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BGR ENERGY SYSTEMS
PRICE: RS.367 RECOMMENDATION: BUY
TARGET PRICE: RS.520 FY12E P/E: 8.5X
q BGR Energy emerged as a lowest bidder for 9X800MW NTPC bulk tender
for turbines and generator. Order book to swell by about Rs.36 bn.
q This order marks the entry of company in the super critical space
q However, order inflow till date is lower than our expectations. Revenues
from the NTPC order to flow in largely from FY13. We thus revise our
FY12 estimates marginally downwards.
q We maintain BUY on BGR energy with a revised price target of Rs 520 on
FY12 estimates (Rs 590 earlier) and expect company to benefit from order
inflows during Q3FY12.
Key highlights about the company
BGR energy emerges as the lowest bidder for 9X800MW NTPC
bulk tender for turbines and generator.
NTPC opened the bids for 9X800MW bulk tender for boilers and turbines over the
last two days. Though BGR energy has not been able to get boiler order but it has
emerged as the lowest bidder for turbines and generator. Company had placed the
bid of Rs 72.98 bn i.e. Rs 10.13 mn per MW for turbines and generator while the
second lowest bidder was L&T which had placed the bid of Rs 74.71 bn i.e. Rs 10.37
mn per MW. The company's bid was higher in comparison with earlier quote of
Bharat Forge-Alstom for NTPC's 11X660 MW tender for turbines, and it factors in
the increased competitive scenario. BGR energy would get contract for 5X800MW
while BHEL would be given the order for 4X800MW provided it matches the bid
quoted by BGR energy.
BGR is setting up manufacturing facilities for super critical boiler and turbines in joint
venture with Hitachi but since the facility would take 2.5 years to commission, most
of the equipment for this project for next 2.5 years would be sourced from Hitachi.
First unit is expected to commission after 42 months and other units after intervals of
2 months. Currency risk and price variation is also covered by NTPC so company
expects to maintain margins in the range of 11% for this project also.
We believe that this order win is positive for the company since it would enable it to
enter into super critical space as well as in terms of order inflow (worth nearly Rs 36
bn) which had been lacking for the company since past couple of quarters.
Other order inflows are however delayed
BGR energy has also been expecting large order inflows from RRUVNL as well as the
11X660 MW NTPC bulk tender during FY12. However, environmental and legal issues
have resulted in lower than expected order inflow for the company.
Order inflow from NTPC bulk tender for super critical boilers for 11X660MW is still
delayed. NTPC had referred the matter to Supreme Court. Company expects NTPC
to fasten the proceedings of this project after award of 9X800MW supercritical tenders.
From RRUVNL, BGR energy is confident of getting at least one of the two EPC
projects of 2X660MW in Suratgarh and Chabbra provided it matches the Rs.60.8 bn
bid quoted by BHEL. Delays in environmental clearance continue to impact finalization
of this order. Coal linkages have already been secured but environmental clearance
is pending. Company had earlier expected this order inflow to come during
Q2FY12, however it now expects it to come by October, 2011.
BGR energy has placed bids with several state utilities in Gujarat, Maharashtra and
Tamil Nadu in the EPC space but finalization of bids is taking longer than expected
and currently these projects are not in the stage of reaching the levels of submitting
price bids.
Order book visibility has improved post this order win, though it
is lower YoY
n Company has an order book of nearly Rs 78 bn comprised mainly of power segment
projects. This provides a revenue visibility for next 1.5 years. Due to lack of
order inflows, revenue visibility has witnessed a sharp decline in comparison with
last year.
n During FY11, company had commissioned 500 MW Vijayawada thermal power
project, and 500 MW Kakatiya thermal power project. It also achieved plant synchronization
for 500MW Kothagudem thermal power project and 500 MW
Kaperkheda thermal power project.
