BGR Energy Systems: Inflow traction may pick up; BUY says Kotak Securities

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BGR Energy Systems (BGRL)
Industrials
Inflow traction may pick up; 40% of FY12E revenues depend on new orders. We
expect a pick-up in the inflow traction for BGR Energy based on several opportunities in
the near term such as NTPC bulk tender for 11X660 MW boiler units, award of EPC
orders by RRVUNL for 2X660 MW each Chhabra and Suratgarh projects. However,
highlight substantial risk to our estimates if the order wins do not pan out as almost
40% of FY2012E revenues are based on execution of new orders won in FY2011E.


Several projects on the anvil; BGR may get its share of the available opportunity
We expect inflow traction to pick up based on several likely near-term opportunities including:
􀁠 NTPC bulk tender for 11X660 MW boilers: BGR Energy has qualified for the NTPC bulk
tender for boilers and has also requested that the 11 units be distributed between three
vendors versus two vendors as specified earlier.
􀁠 Rajasthan state may award project soon: We expect RRVUNL to soon award the EPC order
for the Chhabra and Suratgarh orders (2X660 MW, potentially Rs65 bn each) which are among
the first batch of projects planned by RRVUNL for the XIIth plan. We expect BGR Energy to win
one of the two orders given the limited competition (only two bidders: BGR Energy and BHEL).
􀁠 Several large projects awarded recently: BoP packages for several projects have been
awarded recently such as Visa Power and DB Power to L&T in quick succession.
Substantial risk (~40%) to FY2012E numbers if order wins do not pan out
We believe that there is substantial risk to earnings if order wins do not pan out. About Rs23 bn
(about 40%) of revenues in FY2012E out of total of Rs58 bn depend on incremental order wins in
FY2011E; expect Rs81 bn inflows in FY2011E. However in FY2011E so far, there has been no large
order announcement creating skepticism around its ability to sustain order inflows.
Loss of APGENCO tenders led by inability to meet raised qualification requirements
BGR did not qualify for Rayalseema and Kakatiya tenders (1X600 MW each) of APGENCO on the
back of inability to meet the raised qualification requirements of 300 MW plant running for one
year versus CEA suggested requirement of 100 MW plant running for one year.
Retain earnings estimates; reiterate BUY with a target price of Rs950/share
Retain earnings estimates of Rs39.7 and Rs49.2 for FY2011E and FY2012E. Reiterate BUY (TP:
Rs950) based on (1) strong execution of large EPC orders, (2) high near-term visibility, (3) strong
balance sheet, and (4) potential value addition from Hitachi JV.