2900 & 3600. Buying Level : 2050-2150. Target : 2600-2900-3600. Support levels : 1900-1950. Resistance : 2400. Technical Out Look: The scrip has taken a strong support at 2000 levels which acts as 23.6% fibonocci levels from top . The scrip has also taken trend line support at these levels and if crosses 2150 levels and closes, will zoom to the major resistance at 2400. if crosses 2400 on weekly close will attain short and long term targets respectively.

Company Outlook We have noticed that several projects (Talwandi Sabo – 1,200 MW in Punjab and Bhadrawati/Chandrapur – 1,000 MW in Maharashtra) earlier envisaged to be Developed by state electricity generation companies (as per February 2007 report of working group on power) have been offered to the private sector under the tariff-based bidding route. We believe that state governments have several incentives to promote private investments in lieu of their own—(a) they can source power at most competitive rates arrived at on basis of competition and (b) they can withdraw own investments from power generation sector to focus spending on other social sectors such as education and health etc.

Business Outlook Land acquisition, coal linkage and other clearances, payment security remain as significant hurdles before these projects become a success We believe there are significant hurdles before these projects become successful such as land acquisition, coal linkage and environmental clearances. For instance, the RFQ for a 1,000-MW project in Karnataka states that while the government would try to facilitate coal linkage and has taken up the matter with central government, ultimate responsibility for fuel arrangement lies with the successful bidder. Other requisite clearances (environmental etc.) are expected to proceed on similar lines. Payment security for private sector investments in power generation also depends upon improvement in the financial health of state electricity utilities. The problem would be compounded if there are significant investments by the private sector as the finance of state electricity utility companies may not be in the shape needed to provide reasonable comfort to several projects at a time.

Business Outlook Higher proportion of capacity addition by private sector potentially implies higher competition for BHEL We highlight that a higher share of the private sector in capacity addition implies potentially higher competition for BHEL. While central and state utilities are comfortable in placing negotiated orders on BHEL and accord a preference to BHEL’s equipment, private sector developers are more open to consider competitive equipment from other vendors based on pricing, performance and ability to meet deadlines. BHEL’s market share in the private sector projects has been lower at about 25% in the XIth plan projects awarded so far versus more that 70% market share in the state and central government projects.

Financials

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