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| Company Background From a core balance of plant (BoP) player, BGR is scaling up at a brisk pace to become an EPC player catering across power generation equipment. The company has shown encouraging signs of execution in the EPC space where it is executing two large sized EPC orders for various SEBs. The recent JV with Hitachi Japan and Hitachi Europe for setting up of manufacturing facility for BTG equipment opens up vast areas of opportunity for BGR to pursue. Even in the recently announced Q2FY11 results the company has put up a stellar performance (revenues up 143% YoY and PAT up 154% YoY). We believe the recent initiatives and credible execution track record will lead to a re-rating of the stock in the medium-term. After a dull H1FY11, we expect strong traction in new order inflows in H2FY11 as bids for Rajasthan Rajya Vidyut Utpadan Nigam (RRVUNL) are expected to be finalised during this period. Further, BGR has successfully entered the supercritical boiler, turbine-generator (BTG) market by signing JV agreements with Japan-based Hitachi, making it eligible to bid for bulk tenders of NTPC. Also, it has secured a BOP order in the supercritical segment (worth Rs 2,168 crore) from Thermal Powertech Corporation India in October 2010. We believe, going ahead, any order wins from the Rajasthan SEB (BGR has bid for EPC contracts for Suratgarh and Chhabra power plant) and NTPC bulk tender will further increase revenue visibility. As of Q2FY11, the company has an order book of Rs 10,500 crore.
In Q2FY11, BGR continued its robust performance with revenues from core construction and EPC contracts segment increasing 154% YoY to Rs 1,079 crore. This was primarily driven by the strong execution of EPC projects. Majority of the revenues were booked on Mettur BOP (Rs 3,100 crore), Kalisindh BOP (Rs 4,900 crore), Chandrapur BOP (Rs 1,632 crore), and Marwa BOP (Rs 1,633 crore). EBITDA margins of 11.5% were higher on account of better than expected sales growth. Valuation With a book-to-bill ratio of 2.4x in Q2FY11, BGR enjoys strong revenue visibility. We estimate revenues will grow at 44% CAGR during FY10-12E driven by rising traction in EPC contracts. The stock is quoting at 18x and 15x its FY11E and FY12E earnings. As a result, we expect PAT to grow at 38% CAGR in FY10-12E. We expect the stock to deliver 10% returns over a three month time frame. Technical Outlook The stock has witnessed a steady decline since hitting its all-time high of Rs 871 in early September 2010. It should be noted that the recent corrective decline got arrested near the key trend line support joining the previous lows, which are placed around Rs 720 levels. Since bouncing from the support level, the stock, on the daily chart, is forming a higher top and higher bottom and is currently trading above its 20 and 50 days SMA, which are placed at 765 and 784 levels, suggesting a short-term uptrend. On the daily charts, this up move has seen the stock recording a break-out past the downward sloping trend line, which is placed at 784 levels. Among momentum oscillators, the daily RSI is in a rising mode whereas the MACD has generated a positive crossover below the trigger line indicating build-up of momentum on the upside. |
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