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PAT in line, revenue below estimates: BGR Energy Systems (BGRL) posted 1QFY12 revenue of INR7.3b (down
19% YoY) below our estimate of INR8.2b (down 9% YoY). PAT of INR503m (down 17% YoY) was in line with our
estimate of INR504m (down 17% YoY). Profit growth was boosted by better EBITDA margins supported by a favorable
revenue mix. EBITDA margin was 13.1%, up 164bp YoY ahead of our estimate of 11.1%.
EBITDA margins improve, interest up, debt higher: EBITDA margins improved due to a favorable mix, driven by
higher (YoY) contribution from BOP contracts (40% of power segment sales) relative to EPC contracts (60%).
However, interest costs rose 55% YoY and were 2.5% of sales in 1QFY12 against 1.3% of sales in 1QFY11. BGR's
debt rose to INR18b at the end of 1QFY12, from INR13.4b in FY11. Average cost of borrowing was about 8.5 - 9%,
due to low cost buyer's credit (INR5b).
Strong execution of EPC contracts boosts revenue growth: BGRL is executing two EPC projects in Rajasthan
(2 x 600MW, INR49b) and Tamil Nadu (1 x 300MW, INR31b). The projects are 75% complete and have been driving
revenue growth in recent quarters. BGRL also received an INR22b BoP (for 2 x 660MW) contract from Gayatri
Projects in Andhra Pradesh in 3Q FY11. The projects will drive FY12 revenue.
Order book depleting but BGRL favorably placed in select projects: The order backlog was INR75b (INR79b at
the end of FY11, INR94b as at 1QFY11). BGR is L2 (BHEL is L1) in two projects of 2 x 660 MW each of the Rajasthan
SEB, one of which BGRL expects to be awarded (at an L1 price of INR61b). BGR is also in the fray for boiler
packages of NTPC's 11 x 660MW bulk tender along with BHEL and L&T. The price bids are expected to open, after
the Supreme Court hears Gammon's plea over its disqualification, over the next few days. BGRL has also prequalified
for NTPC bulk tender 2 (9 x 800MW), among other prospective projects.
Estimates cut; Maintain Buy with a revised target price of INR527: Success in the forthcoming tenders is
critical for BGRL's growth in FY13. BGRL needs to book new orders worth INR80b-100b in FY12 to grow by 15% in
FY13. We cut our FY13 earnings estimate by 11% due to poor revenue visibility. Our EPS estimates are INR49.4 (up
10%) and INR52.7 (up 7%) for FY12 and FY13 respectively. Our revised target price is INR527 (earlier INR708). Delay
in finalization of the orders will hit FY13 earnings.
BGR Energy PAT in line; Revenue below estimates; Order inflow crucial to
earnings visibility
BGR Energy Systems (BGRL) posted 1QFY12 revenue of INR7.3b (down 19%
YoY) below our estimate of INR8.2b (down 9% YoY) and PAT was INR503m (down
17% YoY), in line with our estimate of INR504m (down 17% YoY). Profit growth
was boosted by better EBITDA margins, supported by a favorable revenue mix.
EBITDA margin was 13.1%, up 164bp YoY ahead of our estimates of 11.1%.
BGRL is at an advanced stage of execution of two power projects: (1) a 1,200MW
project in Rajasthan and (2) a 600MW project in Tamil Nadu. BGRL booked ~INR66b
in the projects, which have a total cost of INR82b. The remaining INR16b will be
booked over the rest of FY12.
EBITDA margins improved due to a favorable mix, driven by higher (YoY) contribution
from BOP contracts (40% of power segment sales) relative to EPC contracts (60%
of power segment sales). RM/sales declined 252bp YoY and employee costs as a
percentage of sales increased 106bp YoY.
Interest costs rose 55% YoY, partially offsetting margin gains. Interest cost as a
percentage of sales increased 120bp to 2.5% of sales in 1QFY12 from 1.3% of sales
in 1QFY11. Average cost of borrowing was 8.5-9%, due to cheaper cost of buyer's
credit (INR5b of total debt of INR18b).
BGRL had debt of INR18b at the end of 1QFY12, rising from INR13.4b at the end of
FY11. The rise in debt is attributable to a rise in working capital in 1QFY12. Debtors
went up to INR34b, up from INR31.6b at the end of FY11. Debtors include INR12b
of retention money and BGRL expects retention money of INR2b to be released in
FY12.
