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Key Takeaways
Outlook for order intake improving though external environment remains
challenging
BGR Energy Systems (BGRL) expects order inflow to improve in the medium term.
There is significant progress in awards of BoP orders from IPPs (INR2-3b). Visibility
of finalization of the orders from Rajasthan SEB (two projects of 2x660MW each,
which got delayed due to in-sufficiency of coal linkages) has improved. These should
be finalized by the end of 2QFY12.
Price bids for NTPC 2 in September; success in NTPC tenders to improve outlook
for BTG JVs
The management believes that price bids for the NTPC bulk tender 2 (9x800MW),
for which BGRL is pre-qualified will be invited in September 2011.
BGRL is also in the fray for boiler packages of NTPC's 11x660MW bulk tender along
with BHEL and L&T. It expects the price bids to be opened after the Supreme Court
hears Gammon's plea over its disqualification in the next few days.
Construction work in both the JVs (BGRL is spending INR44b over 3.5 years to set up
a boiler and turbine manufacturing facility, with supercritical capability in 660, 700,
800 and 1,000MW ranges through a JV with Hitachi, Japan) is well on schedule and
the boiler JV is likely to commence production by 3QFY13 and the turbine JV in
1QFY14.
Success in NTPC's boiler package for an 11x660MW bulk tender (under arbitration;
price bids due) and NTPC 2 (price bids expected in September 2011) will improve
outlook for the growth of BGRL's manufacturing JVs.
Margins to improve in FY12, driven by better sales mix
In 1QFY12, EBITDA margin expanded due to favorable mix, driven by higher (YoY)
contribution from BoP contracts (40% of power segment sales) relative to EPC
contracts (60% of power segment sales). The trend is likely to continue in FY12 due
to higher weight of BoP contracts in the order book. We expect EBITDA margin to be
12% (up 50bp) in FY12.
Valuation and view
Success in 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. Our EPS estimates
are INR49.4 (up 10%) for FY12 and INR52.7 (up 7%) for FY13. We expect BGRL to
post revenue CAGR of 12% and earnings CAGR of 9% over FY11-13.
The stock trades at 6x FY12E earnings; valuations are favorable. We recommend
Buy, with a target price of INR527 (10x FY13E EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Outlook for order intake improving though external environment remains
challenging
BGR Energy Systems (BGRL) expects order inflow to improve in the medium term.
There is significant progress in awards of BoP orders from IPPs (INR2-3b). Visibility
of finalization of the orders from Rajasthan SEB (two projects of 2x660MW each,
which got delayed due to in-sufficiency of coal linkages) has improved. These should
be finalized by the end of 2QFY12.
Price bids for NTPC 2 in September; success in NTPC tenders to improve outlook
for BTG JVs
The management believes that price bids for the NTPC bulk tender 2 (9x800MW),
for which BGRL is pre-qualified will be invited in September 2011.
BGRL is also in the fray for boiler packages of NTPC's 11x660MW bulk tender along
with BHEL and L&T. It expects the price bids to be opened after the Supreme Court
hears Gammon's plea over its disqualification in the next few days.
Construction work in both the JVs (BGRL is spending INR44b over 3.5 years to set up
a boiler and turbine manufacturing facility, with supercritical capability in 660, 700,
800 and 1,000MW ranges through a JV with Hitachi, Japan) is well on schedule and
the boiler JV is likely to commence production by 3QFY13 and the turbine JV in
1QFY14.
Success in NTPC's boiler package for an 11x660MW bulk tender (under arbitration;
price bids due) and NTPC 2 (price bids expected in September 2011) will improve
outlook for the growth of BGRL's manufacturing JVs.
Margins to improve in FY12, driven by better sales mix
In 1QFY12, EBITDA margin expanded due to favorable mix, driven by higher (YoY)
contribution from BoP contracts (40% of power segment sales) relative to EPC
contracts (60% of power segment sales). The trend is likely to continue in FY12 due
to higher weight of BoP contracts in the order book. We expect EBITDA margin to be
12% (up 50bp) in FY12.
Valuation and view
Success in 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. Our EPS estimates
are INR49.4 (up 10%) for FY12 and INR52.7 (up 7%) for FY13. We expect BGRL to
post revenue CAGR of 12% and earnings CAGR of 9% over FY11-13.
The stock trades at 6x FY12E earnings; valuations are favorable. We recommend
Buy, with a target price of INR527 (10x FY13E EPS).
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