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Segment-wise performance: During the quarter, the Construction and EPC
segment continued to be the strong revenue driver, delivering 95.4% yoy top-line
growth to `1,188cr (`608cr). The segment’s margins also expanded by around
60bp yoy to 11.7%. The capital goods segment also supplemented with superior
performance of 133% yoy growth to `63cr (`27cr), including a sharp margin
expansion of 590bp to 7.9%.
EPC segment driving growth: The EPC segment continues to play a pivotal role in
shaping BGR’s future revenue growth. The order backlog is largely dominated by
EPC projects, notable among them being the 1x600MW EPC at Mettur, Tamil
Nadu (worth `3,100cr) and the 2x600MW EPC Kalisind TPS, Rajasthan (worth
`4,900cr). Continuing with the stellar performance from the previous two quarters
of FY2011, the current quarter also witnessed ramp-up in execution for both the
above projects, which have largely contributed to growth in the segment’s revenue.
As the entire EPC at both the projects is likely to be completed by FY2012, we
expect execution to further gather pace over the next quarter as well.
Order backlog provides near-term visibility: Order backlog, which stood at
`9,317cr (1.9x FY2011E revenue) at the end of the quarter, provides reasonable
revenue visibility for FY2012. The company is currently placed at L2 in two EPC
contracts of Rajasthan SEB (2X660MW of `6,100cr each). We have been informed
by the management that the tender conditions permits Rajasthan SEB to award one
of the EPC contracts to the L2 bidder, provided the company matches the L1 price.
We expect the Rajasthan SEB to finalise and award the contracts before the end of
the current fiscal. In addition, we believe the JV with Hitachi would enable BGR to
bid for the upcoming supercritical projects in India. The opening of the bids for
NTPC's bulk tender of 11x660MW boiler is likely to take place during the current
fiscal after the Delhi High Court gives its verdict on the plea filed by Ansaldo
Caldaie, challenging its disqualification from the bidding. We would like to
highlight that further delays in the awarding of the Rajasthan SEB EPC contracts
and NTPC's bulk tender are likely to negatively affect BGR’s FY2013 revenue and
profitability.
Investment arguments
Power sector – A structural growth driver: The Government of India has embarked
on an ambitious plan of promoting ‘Power for all by 2012’ and increasing the
country’s per capita consumption of electricity to over 1,000kWh by FY2012E. To
this effect, the government has planned capacity addition of 78,700MW during the
Eleventh Plan period. Assuming ~60% achievement rate, it would result in capacity
addition of about 45–50GW. Further, the scale gets even bigger for the Twelfth
Plan, with a planned capacity addition of over 100GW.
The share of thermal capacity, including the Eleventh and Twelfth Plans, totals over
140,000MW, thereby necessitating BoP along with boiler turbine generator (BTG)
needs. Typically, an average BoP work constitutes about 40% of the project cost.
In this way, the 75,200MW of thermal capacity planned during the Twelfth Plan
period alone throws up a potential BoP opportunity of `1,35,360cr (i.e.,
~`27,072cr of an average annual opportunity).
Turnkey BoP – BGR's forte: BGR has its own set of competitive advantages to
differentiate its offerings in the turnkey BoP space. Hence, it is one of the very few
established players to offer complete turnkey BoP services. The company has solid
in-house expertise, particularly with a strong in-house design and engineering
team (~53% of the total employees), which provides control over cost, design and
scheduling of projects. Besides, over the years, the company has augmented its
product portfolio through a combination of in-house developments and strategic
technological tie-ups with several international players. The company can currently
manufacture about 50% of BoP package requirements in house, giving it an edge
in terms of cost and lesser sub-vendor management. Additionally, BGR’s proven
track record in managing equipment and turnkey projects helps it to further
strengthen its position vis-à-vis new entrants.
EPC contracts – Transforming to the next level: From being a pure BoP contractor,
BGR has moved up the value chain and has been bidding for complete EPC
projects in the power segment. The company is currently in the midst of executing
two major EPC orders with combined worth of `8,000cr. For both these orders,
BGR would be handling the BoP package at its end, while BTG would be sourced
from Dongfang, China. Post the recent JV with Hitachi, BGR would be bidding for
NTPC’s bulk order of supercritical boilers, thereby transforming itself into a fully
integrated EPC major with complete access to BTG equipment.
