BGR Energy Systems (BGRE.BO) Order Drought Continues to Impact Numbers::Citi Research

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BGR Energy Systems (BGRE.BO)
Order Drought Continues to Impact Numbers
 PAT down 38% YoY — BGRL’s 3Q12 PAT at Rs547mn, down 38% YoY, was 23%
below CIRA at Rs713mn. Despite EBITDA margins expanding 489bps to 16.2% (1)
sales decline of 36% YoY to Rs8.0bn (v/s management guidance of > Rs10bn) and (2)
interest costs ballooning up 2.8x YoY to Rs462mn contributed to the profit miss.
 WC might not have improved — In 2Q12 BGRL faced 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) was up to 289 days end 2Q12
from 119 days end 2Q11. The fact that (1) capital employed has gone up 5% QoQ
when sales are up QoQ only 4% YoY and (2) interest costs growing 53% QoQ could
imply that the WC might not have improved sequentially.
 Significant downside risk to CIRA estimates — In 9M12 BGRL made sales of only
Rs23bn vs management FY12E guidance of Rs48.5bn. We believe BGRL will also not
achieve our FY12E sales estimate of Rs40.5bn. The fact that the company has only
won orders to the tune of Rs22bn in 9M12 v/s CIRA FY12E of Rs110bn also puts our
FY13E sales estimate of Rs47.6bn at risk. 3Q12 end backlog at Rs80bn is down 14%
YoY. BGRL reported profits of Rs1.6bn in 9M12 vs our current PAT estimates of
Rs2.8bn, implying a significant downside risk to our estimates.
 Maintain Sell (3H) — Given: (1) even if orders rebound we expect margins to decline
structurally and BGR, with its weak BS, could find the going tough. (2) Structurally
declining RoEs FY11 - 39% to FY14E – 16%, (3) EPS decline of 10% over FY11-14E
vs 55% growth over FY08-11 and (3) we expect negative OCF over the next three
years.