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Though BGR gained critical mass by becoming L1 in NTPC bulk tender (9*800MW) implying order intake of Rs36 bn, the company needs more supercritical orders to justify greenfield capex of Rs44 bn. As a result, we have upgraded our FY12/13E order inflow assumptions to Rs104/90 bn (v/s Rs60/70 bn) in light of recent bulk tender win. Consequently, our FY12/13E revenue stands upgraded by 10%/20% to Rs57.5/70.4 bn, respectively.
Winning a NTPC supercritical order bodes well for BGR as now it has entered into category of very few power equipment players prequalified for supercritical NTPC TG projects. However, stretched working capital cycle and absence of free cash flows due to long gestation project execution make it a riskier bet to play9, in our view. Consequently, we remain cautious on BGR with on back of 1) delay in RRVUNL EPC order (Rs60 bn) 2) weak bidding pipeline for its forte i.e. BoP projects due to domestic coal concerns and unavailability of many projects imported coal based projects. We upgrade BGR to HOLD from REDUCE with higher DCF-based target price to Rs370 (v/s Rs352 earlier).
Bulk turbine tender win not enough
BGR was L1 for NTPC bulk tender and is likely to be awarded five turbines worth (Rs9 mn/MW) in the bulk tender outbidding L&T, Thermax and JSW-Toshiba JV. The orders won by BGR amounted to Rs26 bn. The maiden order won by BGR has improved the company’s visibility. Though, we have increased our order inflow assumptions to Rs104/90 bn (v/s Rs60/70 bn earlier), we remain cautious over BGR as it is expected to witness intense competition for supercritical boiler orders.
Macro environment still hazy, orders hard to come by
Except NTPC boiler bid (11*660MW), we don’t see many BTG bids finalizing in the power equipment market over next 1-2 years. The coal supply concerns, funding issues for IPPs and high imported coal prices are expected to weigh heavy on power developers’ mind while going for brownfield as well as green field expansion. Thus, capacity addition plans for power developers hit roadblock on back of these structural issues.
BGR’s order inflow improves; but margin pressure evident
With an aggressive bidding of Rs9.2 mn/MW for turbines, BGR is still confident to make ~10% PBT margin in the five NTPC turbine order (~15-16% EBITDA). The company aims to achieve it with 4045%
localization aided by full in-house manufacturing of BoP for turbine sets. We believe that BGR’s aggressive bidding for the supercritical turbine sets new benchmark for turbine bidding and more aggression is likely to be seen in the (11*660MW) bulk tender boiler bids too. Further, this would imply that for next 1-2 years, we are likely to see power equipment players fiercely vying for supercritical orders on back of lull in order inflows due to 1) macroeconomic headwinds 2) domestic coal shortage and 3) clarity yet to emerge over the 13th plan capacity addition
BGR’s facility to be ready by January 2013
BGR’s turbine facility is expected to commission by January 2013. The land acquisition was already complete and company had ordered for critical equipments for boiler as well as turbine facilities. The company believes that the NTPC’s delivery schedule is comfortable and it can comply with the execution schedule. The company is expected to work at two sites. However, given a choice, it would prefer to work at sites near sea shore.
Outlook and Valuation Against the backdrop of coal/gas shortages and SEB finances the Indian power generation equipment market has contracted over the last 6-9 months and we believe this is unlikely to rebound before the above issues are solved. This implies severe overcapacity, which will drive down prices and margins in this sector. We remain cautious on BGR owing to 1) macro headwinds leading to order inflow lull, 2) intensifying competition resulting into margin pressure 3) free cash flows to accrue only after FY15E on back of stretched w/c cycle (i.e. more dependency on short term borrowings as scale increases). BGR trades at 6.8/6.7x on our FY12/13E EPS of Rs52.0/53.1. We upgrade the company to HOLD from REDUCE with a higher DCF-based target of Rs370 (Rs352).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Though BGR gained critical mass by becoming L1 in NTPC bulk tender (9*800MW) implying order intake of Rs36 bn, the company needs more supercritical orders to justify greenfield capex of Rs44 bn. As a result, we have upgraded our FY12/13E order inflow assumptions to Rs104/90 bn (v/s Rs60/70 bn) in light of recent bulk tender win. Consequently, our FY12/13E revenue stands upgraded by 10%/20% to Rs57.5/70.4 bn, respectively.
Winning a NTPC supercritical order bodes well for BGR as now it has entered into category of very few power equipment players prequalified for supercritical NTPC TG projects. However, stretched working capital cycle and absence of free cash flows due to long gestation project execution make it a riskier bet to play9, in our view. Consequently, we remain cautious on BGR with on back of 1) delay in RRVUNL EPC order (Rs60 bn) 2) weak bidding pipeline for its forte i.e. BoP projects due to domestic coal concerns and unavailability of many projects imported coal based projects. We upgrade BGR to HOLD from REDUCE with higher DCF-based target price to Rs370 (v/s Rs352 earlier).
Bulk turbine tender win not enough
BGR was L1 for NTPC bulk tender and is likely to be awarded five turbines worth (Rs9 mn/MW) in the bulk tender outbidding L&T, Thermax and JSW-Toshiba JV. The orders won by BGR amounted to Rs26 bn. The maiden order won by BGR has improved the company’s visibility. Though, we have increased our order inflow assumptions to Rs104/90 bn (v/s Rs60/70 bn earlier), we remain cautious over BGR as it is expected to witness intense competition for supercritical boiler orders.
Macro environment still hazy, orders hard to come by
Except NTPC boiler bid (11*660MW), we don’t see many BTG bids finalizing in the power equipment market over next 1-2 years. The coal supply concerns, funding issues for IPPs and high imported coal prices are expected to weigh heavy on power developers’ mind while going for brownfield as well as green field expansion. Thus, capacity addition plans for power developers hit roadblock on back of these structural issues.
BGR’s order inflow improves; but margin pressure evident
With an aggressive bidding of Rs9.2 mn/MW for turbines, BGR is still confident to make ~10% PBT margin in the five NTPC turbine order (~15-16% EBITDA). The company aims to achieve it with 4045%
localization aided by full in-house manufacturing of BoP for turbine sets. We believe that BGR’s aggressive bidding for the supercritical turbine sets new benchmark for turbine bidding and more aggression is likely to be seen in the (11*660MW) bulk tender boiler bids too. Further, this would imply that for next 1-2 years, we are likely to see power equipment players fiercely vying for supercritical orders on back of lull in order inflows due to 1) macroeconomic headwinds 2) domestic coal shortage and 3) clarity yet to emerge over the 13th plan capacity addition
BGR’s facility to be ready by January 2013
BGR’s turbine facility is expected to commission by January 2013. The land acquisition was already complete and company had ordered for critical equipments for boiler as well as turbine facilities. The company believes that the NTPC’s delivery schedule is comfortable and it can comply with the execution schedule. The company is expected to work at two sites. However, given a choice, it would prefer to work at sites near sea shore.
Outlook and Valuation Against the backdrop of coal/gas shortages and SEB finances the Indian power generation equipment market has contracted over the last 6-9 months and we believe this is unlikely to rebound before the above issues are solved. This implies severe overcapacity, which will drive down prices and margins in this sector. We remain cautious on BGR owing to 1) macro headwinds leading to order inflow lull, 2) intensifying competition resulting into margin pressure 3) free cash flows to accrue only after FY15E on back of stretched w/c cycle (i.e. more dependency on short term borrowings as scale increases). BGR trades at 6.8/6.7x on our FY12/13E EPS of Rs52.0/53.1. We upgrade the company to HOLD from REDUCE with a higher DCF-based target of Rs370 (Rs352).
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