n Thus, out of the existing order book, 600 MW Mettur Thermal power project of
TNEB achieved boiler hydro test during December, 2010 and the unit is gearing
up for commencement of power generation in September, 2011. The boiler hydro
test for 2 x 600 MW Kalisindh project of RRVUNL was completed during
April, 2011 and the project is expected to commission by March, 2012.
n Work on two BOP projects - 2X500MW coal based thermal power plant in
Marwa and Chandrapur is progressing on schedule and these projects are expected
to be completed by FY13. Along with this, company also bagged BoP
project for 2X600MW thermal power project at Krishnapatnam which is likely to
be completed by FY14. Recently, the company was awarded a project worth Rs
4.4 bn from NPCIL for electrical division.
n Thus, we believe that revenue visibility has improved post this order win, though
it would be reflected primarily from FY13 onwards. We however believe that
further delays in other order inflows (like RRUVNL, NTPC 11X660MW etc) may
impact the revenue growth during FY13 and going forward. We expect revenues
during FY12 to be largely driven by execution from Mettur and Kalisindh EPC
projects as well as Chandrapur and Marwa BOP projects. We had expected Rs 8-
9 bn worth of revenues out of our revenue expectation of Rs 53 bn for FY12 to
come from new order inflows. However, due to delays witnessed in order inflows,
we reduce our revenue estimates from the new order inflows and expect
full year revenues to be Rs 49 bn for FY12. We would introduce FY13 estimates
once we get more clarity on the future order inflow scenario for the company.
Status of joint venture for super critical boiler and turbines
Hitachi Power Europe GmbH, Germany - BGR Boilers Private Limited
During FY11, company had formed a Joint Venture agreement with Hitachi Power
Europe GmbH, Germany for design, engineering and manufacture of Super Critical
Steam Generator of 600 MW, 800 MW, 1000 MW and 1100 MW rating. Total
capex for the JV is expected to be around Rs 14 bn with debt and equity mix of
70:30. Hitachi Power Europe will contribute 30% of the equity while BGR energy will
contribute the remaining amount. During FY11, BGR energy invested Rs 360.5 mn in
the share capital of JV Company and is expected to invest the remaining amount
going forward.
Hitachi, Ltd., Japan - BGR Turbines Company Private Limited
During FY11, company also formed a Joint Venture agreement with Hitachi, Ltd.,
Japan for design, engineering and manufacture of Supercritical Steam Turbine and
Generators of 660 MW, 800 MW and 1000 MW capacity. Hitachi will contribute
26% of the equity share capital of the JV Company with BGR energy forming the
remaining 74%. Total capex for the JV is expected to be around Rs 30 bn with debt
and equity mix of 70:30. During FY 2010-11, BGR invested Rs 959.6 mn in the share
capital of the JV Company.
Total equity investment from BGR is expected to be Rs 9.6 bn for these JV's which is
expected to be invested in next 2-3 years. With these strategic Joint Ventures, BGR
Energy has positioned itself well to capture entire value chain in EPC contracting
business for power sector.
Financial outlook
n We expect revenues to be nearly Rs 49 bn for FY12. Marginal growth in revenues
during FY12 in comparison with FY11 is due to delays seen in large sized
order inflow. We would introduce FY13 estimates once we get more clarity on
the future order inflow scenario for the company.
n Operating margins for the company stayed strong during Q1FY12 due to higher
proportion of BoP project execution during the quarter. We maintain our estimates
and expect margins to be in the range of 11.5% going forward since we
expect BOP project execution to ramp up going ahead.
n Borrowings as well as working capital for the company have also witnessed an
increase. We thus expect interest outgo to remain higher and expect net profits
to witness a decline of 4% for the company during FY12.
