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Well placed for NTPC bulk tender; order momentum strong
Order-book expected to double to Rs200b, by the end of FY11
BoP orders worth Rs22b for 2 x 660MW project: BGR Energy recently received an
order worth Rs21.68b for BoP works for a 2x 660MW 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 the complete design/EPC for the balance of plant of 2x 660MW project in
Krishnapatnam, Andhra Pradesh. The project includes (i) construction of one of the
largest coal handling plants, and (ii) sea water based RO systems and intake water
systems for the makeup water to the plant. It is the single largest BOP contract
awarded to BGR.
Strong order-flow outlook; order-book to double to Rs200b by end of FY11:
BGR had an order-book of Rs105b (at the end of 1QFY11), implying BTB of 2.6x TTM
revenue. BGR is technically qualified for two super-critical projects of the Rajasthan
Electricity Board, each with 3 x 660MW configuration of 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 3.5 x FY10 order-intake, providing significant earnings
visibility in FY13 and FY14. We expect BGR's order-book to double to Rs200b, by the
end of FY11.
Execution on track; existing order-book ensures 45% revenue CAGR over FY10-
12: BGR is in an advanced stage of execution of two power projects, of 1,200MW in
Rajasthan and 600MW in Tamil Nadu. BGR has booked Rs27b of revenue from the
projects and the remaining Rs53b will be booked in FY11 and FY12. We expect 45%
revenue CAGR over FY10-12, largely driven by the two projects. Accelerated execution
resulted in BTB declining from over 5x to 2.6x TTM sales. But with likely growth in
FY11 order-intake we expect BTB to improve.
Success in NTPC bulk tender will boost manufacturing JVs: BGR entered into a
JV with Hitachi to make complete power plant equipment: boiler and turbine-generators,
with an investment of Rs44b. Entry into manufacturing will provide strong thrust to
growth and ensure smooth execution of EPC contracts that the company expects to
secure in future. With manufacturing, BGR will be only company in India with complete
BTG, BOP and contracting offerings after BHEL and L&T. We expect BGR to
substantially scale up EPC projects business in the next few years. The company
has bid for the boiler package of NTPC bulk tender (11 x 660MW) and expects to win.
Earnings to grow strongly beyond FY12 as well; maintain Buy: We expect BGR's
earnings to post 37% CAGR over FY10-12. But faster execution of its EPC projects in
hand and new large BoP projects can provide upside in FY12. The stock trades at 14x
FY12E earnings. We believe strong earnings growth, the likelihood of strong order
inflows and success in some break-through orders like NTPC bulk tenders will support
valuations. We maintain Buy with a target price of Rs958, based on 18x FY12 earnings.
We have not factored in the value of JVs.
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