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BGR Energy – Attractively Priced
The ongoing CBI investigations into the LIC Housing scam, which had named BGR Energy
(BGR) as one of the implicated companies, had adversely impacted the company’s stock
price. At the analyst conference call hosted by BGR on November 26, 2010, management
clarified its position and strongly refuted the allegations.
Management insists that it had asked IDBI Bank to arrange for working capital finance of
~`3,850cr (Fund Based`700cr and Non-Fund based `3,150cr) to fund the RRVUNL
Kalisindh EPC Project. IDBI Bank, along with a consortium of 10 other banks, which also
included Bank of India (BOI) had sanctioned the above loans. As per the consortium
allocation, BOI’s exposure was limited to `474cr (Fund based `83cr and Non-Fund Based
`387cr.). Management has also clarified that the company has not dealt with Money
Matters Financial Services in this regard. In addition, BOI clarified that no irregularities
were noted in the loan sanctioned to BGR. Management informs that the RRVUNL
Kalisindh EPC Project (the subject matter of the sanctioned loan) is progressing as per
schedule and ~85% of the BTG supplies have been completed.
Management has maintained its order inflow guidance of ~`12,000cr for FY2011. The
NTPC bulk order for supercritical boilers is expected to be finalised by December 2010,
and the company expects to get at least `2,000cr worth of orders. In addition, the
company is in negotiations with various private sector power developers for BTG/EPC and
BoP orders. Order backlog, which stood at `10,532cr (2.4x FY2011E revenue) at the end
of September 2010, provides good revenue visibility. In addition, we believe the JV with
Hitachi would enable BGR to bid for the upcoming supercritical projects in India.
Post the unearthing of the loan scam, BGR had underperformed the broader markets and
corrected by ~20% over a two-day period. At the CMP, the stock is quoting at 15x and 12x
FY2011E and FY2012E EPS, respectively. With no change in business fundamentals, we
believe the current correction provides an excellent opportunity to Buy the scrip for a 26%
gain from current levels. Hence, we upgrade our rating to Buy with a 12-month Target
Price of `720.
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