Valuation and recommendation
n BGR is currently trading at 8.5x P/E and 5.2x EV/EBITDA on FY12 estimates.
n We revise our estimates for the company marginally downwards to factor in delays
in large order inflows. We thus arrive at a revised price target of Rs 520
based on 12x FY12 estimated earnings as against Rs 590 earlier.
n We continue to remain positive on the company and due to attractive valuations,
we maintain BUY on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BGR ENERGY SYSTEMS
PRICE: RS.367 RECOMMENDATION: BUY
TARGET PRICE: RS.520 FY12E P/E: 8.5X
q BGR Energy emerged as a lowest bidder for 9X800MW NTPC bulk tender
for turbines and generator. Order book to swell by about Rs.36 bn.
q This order marks the entry of company in the super critical space
q However, order inflow till date is lower than our expectations. Revenues
from the NTPC order to flow in largely from FY13. We thus revise our
FY12 estimates marginally downwards.
q We maintain BUY on BGR energy with a revised price target of Rs 520 on
FY12 estimates (Rs 590 earlier) and expect company to benefit from order
inflows during Q3FY12.
Key highlights about the company
BGR energy emerges as the lowest bidder for 9X800MW NTPC
bulk tender for turbines and generator.
NTPC opened the bids for 9X800MW bulk tender for boilers and turbines over the
last two days. Though BGR energy has not been able to get boiler order but it has
emerged as the lowest bidder for turbines and generator. Company had placed the
bid of Rs 72.98 bn i.e. Rs 10.13 mn per MW for turbines and generator while the
second lowest bidder was L&T which had placed the bid of Rs 74.71 bn i.e. Rs 10.37
mn per MW. The company's bid was higher in comparison with earlier quote of
Bharat Forge-Alstom for NTPC's 11X660 MW tender for turbines, and it factors in
the increased competitive scenario. BGR energy would get contract for 5X800MW
while BHEL would be given the order for 4X800MW provided it matches the bid
quoted by BGR energy.
BGR is setting up manufacturing facilities for super critical boiler and turbines in joint
venture with Hitachi but since the facility would take 2.5 years to commission, most
of the equipment for this project for next 2.5 years would be sourced from Hitachi.
First unit is expected to commission after 42 months and other units after intervals of
2 months. Currency risk and price variation is also covered by NTPC so company
expects to maintain margins in the range of 11% for this project also.
We believe that this order win is positive for the company since it would enable it to
enter into super critical space as well as in terms of order inflow (worth nearly Rs 36
bn) which had been lacking for the company since past couple of quarters.
Other order inflows are however delayed
BGR energy has also been expecting large order inflows from RRUVNL as well as the
11X660 MW NTPC bulk tender during FY12. However, environmental and legal issues
have resulted in lower than expected order inflow for the company.
Order inflow from NTPC bulk tender for super critical boilers for 11X660MW is still
delayed. NTPC had referred the matter to Supreme Court. Company expects NTPC
to fasten the proceedings of this project after award of 9X800MW supercritical tenders.
From RRUVNL, BGR energy is confident of getting at least one of the two EPC
projects of 2X660MW in Suratgarh and Chabbra provided it matches the Rs.60.8 bn
bid quoted by BHEL. Delays in environmental clearance continue to impact finalization
of this order. Coal linkages have already been secured but environmental clearance
is pending. Company had earlier expected this order inflow to come during
Q2FY12, however it now expects it to come by October, 2011.
BGR energy has placed bids with several state utilities in Gujarat, Maharashtra and
Tamil Nadu in the EPC space but finalization of bids is taking longer than expected
and currently these projects are not in the stage of reaching the levels of submitting
price bids.
Order book visibility has improved post this order win, though it
is lower YoY
n Company has an order book of nearly Rs 78 bn comprised mainly of power segment
projects. This provides a revenue visibility for next 1.5 years. Due to lack of
order inflows, revenue visibility has witnessed a sharp decline in comparison with
last year.
n During FY11, company had commissioned 500 MW Vijayawada thermal power
project, and 500 MW Kakatiya thermal power project. It also achieved plant synchronization
for 500MW Kothagudem thermal power project and 500 MW
Kaperkheda thermal power project.