Outlook and valuation: BGR is in the midst of completing two major EPC contracts,
which would enable the company to transform itself from being a pure turnkey BoP
contractor to a full-fledged EPC major. Order backlog, which stood at `9,317cr
(1.9x FY2011E revenue) at the end of the quarter, provides reasonable revenue
visibility for FY2012. The company is currently placed at L2 in two EPC contracts of
Rajasthan SEB (2X660MW of `6,100cr each). We have been informed by the
management that tender conditions permits Rajasthan SEB to award one of the
EPC contracts to the L2 bidder, provided the company matches the L1 price.
In addition, we believe the JV with Hitachi would enable BGR to bid for the
upcoming supercritical projects in India. At the CMP, the stock is quoting at 12.4x
and at 10.5x FY2011E and FY2012E earnings, respectively. We continue to
maintain our Buy rating on the stock with a revised Target Price of `700 (`720).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BGR Energy Systems – 3QFY2011 Result Update
Angel Broking maintains a Buy on BGR Energy Systems with a Target Price of Rs. 700.
BGR Energy Systems’ (BGR) 3QFY2011 results were broadly along expected lines.
The company’s revenue and PAT rose by 98% (est. 90%) and 109% (est. 85%) on
a yoy basis to `1,257cr and `88cr, respectively, on the back of higher execution
and margin expansion. We continue to maintain our Buy view on the stock.
Strong revenue and profitability growth: Continuing with the previous quarter,
growth in revenue and PAT was aided by higher execution and low base effect.
The EPC segment’s revenue grew by 95% yoy, while the capital goods segment
registered growth of 133% yoy. In addition to top-line growth, the 65bp
expansion in EBITDA margin, largely aided by lower staff cost and other
expenses, enabled BGR to post a 110% increase in EBITDA to `147cr. Order
backlog at the end of the quarter stood at `9,317cr (1.9x FY2011E revenue).
Outlook and valuation: BGR is in the midst of completing two major EPC
contracts, which would enable the company to transform itself from being a pure
turnkey BoP contractor to a full-fledged EPC major. Order backlog, which stood
at `9,317cr (1.9x FY2011E revenue) at the end of the quarter, provides
reasonable revenue visibility for FY2012. The company is currently placed at L2
in two EPC contracts of Rajasthan SEB (2X660MW of `6,100cr each). We have
been informed by the management that the tender conditions permits Rajasthan
SEB to award one of the EPC contracts to the L2 bidder, provided the company
matches the L1 price. Further, we believe the JV with Hitachi would enable BGR to
bid for the upcoming supercritical projects in India. At the CMP, the stock is
quoting at 12.4x and at 10.5x FY2011E and FY2012E earnings, respectively.
We maintain Buy on the stock with a revised Target Price of `700 (`720).
Segment-wise performance: During the quarter, the Construction and EPC
segment continued to be the strong revenue driver, delivering 95.4% yoy top-line
growth to `1,188cr (`608cr). The segment’s margins also expanded by around
60bp yoy to 11.7%. The capital goods segment also supplemented with superior
performance of 133% yoy growth to `63cr (`27cr), including a sharp margin
expansion of 590bp to 7.9%.
EPC segment driving growth: The EPC segment continues to play a pivotal role in
shaping BGR’s future revenue growth. The order backlog is largely dominated by
EPC projects, notable among them being the 1x600MW EPC at Mettur, Tamil
Nadu (worth `3,100cr) and the 2x600MW EPC Kalisind TPS, Rajasthan (worth
`4,900cr). Continuing with the stellar performance from the previous two quarters
of FY2011, the current quarter also witnessed ramp-up in execution for both the
above projects, which have largely contributed to growth in the segment’s revenue.
As the entire EPC at both the projects is likely to be completed by FY2012, we
expect execution to further gather pace over the next quarter as well.