An exhausting order book is a major concern for BGRL. The current order backlog is
INR75b (INR79b at the end of FY11, INR94b as at 1QFY11). BGRL is L2 (BHEL is
L1) in two projects of 2 x 660MW each of the Rajasthan SEB, one of which BGRL
expects to be awarded (at L1 price of INR61b). BGRL is also in the fray for boiler
packages of NTPC's 11 x 660MW bulk tender along with BHEL and L&T. The price
bids are expected to open, after the Supreme Court hears a plea by Gammon for its
disqualification (due in next few days). BGRL is also prequalified for NTPC bulk
tender 2 (9 x 800MW), among other prospective projects. We believe BGRL is a
strong contender to receive some of the prospective contracts, especially the Rajasthan
contract.
Success in NTPC tender to improve outlook for manufacturing JVs
BGRL will spend INR44b over 3.5 years to set up a boiler and turbine manufacturing
facility with super-critical capability in 660, 700, 800 and 1,000MW ranges through a
JV with Hitachi, Japan.
The debt/equity structure for the JV at 3.5:1 looks steep but the management is confident
that with cash flows from current operations, debt/equity will not go above 2:1.
The JV will be held by BGRL and Hitachi in the ratio of 74:26 for the turbine JV
(INR30b investment) and 70:30 for the boiler JV (INR14b investment). The total
equity commitment for BGRL stands at INR9.5b.
Success in the NTPC's boiler package for an 11 x 660MW bulk tender (under arbitration;
price bids due) is critical for the growth of BGRL's manufacturing JVs.
Outlook and valuation
Success in the forthcoming tenders is critical for BGRL's growth in FY13. BGR needs
to book new orders worth INR80b-100b in FY12, to grow by 15% in FY13.
We cut our FY13 earnings estimate by 11% due to poor revenue visibility. Our EPS is
now INR49.4 (up 10%) and INR52.7 (up 7%) for FY12 and FY13 respectively. We
expect BGR to post revenue and earnings CAGR of 12% and 9% over FY11-13. Our
FY13 estimates are based on the success in forthcoming tenders, particularly the
Rajasthan SEB.
Our revised target price is INR527 (earlier INR708). A delay in finalization of the
orders will hit FY13 earnings.
At its CMP, BGRL trades at 8.3x FY12E and 7.7x FY13E.
Company description
BGR Energy Systems (BGRL) is one of the India's growing
engineering companies in the power sector. BGRL carries
the business in two segments namely the supply of systems
and equipment and turnkey engineering project contracting.
It was incorporated in 1985 as a JV between JV Energie
Technik GmBH and Mr BG Raghupathy. BGRL employs
about 1,700 people with 84% of them being engineers and
the rest in support functions.
Key investment arguments
BGRL, a strong BOP contractor, entered the power
plant EPC business over the past two years. It is wellplaced
to capitalize on a growing shortage of power
plant contractors in India. BGRL has a JV with Hitachi
to make boilers and turbine-generators, which could be
a huge long-term growth driver.
We believe BGRL is well placed for over INR150b
worth of orders. Success in one or two EPC projects
will drive strong earnings growth beyond FY12.
Key investment risks
Margin compression is possible due to the entry into
the super-critical BTG due to high initial import content
(18-20%).
Higher working capital days due to a large share of
EPC projects in the revenue mix going forward can
compress return ratios and cash flows.
Recent developments
BGRL will spend INR44b over 3.5 years to set up a
boiler and turbine manufacturing facility with supercritical
capabilities of up to 1,000MW through a JV with
Hitachi. It has acquired requisite land for this purpose.
The Rajasthan SEB is due to award two BTG contracts
of INR61b each (1,320MW each) in which BHEL is
L1 and BGR is L2. BGR is confident of matching the
L1 price in at least one of the orders.
Valuation and view
Success in the forthcoming tenders is critical for
BGRL's growth in FY13. BGRL needs to book orders
worth INR80b-100b in FY12 to grow by 15% in FY13.
We cut our FY13E EPS by 11% due to poor revenue
visibility. Our EPS is INR49.4 (up 10%) and INR52.7
(up 7%) for FY12 and FY13 respectively. We expect
BGR to post revenue and earnings CAGR of 12% and
9% respectively over FY11-13.
The stock trades at 8.3x FY12E earnings and hence
valuations are favorable. We recommend a Buy on the
stock, with a target price of INR527 (10x FY13E EPS).
