Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Summary
BGR Energy Ltd demonstrated remarkable execution led growth over the period FY08 -11 giving Revenue &
EBITDA CAGR of 46% and 50% respectively. However Order Inflow decelerated significantly in FY10 & FY11 after
2 years (FY08 - FY09) of dream run. While backlog grew 3 folds from FY08 to FY09, it diminished by 21% since
then to Q1FY12 end. Since 2HFY10-Q1FY12, company was not able to garner any big size order. This
performance raised concerns over company’s capability to book large size orders. Though this can also be
attributed to the lull in the market and delay in finalization of two of the major orders on which BGR had
pinned its hopes. Recent order win of NTPC’s 5x800 MW TG set has broken this lull, though we think that BGR
has bid on very aggressive pricing; no revenues are expected in FY12E & 13E from same.
We expect BGR to give a revenue and EBITDA decline at CAGR of 0.2% & 2.3% respectively over the period of
FY11-13E. This will result in the earnings degrowth at a CAGR of 10% over next 2 years. Our DCF based target
works out at `360; We recommend a “Reduce” rating on the stock.
• Slow down in Order Inflow a concern; recent NTPC order to serve as a breather- BGR’s order inflow
slowed down significantly in past year and a half, it stood at `29.4 bn for FY11 (just 25% of management
guidance of `120-150 bn order inflow in FY11E). The company couldn’t bag any order in Q1FY12 too, this
resulted in dwindling of the order back log from the peak of `120 bn (5.5x TTM sales) in 2QFY10 to `75 bn
(1.6x TTM sales) at the end of Q1FY12. Recently, BGR has been deemed L1 status for NTPC’s `36 bn 5x800
MW TG set order; we have still not incorporated this in current OB as NTPC’s previous orders have been
prone to litigation & delay. We would wait for the company to receive the final LoI; the same should
happen in 2 months time from now.
• Expect it to win RRVUNL order, bid should be out in this quarter (before Q2FY12E ends) -
Delay in tendering of 2 RRVUNL order’s worth `60 bn each for EPC of 2x660 MW coal based plant & NTPC’s
11x660 MW boiler bulk tender did not augur well for the stock, which declined by 60% over last 1 yr. We
expect the company to get one out of two orders entailing EPC work for RRVUNL; 2x660 MW projects in
Chabra & Suratgarh. Both projects have got coal linkage and are awaiting environmental clearance. They
are expected to be ordered before Q2FY12 ends, on annual basis we expect BGR to win 1320 MW projects
each for EPC & BoP for FY12E & 1320 MW of EPC, 1320 MW of BoP in FY13E out of 20000 MW projects; they
have submitted bids for. We will incorporate this `36 bn NTPC order in FY12E once the company receives
LoI; for now we have counted it in expected inflow for FY12E
• Execution of current order book on track; new & expected inflows will not contribute
significantly in FY12E - We expect Marwa & Chandrapur projects to contribute about `20bn and
Krishnapattam to contribute around `7.6 bn & `1.1 bn from new BoP orders in FY12E. In FY13E, we expect
`3 bn revenue from Marwa & `8.7 bn from Krishnapattam; `7.8 bn revenue from new BoP orders secured in
FY12E. For FY12E, on EPC front, we expect Mettur to contribute `5.1 bn, Kalisindh - `12 bn & `3 bn revenue
from new orders secured in 1HFY12E. In FY13E, we expect `22.8 bn in revenues from EPC segment. NTPC
order will start contributing to top line from FY14E onwards.
• BTG venture - Walking on a thin line The land acquisition for BTG manufacturing unit is complete &
equipment ordering is on negotiation stage. Financial closure is also expected to finish in next 3 months
with BGR already having in principal approval for required debt from 2 banks. We believe that currently the
BTG industry in India is facing strong headwinds on both supply (increasing competition) and demand side
(project delays lead by fuel uncertainty). On one side local name plate domestic BTG manufacturing
capacity has gone up to 35+ GWs (peak demand of capacity addition of 20 GWs/p.a.), on another side
foreign players like Alstom-Shanghai electric JV & Doosan have also started to bid for Public Sector orders.
In fact, Doosan has beaten BHEL to be L1 in recent NTPC 9x 800 MW boilers tender. This could put serious
dent on growth expected by Indian power equipment manufacturers.
