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India Equity Research Reports, IPO and Stock News
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We met with Mr. Easwar Kumar, CFO of BGR Energy Systems, one of the new
entrants in Indian power plant manufacturing. Set up in 1985, BGR is a leader in
Balance of Plant packages and also provides EPC services to power utilities.
BGR’s topline has grown by a 46% CAGR over the past 3 years. In FY11 the
company witnessed a paucity of order flows (~Rs25B), but expects FY12 to be
better with a target of Rs150B. As of Jun-11, BGR had an order book of Rs75B.
NTPC super-critical tender a pre-cursor to the competitive intensity in the
sector, margin expectation at 10-11%. BGR's L1 bid in the 9X800MW bulk
tender was ~30% below Bharat Forge’s bid in the 11X660MW tender, yet BGR
expects to make a 10-11% EBITDA margin on the order. Management expects
these to be the new pricing benchmarks for the sector and trends to be relatively
stable from hereon until players increase indigenisation levels - which would be
negative for BHEL’s margins in our view given that the likes of L&T/BGR
would have further scope to reduce prices. The difference in bids between L1
and L2 in the TG space was barely 2%, in the boiler segment (won by Doosan)
it was ~6%.
Integrated players to fare better in pricing. According to management
players like BGR, BHEL and L&T with an integrated offering with both boiler
and turbine manufacturing capability will be ~5% more cost effective compared
to domestic competitors. Despite lower pricing, Chinese competitors are
expected to make better margins compared to the domestics (case in point -
Doosan’s bid for NTPC boiler).
BGR has bid for ~6-7GW of EPC and ~20GW of BoP tenders, to bridge the
expected order deficit for FY13. With an Rs75B OB as of Jun-11,
management has set a topline guidance of 10-15% growth in FY12 (i.e. Rs52-
55B), implying only ~Rs28B of revenue visibility for FY13. As per
management, they could generate an additional Rs6-6.5B from the NTPC order.
Of the Rs150B order inflow target for FY12, BGR has received ~Rs37B and is
in the fray for various EPC and BoP tenders - dominated by state and central
utilities - the pipeline for the private sector ordering drying up in the near term.
Stock performance and valuation. BGRL has underperformed the Sensex by
~18% over last 6-months and is trading at 7.1/7.0x FY12/13 Bloomberg
consensus earnings vs 11.6/10.3x for BHEL based on our estimates.
NOTE: THIS DOCUMENT IS INTENDED AS INFORMATION ONLY AND NOT AS A
RECOMMENDATION FOR ANY STOCK. IT CONTAINS FACTUAL INFORMATION,
OBTAINED BY THE ANALYST DURING MEETINGS WITH MANAGEMENT. J.P. MORGAN
DOES NOT COVER THIS COMPANY AND HAS NO RATING ON THE STOCK.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We met with Mr. Easwar Kumar, CFO of BGR Energy Systems, one of the new
entrants in Indian power plant manufacturing. Set up in 1985, BGR is a leader in
Balance of Plant packages and also provides EPC services to power utilities.
BGR’s topline has grown by a 46% CAGR over the past 3 years. In FY11 the
company witnessed a paucity of order flows (~Rs25B), but expects FY12 to be
better with a target of Rs150B. As of Jun-11, BGR had an order book of Rs75B.
NTPC super-critical tender a pre-cursor to the competitive intensity in the
sector, margin expectation at 10-11%. BGR's L1 bid in the 9X800MW bulk
tender was ~30% below Bharat Forge’s bid in the 11X660MW tender, yet BGR
expects to make a 10-11% EBITDA margin on the order. Management expects
these to be the new pricing benchmarks for the sector and trends to be relatively
stable from hereon until players increase indigenisation levels - which would be
negative for BHEL’s margins in our view given that the likes of L&T/BGR
would have further scope to reduce prices. The difference in bids between L1
and L2 in the TG space was barely 2%, in the boiler segment (won by Doosan)
it was ~6%.
Integrated players to fare better in pricing. According to management
players like BGR, BHEL and L&T with an integrated offering with both boiler
and turbine manufacturing capability will be ~5% more cost effective compared
to domestic competitors. Despite lower pricing, Chinese competitors are
expected to make better margins compared to the domestics (case in point -
Doosan’s bid for NTPC boiler).
BGR has bid for ~6-7GW of EPC and ~20GW of BoP tenders, to bridge the
expected order deficit for FY13. With an Rs75B OB as of Jun-11,
management has set a topline guidance of 10-15% growth in FY12 (i.e. Rs52-
55B), implying only ~Rs28B of revenue visibility for FY13. As per
management, they could generate an additional Rs6-6.5B from the NTPC order.
Of the Rs150B order inflow target for FY12, BGR has received ~Rs37B and is
in the fray for various EPC and BoP tenders - dominated by state and central
utilities - the pipeline for the private sector ordering drying up in the near term.
Stock performance and valuation. BGRL has underperformed the Sensex by
~18% over last 6-months and is trading at 7.1/7.0x FY12/13 Bloomberg
consensus earnings vs 11.6/10.3x for BHEL based on our estimates.
NOTE: THIS DOCUMENT IS INTENDED AS INFORMATION ONLY AND NOT AS A
RECOMMENDATION FOR ANY STOCK. IT CONTAINS FACTUAL INFORMATION,
OBTAINED BY THE ANALYST DURING MEETINGS WITH MANAGEMENT. J.P. MORGAN
DOES NOT COVER THIS COMPANY AND HAS NO RATING ON THE STOCK.
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