Sector view
We are positive about the sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PAT in line, revenue below estimates: BGR Energy Systems (BGRL) posted 1QFY12 revenue of INR7.3b (down
19% YoY) below our estimate of INR8.2b (down 9% YoY). PAT of INR503m (down 17% YoY) was in line with our
estimate of INR504m (down 17% YoY). Profit growth was boosted by better EBITDA margins supported by a favorable
revenue mix. EBITDA margin was 13.1%, up 164bp YoY ahead of our estimate of 11.1%.
EBITDA margins improve, interest up, debt higher: EBITDA margins improved due to a favorable mix, driven by
higher (YoY) contribution from BOP contracts (40% of power segment sales) relative to EPC contracts (60%).
However, interest costs rose 55% YoY and were 2.5% of sales in 1QFY12 against 1.3% of sales in 1QFY11. BGR's
debt rose to INR18b at the end of 1QFY12, from INR13.4b in FY11. Average cost of borrowing was about 8.5 - 9%,
due to low cost buyer's credit (INR5b).
Strong execution of EPC contracts boosts revenue growth: BGRL is executing two EPC projects in Rajasthan
(2 x 600MW, INR49b) and Tamil Nadu (1 x 300MW, INR31b). The projects are 75% complete and have been driving
revenue growth in recent quarters. BGRL also received an INR22b BoP (for 2 x 660MW) contract from Gayatri
Projects in Andhra Pradesh in 3Q FY11. The projects will drive FY12 revenue.
Order book depleting but BGRL favorably placed in select projects: The order backlog was INR75b (INR79b at
the end of FY11, INR94b as at 1QFY11). BGR is L2 (BHEL is L1) in two projects of 2 x 660 MW each of the Rajasthan
SEB, one of which BGRL expects to be awarded (at an L1 price of INR61b). BGR is also in the fray for boiler
packages of NTPC's 11 x 660MW bulk tender along with BHEL and L&T. The price bids are expected to open, after
the Supreme Court hears Gammon's plea over its disqualification, over the next few days. BGRL has also prequalified
for NTPC bulk tender 2 (9 x 800MW), among other prospective projects.
Estimates cut; Maintain Buy with a revised target price of INR527: Success in the forthcoming tenders is
critical for BGRL's growth in FY13. BGRL needs to book new orders worth INR80b-100b in FY12 to grow by 15% in
FY13. We cut our FY13 earnings estimate by 11% due to poor revenue visibility. Our EPS estimates are INR49.4 (up
10%) and INR52.7 (up 7%) for FY12 and FY13 respectively. Our revised target price is INR527 (earlier INR708). Delay
in finalization of the orders will hit FY13 earnings.
BGR Energy PAT in line; Revenue below estimates; Order inflow crucial to
earnings visibility
BGR Energy Systems (BGRL) posted 1QFY12 revenue of INR7.3b (down 19%
YoY) below our estimate of INR8.2b (down 9% YoY) and PAT was INR503m (down
17% YoY), in line with our estimate of INR504m (down 17% YoY). Profit growth
was boosted by better EBITDA margins, supported by a favorable revenue mix.
EBITDA margin was 13.1%, up 164bp YoY ahead of our estimates of 11.1%.
BGRL is at an advanced stage of execution of two power projects: (1) a 1,200MW
project in Rajasthan and (2) a 600MW project in Tamil Nadu. BGRL booked ~INR66b
in the projects, which have a total cost of INR82b. The remaining INR16b will be
booked over the rest of FY12.
EBITDA margins improved due to a favorable mix, driven by higher (YoY) contribution
from BOP contracts (40% of power segment sales) relative to EPC contracts (60%
of power segment sales). RM/sales declined 252bp YoY and employee costs as a
percentage of sales increased 106bp YoY.
Interest costs rose 55% YoY, partially offsetting margin gains. Interest cost as a
percentage of sales increased 120bp to 2.5% of sales in 1QFY12 from 1.3% of sales
in 1QFY11. Average cost of borrowing was 8.5-9%, due to cheaper cost of buyer's
credit (INR5b of total debt of INR18b).
BGRL had debt of INR18b at the end of 1QFY12, rising from INR13.4b at the end of
FY11. The rise in debt is attributable to a rise in working capital in 1QFY12. Debtors
went up to INR34b, up from INR31.6b at the end of FY11. Debtors include INR12b
of retention money and BGRL expects retention money of INR2b to be released in
FY12.
