BGR Enery: Key concern on order delay may end soon: Avendus

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BGRL sustained its impressive performance with revenue and PAT
growth of 144% and 154%, respectively. As projects are likely to pass
their peak execution cycle after another three months, the revenue
growth is likely to moderate. We, thus, maintain our revenue forecast.
Our FY11f EPS has been raised by 3% to reflect the better margins in
1HFY11. We roll over and raise our TP by 3% to INR894 and maintain
the Add rating. The company has qualified to bid for boiler bulk tender
(11x660MW), which is likely to be awarded in 4QFY11. Orders for the
BTG JV provide room for further upside, which we have not factored in
our revenue forecast or valuations. Finalization of large EPC order
(c57% of order book), delayed since Sep10, is likely in the next two
months, ending key concerns on revenue visibility.




Strong 1H growth attributable to peak execution cycle of key projects
BGRL reported revenue growth of 144% y‐o‐y in 2QFY11 and 163% in 1HFY11.
The growth was ahead of the full year’s guidance of 50%‐60% and can be
attributed to the key large projects, which are currently at their peak execution
cycle. The BOP order booked in Oct10 is likely to only contribute to revenues in
4QFY11. As projects are likely to pass their peak execution cycle after another
three months and the contribution from new orders likely to remain
insignificant, we estimate revenue growth rate to moderate in 2HFY11.
Raise FY11f EPS by 3%; order inflow forecasts exclude BTG prospects
We have raised our FY11 order inflow forecast by 30% to INR82bn to reflect the
recent INR21.68bn BOP order win and factoring in another EPC win of INR60bn
(2x660MW). We have reduced our FY12 and FY13 order inflow forecasts,
resulting in little change in the three‐year order inflow and revenue forecast.
Our FY11 EPS forecast has been raised by 3%, while the FY12 and FY13
forecasts are largely unchanged. BGRL has qualified to bid for bulk tenders of
boilers. The management expects BTG orders in FY11 itself, which reflects in its
aggressive order inflow guidance of INR120bn to INR150bn. However, we have
not included any upside from BTG orders in our forecasts, even as we have
assumed investment of INR96bn over three years by the company as its share
of equity in the BTG JV.
Maintain Add with 17% upside; BTG JV kick off to add further value
The company’s order book is down 14% y‐o‐y and visibility is down to 2.4x TTM
revenues (6.2x last year). Delay in finalization of Rajasthan EPC order (57% of
current order book) has been one of the key concerns for the company. We
expect the order to be awarded over the next two months, adding the much
needed visibility on revenue growth for BGRL. We roll over our target to Sep11
and raise it by 3% to INR894, based on the revised forecast and retaining our
target P/E at 17.5x. Orders for the BTG JV provide room for further upsides that
we have not factored in our revenue forecast and valuations. Delay in new
orders, aggressive biding for BTG orders and an increase in raw material costs
are the key risks. With 17% upside, we maintain the Add rating.