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BGR Energy (BGRE.BO) Rs570.55
Equity Research
Mgmt. conf. call takeaways – reiterates strong operational outlook
News
Management of BGR hosted a conference call today (Nov 26) to address
concerns on the company’s possible links to the current investigation in the
banking space in India (refer to “CBI arrests CEO of LIC Housing Finance,
and officials at BOI, PNB”, Tabassum Inamdar, dated 25 Nov ’10). The stock
is down 18% vs BSE Sensex down 2% over the past 2 days.
Analysis
Key takeaways:
1. Categorically refuted any link to any transactions with
LICHF or Money Matters.
2. Bank of India is part of a consortium of 11 lenders led by IDBI - BGR has
secured a fund based limit of Rs1bn from BoI, out of which only Rs210mn
is currently drawn – that is the maximum extent of exposure to BoI.
3. None of the loans outstanding are in NPA category – none of the
monthly interest payments have been delayed.
4. The company does not have any pledged shares outstanding.
Operationally:
1. Reiterated order inflow guidance and revenue guidance
for the year – Rs120bn of inflows this year - this is at a significant premium
to our current assumption (we expect Rs72bn this year).
2. Company sees a pipeline of more than 20,000 mw that they can bid for
over the next 2- 3 years – as they escalate their BTG operations.
We note that the company has delivered a continued strong sequential
momentum in execution – 1H FY11 yoy sales growth of 163% and earnings
growth of 172%, while maintaining high cash returns over a long period –
avg. ROE of 22% over last three years.
Implications
BGR currently trades at 12m-fwd P/E of 11x, which we view as
attractive given strong growth compared to peers. We reiterate
our Buy recommendation and target price.
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