Order backlog provides near-term visibility: Order backlog, which stood at
`9,317cr (1.9x FY2011E revenue) at the end of the quarter, provides reasonable
revenue visibility for FY2012. The company is currently placed at L2 in two EPC
contracts of Rajasthan SEB (2X660MW of `6,100cr each). We have been informed
by the management that the tender conditions permits Rajasthan SEB to award one
of the EPC contracts to the L2 bidder, provided the company matches the L1 price.
We expect the Rajasthan SEB to finalise and award the contracts before the end of
the current fiscal. In addition, we believe the JV with Hitachi would enable BGR to
bid for the upcoming supercritical projects in India. The opening of the bids for
NTPC's bulk tender of 11x660MW boiler is likely to take place during the current
fiscal after the Delhi High Court gives its verdict on the plea filed by Ansaldo
Caldaie, challenging its disqualification from the bidding. We would like to
highlight that further delays in the awarding of the Rajasthan SEB EPC contracts
and NTPC's bulk tender are likely to negatively affect BGR’s FY2013 revenue and
profitability.
Investment arguments
Power sector – A structural growth driver: The Government of India has embarked
on an ambitious plan of promoting ‘Power for all by 2012’ and increasing the
country’s per capita consumption of electricity to over 1,000kWh by FY2012E. To
this effect, the government has planned capacity addition of 78,700MW during the
Eleventh Plan period. Assuming ~60% achievement rate, it would result in capacity
addition of about 45–50GW. Further, the scale gets even bigger for the Twelfth
Plan, with a planned capacity addition of over 100GW.
The share of thermal capacity, including the Eleventh and Twelfth Plans, totals over
140,000MW, thereby necessitating BoP along with boiler turbine generator (BTG)
needs. Typically, an average BoP work constitutes about 40% of the project cost.
In this way, the 75,200MW of thermal capacity planned during the Twelfth Plan
period alone throws up a potential BoP opportunity of `1,35,360cr (i.e.,
~`27,072cr of an average annual opportunity).
Turnkey BoP – BGR's forte: BGR has its own set of competitive advantages to
differentiate its offerings in the turnkey BoP space. Hence, it is one of the very few
established players to offer complete turnkey BoP services. The company has solid
in-house expertise, particularly with a strong in-house design and engineering
team (~53% of the total employees), which provides control over cost, design and
scheduling of projects. Besides, over the years, the company has augmented its
product portfolio through a combination of in-house developments and strategic
technological tie-ups with several international players. The company can currently
manufacture about 50% of BoP package requirements in house, giving it an edge
in terms of cost and lesser sub-vendor management. Additionally, BGR’s proven
track record in managing equipment and turnkey projects helps it to further
strengthen its position vis-à-vis new entrants.
EPC contracts – Transforming to the next level: From being a pure BoP contractor,
BGR has moved up the value chain and has been bidding for complete EPC
projects in the power segment. The company is currently in the midst of executing
two major EPC orders with combined worth of `8,000cr. For both these orders,
BGR would be handling the BoP package at its end, while BTG would be sourced
from Dongfang, China. Post the recent JV with Hitachi, BGR would be bidding for
NTPC’s bulk order of supercritical boilers, thereby transforming itself into a fully
integrated EPC major with complete access to BTG equipment.
Outlook and valuation: BGR is in the midst of completing two major EPC contracts,
which would enable the company to transform itself from being a pure turnkey BoP
contractor to a full-fledged EPC major. Order backlog, which stood at `9,317cr
(1.9x FY2011E revenue) at the end of the quarter, provides reasonable revenue
visibility for FY2012. The company is currently placed at L2 in two EPC contracts of
Rajasthan SEB (2X660MW of `6,100cr each). We have been informed by the
management that tender conditions permits Rajasthan SEB to award one of the
EPC contracts to the L2 bidder, provided the company matches the L1 price.
In addition, we believe the JV with Hitachi would enable BGR to bid for the
upcoming supercritical projects in India. At the CMP, the stock is quoting at 12.4x
and at 10.5x FY2011E and FY2012E earnings, respectively. We continue to
maintain our Buy rating on the stock with a revised Target Price of `700 (`720).
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