India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
BGR Energy Systems Limited
Graduating
Investment rationale
Large EPC/BTG order tendering expected in the next few months
As the orders for XIIth plan EPC/BTG are underway, a large number of tenders
will be awarded over the next 1-2 years. NTPC bulk tenders I (11*660MW)
and II (9*800MW) are expected to be finalised over the next few quarters.
BGR has put up its bid for the boiler portion of NTPC bulk tender I for which
it would be one of the key contenders. We believe NTPC bulk tender II will be
floated in the next 2-3 quarters and expect finalisation of the EPC players for
the Suratgarh and Chhabra projects by the end of FY11, in which BGR is one
of the final bidders. Furthermore, a number of IPPs are expected to come up
with EPC or BTG orders in the near term.
BTG JV to add value in long term
BGR has entered into a JV (74%) for manufacturing boiler and turbine with
Hitachi (Europe) and Hitachi (Japan). The two JVs will have a capacity of
4,000MW of boilers and turbines. The capital expenditure is expected to be
~INR44bn in the next 2-3 years. We believe the equity requirement for the
same can be met by internal accrual and cash on books presently. As the
company is entering the BTG segment, we believe it will try to win a project
even at a lower margin.
BoP orders to pick up significantly in the medium term
While a large number of BTG orders (70-80%) of XIIth plan have already
been awarded, we believe the BOP orders for a large number of these units
are still awaited. BGR is one of the key players in the BoP space. In the last
few years, the company has been able to win BoPs from APGENCO,
MAHAGENCO and RRVUNL.
Valuation and outlook
BGR systems has over the last few years evolved from a BoP to an EPC (with
external BTG supplier) player. With the formation of the current JV for BTG,
the company has moved up the value chain and can now bid for generation
projects of various types. Our FY12e target stands at INR919 assigning a16x
PE on FY12e EPS of INR57.
Investment rationale
Large EPC/BTG order tendering expected in the next few months
A large number of EPC/BTG tenders will be awarded over the next 1-2 year for
commissioning of power plants in XIIth FYP. NTPC bulk tender I (11*660MW) and
II(9*800MW) is expected to be finalised over the next three-four quarters. BGR has
submitted bids for supply of NTPC bulk tender I boiler bids of 11*660 MW along
with BHEL and L&T-MHI consortium. We expect NTPC bulk tender I bids for boiler and
turbine to be finalised by the end of FY11. NTPC bulk tender II (9*800MW) will be
floated in the next 2-3 quarters. The company would be in the race to bid for boiler
and turbine for the NTPC bulk tender II.
The company is among final bidders for the EPC contracts of the Suratgarh (1,320MW)
and Chhabra (1,320MW) projects being developed by Rajasthan Rajya Vidyut Utpadan
Nigam Limited (RRVUNL). These tenders are expected to be finalised by the end of
FY11 and estimated to be in the range of INR50bn each. Further, a number of IPPs
planned under XIIth FYP are yet to float the bids for EPC and BTG orders .We estimate
20-25 GW of EPC/BTG tenders to be floated in the next one to two years.
BTG JV to add value in long term
BGR has entered into a JV with Hitachi Japan and Hitachi Europe to manufacture
subcritical/supercritical boiler and turbines of 600/800/1,000MW. The venture would
require a total project cost of about INR44bn to set up the facility. The overall capital
expenditure for setting up the facility of Boiler and Turbine in JV would be ~INR44bn.
BGR Energy has spent INR1.5bn till date in the JV mainly towards purchase of land.
The equity requirement for BGR is estimated to be INR9.5bn over the next 2-3 years
which the company expects to fund through internal accrual.
The huge opportunity in the BTG space, coupled with BGR JV qualifying for the NTPC
orders while concerns remain over the Chinese players; puts the JV on a strong footing
to garner the incremental orders. Further, the company has transformed itself from a
component manufacturer to BoP player to EPC player. The company has been hitherto
awarding BTG contracts to Chinese players for its EPC orders. Going forward, BGR
intends to source BTG from its manufacturing JV for its EPC orders.
BoP orders to pick up significantly in the medium term
Balance of Plant orders are expected to ramp up in the next few years. Order of BTG
packages for power plant coming up in XIIth FYP has gathered pace in the last few
quarters. The total expected addition in XIIth FYP for thermal power plant is expected
to be 75GW. Out of which, BTG orders of 60GW has been already placed till date.
BoP orders for these power plants will come up for bidding in next couple of years.
The dearth of quality BoP players has been one of the frequent complaints of power
plant developers. In fact, many a times the delay in commissioning of the power
plants has been attributed to failure of BoP players.
BGR with its strong execution track record of developing EPC/BoP of 1,450MW and
an experienced and reputed management is in an enviable position to benefit from
the increased order flow. The strong track record and focused management has resulted
in further inflow of order of 6,600MW. We expect BGR to be one of the frontrunner
for BoP/EPC contracts.
The current order book stands at INR105bn at the end of 2QFY11 and the order
book to sales at healthy 2.4x.Valuation and outlook
BGR systems has over the last few years evolved from a BoP to an EPC (with external
BTG supplier) player. With the formation of the current JV for BTG, the company has
moved up the value chain and can now bid for generation projects of various types.
Our FY12e target stands at INR919 assigning a16x PE on FY12e EPS of INR57.
No comments:
Post a Comment