Visit http://indiaer.blogspot.com/ for complete details �� ��
BGR ENERGY 2QFY11: Execution on strong footing; Margins maintained; High visibility; Buy
- BGR Energy (BGRL IN, Mkt Cap US$1.2b, CMP Rs767, Buy) reported 2QFY11 revenues of Rs11b (up 143% YoY), better than our expectations (Rs10b, up 105%), while PAT stood at Rs778m (up 155% YoY), significantly better than our expectations (Rs660m, up 115%). Project execution schedules reaching critical milestones have enabled the revenue run rate to remain buoyant through 1HFY11, with revenues up 162% YoY.
- The company is at an advanced stage of execution of two power projects: (1) 1,200 MW in Rajasthan and (2) 600MW in Tamil Nadu. BGR has booked Rs43b (55%) of revenues from these two projects and remaining Rs37b will be booked in FY11 and FY12. Revenues booking from these two projects during the quarter stood at Rs9b, and Rs15.5b in 1HFY11 (accounting for 80% and 75% of total revenues in 1QFY11 and 1HFY11 revenues).
- The current order backlog stands at Rs105b with a BTB of 2.4x TTM. BGR Energy recently received an order of Rs21.68b for BoP of a 2X660MW super-critical project in Andhra Pradesh. This contract was awarded by Gayatri Projects (Andhra Pradesh) and Sembcorp (Singapore) consortium to BGR Energy. BGR’s scope of work in the project includes complete Design/EPC for the balance of plant of 2X660MW project at Krishnapatnam, Andhra Pradesh. The project, which includes: i) construction of one of the largest coal handling plant, and ii) Sea water based RO systems and intake water systems for the makeup water to the plant, is the single largest BoP contract awarded to BGR.
- EBITDA margin in 2QFY11 stood at 11.7%, down 112bp YoY, mainly on the back of higher proportion of power EPC orders in the revenue mix. This also resulted in 1HFY11 EBITDA margins falling 152bp YoY to 13%. We expect margins to remain in 11 -11.5% range in FY11-12.
- The company’s debt currently stands at Rs14.5b, up from Rs9.3b at FY10-end, due to pick up in execution of EPC projects. We expect debt to remain at these levels. Debt includes Rs5b of buyers’ credit, with cost of borrowing at 3.5%, Rs7b of short-term loan at 8.5%, and Rs2.5b of other loan at 11.5%.
- Net interest rate substantially declined during the quarter on account of Rs90m of interest income on margin money. Gross interest stood at Rs220m during the quarter.
Strong outlook for new order flow; order-book will double to Rs200b by FY11-end
- BGR had an order-book of Rs105b (at the end of 1QFY11, including the recent BoP order). BGR is technically qualified for two supercritical projects of Rajasthan Electricity Board, each with 3x660MW configuration and Rs65b of order-value. We expect the company to bag at least one of them.
- Success in the project will ensure order inflow of Rs120b, almost 3.5x FY10 order inflow, thereby providing significant earnings visibility through FY13-14. We expect BGR’s order-book to grow 2x to Rs200b by FY11-end.
Success in NTPC bulk tender will boost the manufacturing JVs
- BGR has entered into a JV with Hitachi to manufacture complete power plant equipment – Boiler and Turbine-Generator – with an investment of Rs44b.
- Entry into manufacturing will not only provide strong thrust to growth but also ensure smooth execution of EPC contracts that the company is expecting to secure in future.
- With manufacturing, BGR will be the only company in India (after BHEL and L&T) with complete BTG, BoP and contracting offerings.
- We expect the company to substantially scale up EPC projects business going forward. The company has bid for the boiler package of NTPC bulk tender (11x660 MW) and expects to win some orders.
Valuation and view
- We expect strong 45% revenue CAGR over FY10-12, largely driven by ongoing two power projects. Accelerated execution has resulted in BTB declining from over 5x to 2.6x TTM sales. However, with likely growth in order intake in FY11, we expect BTB to start improving.
- We expect BGR to clock 37% EPS CAGR over FY10-12. However, faster execution of its EPC projects in hand and new large BoP projects can provide upside in FY12. We believe the company is well placed to bag several EPC orders, which will ensure encouraging growth beyond FY12.
- Stock trades at 15x FY12E earnings. Robust earnings growth, likelihood of strong order inflows and success in some breakthrough orders like NTPC bulk tender will support valuations.
- We recommend Buy on the stock with a target price of Rs958, based on 18x FY12E EPS. We have not factored any value of JVs, which are setting up boiler and turbine facilities.
No comments:
Post a Comment