n Thus, out of the existing order book, 600 MW Mettur Thermal power project of
TNEB achieved boiler hydro test during December, 2010 and the unit is gearing
up for commencement of power generation in September, 2011. The boiler hydro
test for 2 x 600 MW Kalisindh project of RRVUNL was completed during
April, 2011 and the project is expected to commission by March, 2012.
n Work on two BOP projects - 2X500MW coal based thermal power plant in
Marwa and Chandrapur is progressing on schedule and these projects are expected
to be completed by FY13. Along with this, company also bagged BoP
project for 2X600MW thermal power project at Krishnapatnam which is likely to
be completed by FY14. Recently, the company was awarded a project worth Rs
4.4 bn from NPCIL for electrical division.
n Thus, we believe that revenue visibility has improved post this order win, though
it would be reflected primarily from FY13 onwards. We however believe that
further delays in other order inflows (like RRUVNL, NTPC 11X660MW etc) may
impact the revenue growth during FY13 and going forward. We expect revenues
during FY12 to be largely driven by execution from Mettur and Kalisindh EPC
projects as well as Chandrapur and Marwa BOP projects. We had expected Rs 8-
9 bn worth of revenues out of our revenue expectation of Rs 53 bn for FY12 to
come from new order inflows. However, due to delays witnessed in order inflows,
we reduce our revenue estimates from the new order inflows and expect
full year revenues to be Rs 49 bn for FY12. We would introduce FY13 estimates
once we get more clarity on the future order inflow scenario for the company.
Status of joint venture for super critical boiler and turbines
Hitachi Power Europe GmbH, Germany - BGR Boilers Private Limited
During FY11, company had formed a Joint Venture agreement with Hitachi Power
Europe GmbH, Germany for design, engineering and manufacture of Super Critical
Steam Generator of 600 MW, 800 MW, 1000 MW and 1100 MW rating. Total
capex for the JV is expected to be around Rs 14 bn with debt and equity mix of
70:30. Hitachi Power Europe will contribute 30% of the equity while BGR energy will
contribute the remaining amount. During FY11, BGR energy invested Rs 360.5 mn in
the share capital of JV Company and is expected to invest the remaining amount
going forward.
Hitachi, Ltd., Japan - BGR Turbines Company Private Limited
During FY11, company also formed a Joint Venture agreement with Hitachi, Ltd.,
Japan for design, engineering and manufacture of Supercritical Steam Turbine and
Generators of 660 MW, 800 MW and 1000 MW capacity. Hitachi will contribute
26% of the equity share capital of the JV Company with BGR energy forming the
remaining 74%. Total capex for the JV is expected to be around Rs 30 bn with debt
and equity mix of 70:30. During FY 2010-11, BGR invested Rs 959.6 mn in the share
capital of the JV Company.
Total equity investment from BGR is expected to be Rs 9.6 bn for these JV's which is
expected to be invested in next 2-3 years. With these strategic Joint Ventures, BGR
Energy has positioned itself well to capture entire value chain in EPC contracting
business for power sector.
Financial outlook
n We expect revenues to be nearly Rs 49 bn for FY12. Marginal growth in revenues
during FY12 in comparison with FY11 is due to delays seen in large sized
order inflow. We would introduce FY13 estimates once we get more clarity on
the future order inflow scenario for the company.
n Operating margins for the company stayed strong during Q1FY12 due to higher
proportion of BoP project execution during the quarter. We maintain our estimates
and expect margins to be in the range of 11.5% going forward since we
expect BOP project execution to ramp up going ahead.
n Borrowings as well as working capital for the company have also witnessed an
increase. We thus expect interest outgo to remain higher and expect net profits
to witness a decline of 4% for the company during FY12.
Valuation and recommendation
n BGR is currently trading at 8.5x P/E and 5.2x EV/EBITDA on FY12 estimates.
n We revise our estimates for the company marginally downwards to factor in delays
in large order inflows. We thus arrive at a revised price target of Rs 520
based on 12x FY12 estimated earnings as against Rs 590 earlier.
n We continue to remain positive on the company and due to attractive valuations,
we maintain BUY on the stock.
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