Large cap growth stock to buy - BHEL

This time it is a large cap stock analysis of BHEL. What makes BHEL a growth stock with value and a stock to buy in your investment portfolio?

Bharat Heavy Electricals Limited (BHEL) is engaged in the energy and infrastructure sector. The Company caters to power generation and transmission, industry, transportation, renewable energy and defense. With a network of 15 manufacturing divisions, two repair units, four power sector regions, eight service centers, 15 regional offices, one subsidiary and a number of project sites spread all over India and abroad, BHEL is a one of the Navratna companies in public sector.

Company's products include thermal, nuclear, gas and hydro-based utility power plants. BHEL also produces steam turbines, generators, boilers and matching auxiliaries. Circulating fluidized bed combustion (CFBC) boilers for thermal power plants and custom built hydro power equipment are other products of company.

To conclude the product portfolio, BHEL manufactures and supplies some of the most important products in power generation sector. Power generation and realted infrastructure is one of the most encouraged and under developed sector in India and government is actively promoting the same. A long queue of power and energy projects is being planned and lined up to meet the power demand in India. This gives opportunity of tremendous growth for BHEL in future.

Bhel's current order book stands at Rs.1580 billion (5 times FY10 revenues). All these orders are from projects which have financial closure. This estimates the visibility of 25% EPS CAGR for next 3 years.

Company has a very strong order book position for next few quarters. This ensures steady stream of revenues and earnings. The reasoning mentioned above compelled me to include this large cap stock in my list of "Stocks to buy in 2011".

Stock valuation
At current stock price of Rs.1975, the stock trades at 17.6x FY11E earnings of Rs 112 and 14x on FY12E earnings of Rs 140. The cheap valuations at current stock price and growth visibility make it a growth stock to buy at these levels. One should buy stocks of BHEL for a target price of Rs.2900 for medium term (12-18 months)