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BGR Energy Systems (BGRE.BO)
Downgrade to Sell: Significant Balance Sheet Deterioration
Downgrade to Sell (3H) — Revise down our EPS for FY12-14E by 17-34% to factor in
(1) 8-14% lower sales and (2) higher interest costs. Our estimates are 27-35% below
consensus expectations. We cut our target price to Rs241 (Rs350 earlier) to factor in
our EPS revision and roll forward of target P/E multiple of 8x to Mar13E (from Dec12E).
2Q12 PAT down 34% YoY — Despite a 267bps margin expansion, BGRL’s 2Q12 PAT
was down 34% YoY at Rs514mn, which was 29% below CIRA at Rs726mn on account
of (1) 32% YoY decline in sales and (2) 118% YoY increase in interest costs.
Significant balance sheet deterioration — BGRL seems to be facing severe working
capital (WC) stress with debtor days ballooning up to 478 days of sales end 2Q12 from
258 days end 2Q11. WC intensity (NCA – Cash days of sales) is up to 289 days end
2Q12 from 119 days end 2Q11. Cash flow from operations (CFO) was -9.1bn in
1HFY12 vs. -5.4bn in 1HFY11. The debt equity ratio has ballooned to 2.2x end 2Q12
from 1.7x from end 2Q11. With more equity commitments for the BTG JV with Hitachi
over the next 12-18 months, we expect the balance sheet to deteriorate even further.
Order drought adds to the pain — After winning a mere Rs29.4bn of orders in FY11,
BGRL has managed to cobble together Rs10.1bn of orders in 1H12. As of now the
company has visibility for an aggressive bid and won Rs29bn order for 4X800MW
turbines from NTPC. The RRVUNL Rs60bn+ EPC order for 2X660 is long delayed.
Even if orders rebound, we expect margins to decline structurally ahead and BGRL,
with its weak balance sheet, could find the going tough.
BGR's NTPC tender win is aggressive — BGR’s L1 raw bid @ Rs8.8mn/MW is
aggressive and well below past bids in the Indian market by domestic equipment
suppliers and the industry benchmark (in the new competitive scenario). That
management claims they have received calls from other utilities if they could supply
turbines at these prices post the tender could be an indication of the same.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BGR Energy Systems (BGRE.BO)
Downgrade to Sell: Significant Balance Sheet Deterioration
Downgrade to Sell (3H) — Revise down our EPS for FY12-14E by 17-34% to factor in
(1) 8-14% lower sales and (2) higher interest costs. Our estimates are 27-35% below
consensus expectations. We cut our target price to Rs241 (Rs350 earlier) to factor in
our EPS revision and roll forward of target P/E multiple of 8x to Mar13E (from Dec12E).
2Q12 PAT down 34% YoY — Despite a 267bps margin expansion, BGRL’s 2Q12 PAT
was down 34% YoY at Rs514mn, which was 29% below CIRA at Rs726mn on account
of (1) 32% YoY decline in sales and (2) 118% YoY increase in interest costs.
Significant balance sheet deterioration — BGRL seems to be facing severe working
capital (WC) stress with debtor days ballooning up to 478 days of sales end 2Q12 from
258 days end 2Q11. WC intensity (NCA – Cash days of sales) is up to 289 days end
2Q12 from 119 days end 2Q11. Cash flow from operations (CFO) was -9.1bn in
1HFY12 vs. -5.4bn in 1HFY11. The debt equity ratio has ballooned to 2.2x end 2Q12
from 1.7x from end 2Q11. With more equity commitments for the BTG JV with Hitachi
over the next 12-18 months, we expect the balance sheet to deteriorate even further.
Order drought adds to the pain — After winning a mere Rs29.4bn of orders in FY11,
BGRL has managed to cobble together Rs10.1bn of orders in 1H12. As of now the
company has visibility for an aggressive bid and won Rs29bn order for 4X800MW
turbines from NTPC. The RRVUNL Rs60bn+ EPC order for 2X660 is long delayed.
Even if orders rebound, we expect margins to decline structurally ahead and BGRL,
with its weak balance sheet, could find the going tough.
BGR's NTPC tender win is aggressive — BGR’s L1 raw bid @ Rs8.8mn/MW is
aggressive and well below past bids in the Indian market by domestic equipment
suppliers and the industry benchmark (in the new competitive scenario). That
management claims they have received calls from other utilities if they could supply
turbines at these prices post the tender could be an indication of the same.
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