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BGR Energy (BGRE.BO)
Neutral Equity Research
NTPC order win – additional capex to weigh on profits, stay Neutral
What's changed
BGR Energy has emerged as the lowest bidder for NTPC’s 9X800 bulk
order for turbine and generator set. Based on the tender documents, BGR
expects to be awarded 5 sets with 4 sets going to BHEL if the latter
matches the price bid by BGR energy. The technical evaluation of the bid is
currently underway. The bid by BGR is at a value of Rs9.2 mn per MW
similar to the lowest bid seen in the previous bulk tender by NTPC (Bharat
Forge-Alstom JV in Oct 10’). Based on media reports (CNBC TV18), L&T
has emerged as L2 bidder but would have to step back for BHEL (per preconditions of the bid set by NTPC).
Implications
We think this order win for BGR is positive for the company’s revenue
growth and provides visibility – we increase our FY12E/13E/14E revenues by
6%/22%/11% on the back of this order win. However, we estimate the
company’s share of capex in the BTG facilities over the next 3 years of Rs
30bn would require additional debt of Rs 19bn, impacting earnings owing to
higher finance charges. As a result, we change our EPS for FY12E/13E/14E
by +3/+7/-17%. Additionally, margins may also get negatively impacted,
depending on the proportion of imported content in the initial few orders.
Valuation
Maintain Neutral as we believe future revenue growth may come at lower
profitability given increased competition. We increase our 12m P/E-based TP
to Rs 450 (from Rs 428) on the back of increased earnings. The stock trades
at 12m fwd P/E multiple of 8X vs. BHEL – the largest power equipment
maker trading at 13X. We expect ROE for BGR to decline from 39% in FY11
to 20% by FY14E as investment cycle kicks in for the BTG facility.
Key risks
Upside: (1) Improving margins on existing orders, (2) higher BoP order
inflows; Downside: (1) Substantially increased price- based competition
from peers, and (2) volatile commodity prices.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BGR Energy (BGRE.BO)
Neutral Equity Research
NTPC order win – additional capex to weigh on profits, stay Neutral
What's changed
BGR Energy has emerged as the lowest bidder for NTPC’s 9X800 bulk
order for turbine and generator set. Based on the tender documents, BGR
expects to be awarded 5 sets with 4 sets going to BHEL if the latter
matches the price bid by BGR energy. The technical evaluation of the bid is
currently underway. The bid by BGR is at a value of Rs9.2 mn per MW
similar to the lowest bid seen in the previous bulk tender by NTPC (Bharat
Forge-Alstom JV in Oct 10’). Based on media reports (CNBC TV18), L&T
has emerged as L2 bidder but would have to step back for BHEL (per preconditions of the bid set by NTPC).
Implications
We think this order win for BGR is positive for the company’s revenue
growth and provides visibility – we increase our FY12E/13E/14E revenues by
6%/22%/11% on the back of this order win. However, we estimate the
company’s share of capex in the BTG facilities over the next 3 years of Rs
30bn would require additional debt of Rs 19bn, impacting earnings owing to
higher finance charges. As a result, we change our EPS for FY12E/13E/14E
by +3/+7/-17%. Additionally, margins may also get negatively impacted,
depending on the proportion of imported content in the initial few orders.
Valuation
Maintain Neutral as we believe future revenue growth may come at lower
profitability given increased competition. We increase our 12m P/E-based TP
to Rs 450 (from Rs 428) on the back of increased earnings. The stock trades
at 12m fwd P/E multiple of 8X vs. BHEL – the largest power equipment
maker trading at 13X. We expect ROE for BGR to decline from 39% in FY11
to 20% by FY14E as investment cycle kicks in for the BTG facility.
Key risks
Upside: (1) Improving margins on existing orders, (2) higher BoP order
inflows; Downside: (1) Substantially increased price- based competition
from peers, and (2) volatile commodity prices.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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