BGR Energy Systems - Shines on NTPC orders; event update; Hold ::Edelweiss pdf link

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BGR Energy Systems (BGRL IN, INR 369, Hold)

BGR Energy Systems (BGR) surprised the Street by bagging L1 status in 660 MWx11 SG (steam generator) package with total order value expected at INR65bn (implying INR 1.406/Mw). BHEL is L2 with total expected order value of INR37bn (at L1 quote). This is positive for BGR, given a strong possibility of LOAs by NTPC (Letter of Awards) for 660 MW boiler sets before March, 2012. While the management guides for 12-13% EBIDTA margin in this tender, we expect it to be lower at 6-7% given aggressive pricing by BGR.

Strong improvement in revenue visibility; OPMs to decline

BGR currently has an order book of INR82bn, which is likely to expand 80% to ~INR150bn by March 2012, as per the management. We expect LOAs for 660 MW sets to be awarded by March, 2012. Management remains hopeful of INR61bn Rajasthan SEB order till May, 2012. Given stiff competition, we expect margins for BGR to be under pressure over FY13E and FY14E, given increased proportion of EPC and BTG that are at competitive rates. As per market sources, we believe BGR’s price bid is ~10-12% lower than that of BHEL and L&T.

Capex guidance trimmed; total equity contribution at INR9bn

Management has indicated INR30bn as total capex, of which, INR9bn would be in the form of equity (70:30 debt equity). The company has already invested INR2.5bn as equity contribution. Of the total debt portion of INR21bn, IDBI consortium will fund the TG plant, while SBI lead consortium will fund the boiler plant debt.

Outlook and valuations: Profitability concerns; maintain ‘HOLD’

While we revise our order intake assumption for FY12E & FY13E and revenue assumptions for FY13E substantially, we remain concerned on the overall profitability given stiff competition, higher interest and depreciation burden. Maintain ‘HOLD/SP’ rating with our TP of INR370/ share (Earlier INR 347). The stock trades a P/E of 11.3x and 10.7x its FY12E & FY13E earnings respectively.

BGR Energy Systems - Shines on NTPC orders; event update; Hold