BGR Energy Systems -Strong performance; need order inflows:: Kotak Sec

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BGR Energy Systems (BGRL)
Industrials
Strong performance; but balance sheet takes a little knock; need order inflows.
BGR Energy reported very strong revenues of Rs11.4 bn (21% ahead of estimates) and
EBITDA margin of 11.7% (in line). Order backlog of Rs105 bn was boosted by a single
large BoP order win of Rs21 bn—essential for growth visibility of FY2012E. While the
operational performance has remained strong, we note some deterioration in the
balance sheet with an increase in debt and working capital levels. Retain BUY.


Strong execution with revenues significantly ahead of estimates; margins broadly in line
BGR Energy reported strong revenues of Rs11.4 bn, significantly ahead (about 21%) of our
estimate. The strong revenue growth was likely to be led by execution of the large EPC (Kalisindh
and Mettur) and BoP (Marwa and Chandrapur) orders. Strong execution provides confidence in
BGR’s ability to deliver large-sized EPC projects. EBITDA margin of 11.7% is broadly in line versus
our expectation of 11.5%. BGR had a PAT of Rs778 mn, up 154% yoy (27% ahead of estimate).
Rs105 bn backlog; 1/3rd and 4/5th of FY12E and FY13E revenues depend on incremental orders
It reported 1HFY10-end backlog of Rs105 bn including an order worth Rs21.7 bn for BoP contract
for 2X660 MW power plant in Krishnapatnam. This project win is a positive as it aids revenue
visibility in FY2012E and is also the first order from a pvt. sector utility for large-scale BoP projects
for BGR. We highlight 1/3rd and 4/5th of FY2012E and FY2013E revenues depend on incremental
orders. We have built in incremental orders of Rs73 bn and Rs106 bn in FY2011E and FY2012E.
Balance sheet deteriorates slightly with higher debt and debtors but may not be worrisome as yet
BGR has reported a strong increase in debt levels by about Rs5 bn to Rs14.5 bn at end-Sept-2010
versus FY2010-end levels of Rs9.3 bn. Net working capital (excl. cash) has increased by Rs7 bn
from end-FY2010 levels primarily led by higher debtors. Debtors have increased by Rs9.1 bn to
Rs28.9 bn at end-Sept, from end-FY2010 levels (on sales of Rs20 bn during 1H). Retention money
has gone up by Rs2.5 bn to Rs10 bn from Rs7.5 bn at FY10-end (about 10% of incremental sales).
However, Rs2.5 bn of retention on Vijaywada and Kakatiya are getting released soon. Mgmt.
expects debt to remain at Rs14-15 bn at FY2011E-end as well. Cash remains strong at Rs8.6 bn.
Revise estimates; reiterate BUY (TP: Rs950) on likely pick-up in order inflows and strong execution
We have changed our estimates for FY2011E and FY2012E to Rs41.7 (from Rs39.7) and Rs53
(from Rs49.2). Reiterate BUY (TP: Rs950) based on (1) continued strong execution of large orders,
(2) likely pick-up in order inflow traction with potential catalysts of NTPC bulk tender and
Rajasthan State orders (both decisions in November) and (3) possibility to scale power sector
presence with large EPC orders as well as BTG equipment (JV with Hitachi).