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BGR Energy Systems (BGRL)
Industrials
Clarifies position on BoI loan, LD issue; sharp correction provides opportunity.
Highlights from the recent conference call (1) BGR has not had any dealings with
Money Matters and BoI is part of an 11-bank syndicate with minor loan outstanding,
(2) no LDs being levied by APGENCO, (3) inflow guidance of Rs150 bn for FY2011E
stays, (4) Rs44 bn project cost for equipment manufacturing facility may be revised
downwards and (5) high WCap. led by retention money; likely to decline. Retain BUY.
No dealing with Money Matters; BoI—only minor loan outstanding; does not expect LDs from AP
BGR Energy Chairman and Managing Director, Mr BG Raghupathy categorically stated that the
company has not borrowed any money from LIC Housing Finance nor has had any dealings with
Money Matters. Bank of India also is a part of an 11-bank syndicate with very marginal loan
outstanding at this point of time. The management cited that the company has not received and
does not expect to receive any LDs for delayed execution of the BoP contracts of APGENCO
(Vijayawada). The project is already commissioned and has completed a year of operations.
Maintains inflow guidance of Rs150 bn—likely led by RRVUNL EPC, bulk tender and private sector
The management has maintained its order booking guidance of about Rs150 bn for FY2011E likely
to be led by (1) expected order win for one/two EPC contracts from RRVUNL for the 2X660 MW
worth Rs60-70 bn each—expects it to be awarded by December-end, (2) NTPC bulk tender—has
participated in the retendering of the boiler bulk tender, expects to win orders to the tune of
about Rs20 bn and (3) is in talks/ negotiations with several private sector player which would get
finalized by March-end. We have built in order inflows of Rs95-100 bn in FY2011E led by Rs30 bn
of orders in the BoP segment and Rs60-65 bn orders from the EPC segment.
High retention money leads to higher working capital levels; likely to decline going forward
BGR Energy reported a Rs7 bn increase in net working levels at end-Sept, 2010 versus FY2010-end
numbers led by higher sundry debtors (up Rs9.1 bn). The higher debtor level was primarily on
account of higher retention money for current projects under execution. Adjusted for this, the
debtor days would be in the range of about 90-100 days of sales. The initial few projects were
won with a retention requirement of 20% versus 10% for all subsequent projects.
Retain earnings and TP of Rs860; reiterate BUY—recent sharp correction provides opportunity
We have retained our estimates for FY11E and FY12E to Rs41.7 and Rs53. Reiterate BUY (TP:
Rs860) based on (1) continued strong execution of large orders, (2) likely pick-up in order inflow
traction, (3) possibility to scale power sector presence with large EPC orders as well as BTG
equipment (JV with Hitachi) and (4) recent sharp correction provides significant upside to our TP.
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