An exhausting order book is a major concern for BGRL. The current order backlog is
INR75b (INR79b at the end of FY11, INR94b as at 1QFY11). BGRL is L2 (BHEL is
L1) in two projects of 2 x 660MW each of the Rajasthan SEB, one of which BGRL
expects to be awarded (at L1 price of INR61b). BGRL is also in the fray for boiler
packages of NTPC's 11 x 660MW bulk tender along with BHEL and L&T. The price
bids are expected to open, after the Supreme Court hears a plea by Gammon for its
disqualification (due in next few days). BGRL is also prequalified for NTPC bulk
tender 2 (9 x 800MW), among other prospective projects. We believe BGRL is a
strong contender to receive some of the prospective contracts, especially the Rajasthan
contract.
Success in NTPC tender to improve outlook for manufacturing JVs
BGRL will spend INR44b over 3.5 years to set up a boiler and turbine manufacturing
facility with super-critical capability in 660, 700, 800 and 1,000MW ranges through a
JV with Hitachi, Japan.
The debt/equity structure for the JV at 3.5:1 looks steep but the management is confident
that with cash flows from current operations, debt/equity will not go above 2:1.
The JV will be held by BGRL and Hitachi in the ratio of 74:26 for the turbine JV
(INR30b investment) and 70:30 for the boiler JV (INR14b investment). The total
equity commitment for BGRL stands at INR9.5b.
Success in the NTPC's boiler package for an 11 x 660MW bulk tender (under arbitration;
price bids due) is critical for the growth of BGRL's manufacturing JVs.
Outlook and valuation
Success in the forthcoming tenders is critical for BGRL's growth in FY13. BGR needs
to book new orders worth INR80b-100b in FY12, to grow by 15% in FY13.
We cut our FY13 earnings estimate by 11% due to poor revenue visibility. Our EPS is
now INR49.4 (up 10%) and INR52.7 (up 7%) for FY12 and FY13 respectively. We
expect BGR to post revenue and earnings CAGR of 12% and 9% over FY11-13. Our
FY13 estimates are based on the success in forthcoming tenders, particularly the
Rajasthan SEB.
Our revised target price is INR527 (earlier INR708). A delay in finalization of the
orders will hit FY13 earnings.
At its CMP, BGRL trades at 8.3x FY12E and 7.7x FY13E.
Company description
BGR Energy Systems (BGRL) is one of the India's growing
engineering companies in the power sector. BGRL carries
the business in two segments namely the supply of systems
and equipment and turnkey engineering project contracting.
It was incorporated in 1985 as a JV between JV Energie
Technik GmBH and Mr BG Raghupathy. BGRL employs
about 1,700 people with 84% of them being engineers and
the rest in support functions.
Key investment arguments
BGRL, a strong BOP contractor, entered the power
plant EPC business over the past two years. It is wellplaced
to capitalize on a growing shortage of power
plant contractors in India. BGRL has a JV with Hitachi
to make boilers and turbine-generators, which could be
a huge long-term growth driver.
We believe BGRL is well placed for over INR150b
worth of orders. Success in one or two EPC projects
will drive strong earnings growth beyond FY12.
Key investment risks
Margin compression is possible due to the entry into
the super-critical BTG due to high initial import content
(18-20%).
Higher working capital days due to a large share of
EPC projects in the revenue mix going forward can
compress return ratios and cash flows.
Recent developments
BGRL will spend INR44b over 3.5 years to set up a
boiler and turbine manufacturing facility with supercritical
capabilities of up to 1,000MW through a JV with
Hitachi. It has acquired requisite land for this purpose.
The Rajasthan SEB is due to award two BTG contracts
of INR61b each (1,320MW each) in which BHEL is
L1 and BGR is L2. BGR is confident of matching the
L1 price in at least one of the orders.
Valuation and view
Success in the forthcoming tenders is critical for
BGRL's growth in FY13. BGRL needs to book orders
worth INR80b-100b in FY12 to grow by 15% in FY13.
We cut our FY13E EPS by 11% due to poor revenue
visibility. Our EPS is INR49.4 (up 10%) and INR52.7
(up 7%) for FY12 and FY13 respectively. We expect
BGR to post revenue and earnings CAGR of 12% and
9% respectively over FY11-13.
The stock trades at 8.3x FY12E earnings and hence
valuations are favorable. We recommend a Buy on the
stock, with a target price of INR527 (10x FY13E EPS).
Sector view
We are positive about the sector.
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