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EARNINGS REVIEW
BGR Energy (BGRE.BO)
Buy
Above expectation; strong execution continues to drive earnings; Buy
What surprised us
BGR Energy reported net income of Rs778 mn (154% yoy growth), 20%
and 24% above our and Bloomberg consensus estimates, respectively, as
strong execution across its current portfolio of EPC and BoP projects
continued. Q2FY11 revenues were up 144% yoy and 25% sequentially. In
addition, lower-than-expected SG&A expenses resulted in EBITDA margin
of 11.7% for the quarter, implying 30 bp sequential improvement.
Order book as of Q2FY11 end stood at Rs105 bn, up 12% qoq – better than
we anticipated on account of addition of smaller orders. The Rs21 bn of
additional order inflows announced earlier this week implies a current
order book of c. Rs125 bn.
What to do with the stock
Though the 1HFY11 order inflow looks relatively modest, given the lumpy
nature of such orders, and expecting closure Rajasthan EPC order by Mar
2011, we continue to expect respective order inflows of US$1.6 bn and
US$2.6 bn for FY11E and FY12E. We forecast the current order book and
inflows to drive FY10-12E sales CAGR of 36%, with EPC segment
contributing c.70% of this.
BGR currently trades at FY12E P/E of 14.8X, which is at significant 29% and
35% discounts to FY12E P/E of bigger peers BHEL and L&T, respectively.
Given our expectations of better growth and margin profile for BGR, we
view current valuations as attractive and reiterate our Buy rating and 12-m
TP of Rs959 (based on 18.6X FY12E P/E). We raise our FY11E-FY13E EPS by
1%- 6% on the back of Q2 results. Key risks: 1) Executing new projects as a
full EPC contractor; 2) managing working capital.
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