Valuation
Due to the delays BGR is facing in order inflow, rising capex cycle and increasing capital expenditure on
account of its BTG venture, we have valued the firm on DCF basis. Based on our DCF model (which assumes
WACC at 12.8% and terminal growth rate of 4% from FY21), we value BGR at `360, implying FY13 P/E of 9x.
Key Risk to our Recommendation
Owing to the nature of the business, order inflow tends to be lumpy in nature. Hence, more then one EPC
order win of size `60 bn could prove to be an upside risk on our target price and on other hand similar or lesser
order inflow then FY11 could pose as an adverse downside risk to our recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Summary
BGR Energy Ltd demonstrated remarkable execution led growth over the period FY08 -11 giving Revenue &
EBITDA CAGR of 46% and 50% respectively. However Order Inflow decelerated significantly in FY10 & FY11 after
2 years (FY08 - FY09) of dream run. While backlog grew 3 folds from FY08 to FY09, it diminished by 21% since
then to Q1FY12 end. Since 2HFY10-Q1FY12, company was not able to garner any big size order. This
performance raised concerns over company’s capability to book large size orders. Though this can also be
attributed to the lull in the market and delay in finalization of two of the major orders on which BGR had
pinned its hopes. Recent order win of NTPC’s 5x800 MW TG set has broken this lull, though we think that BGR
has bid on very aggressive pricing; no revenues are expected in FY12E & 13E from same.
We expect BGR to give a revenue and EBITDA decline at CAGR of 0.2% & 2.3% respectively over the period of
FY11-13E. This will result in the earnings degrowth at a CAGR of 10% over next 2 years. Our DCF based target
works out at `360; We recommend a “Reduce” rating on the stock.
• Slow down in Order Inflow a concern; recent NTPC order to serve as a breather- BGR’s order inflow
slowed down significantly in past year and a half, it stood at `29.4 bn for FY11 (just 25% of management
guidance of `120-150 bn order inflow in FY11E). The company couldn’t bag any order in Q1FY12 too, this
resulted in dwindling of the order back log from the peak of `120 bn (5.5x TTM sales) in 2QFY10 to `75 bn
(1.6x TTM sales) at the end of Q1FY12. Recently, BGR has been deemed L1 status for NTPC’s `36 bn 5x800
MW TG set order; we have still not incorporated this in current OB as NTPC’s previous orders have been
prone to litigation & delay. We would wait for the company to receive the final LoI; the same should
happen in 2 months time from now.
• Expect it to win RRVUNL order, bid should be out in this quarter (before Q2FY12E ends) -
Delay in tendering of 2 RRVUNL order’s worth `60 bn each for EPC of 2x660 MW coal based plant & NTPC’s
11x660 MW boiler bulk tender did not augur well for the stock, which declined by 60% over last 1 yr. We
expect the company to get one out of two orders entailing EPC work for RRVUNL; 2x660 MW projects in
Chabra & Suratgarh. Both projects have got coal linkage and are awaiting environmental clearance. They
are expected to be ordered before Q2FY12 ends, on annual basis we expect BGR to win 1320 MW projects
each for EPC & BoP for FY12E & 1320 MW of EPC, 1320 MW of BoP in FY13E out of 20000 MW projects; they
have submitted bids for. We will incorporate this `36 bn NTPC order in FY12E once the company receives
LoI; for now we have counted it in expected inflow for FY12E
• Execution of current order book on track; new & expected inflows will not contribute
significantly in FY12E - We expect Marwa & Chandrapur projects to contribute about `20bn and
Krishnapattam to contribute around `7.6 bn & `1.1 bn from new BoP orders in FY12E. In FY13E, we expect
`3 bn revenue from Marwa & `8.7 bn from Krishnapattam; `7.8 bn revenue from new BoP orders secured in
FY12E. For FY12E, on EPC front, we expect Mettur to contribute `5.1 bn, Kalisindh - `12 bn & `3 bn revenue
from new orders secured in 1HFY12E. In FY13E, we expect `22.8 bn in revenues from EPC segment. NTPC
order will start contributing to top line from FY14E onwards.
• BTG venture - Walking on a thin line The land acquisition for BTG manufacturing unit is complete &
equipment ordering is on negotiation stage. Financial closure is also expected to finish in next 3 months
with BGR already having in principal approval for required debt from 2 banks. We believe that currently the
BTG industry in India is facing strong headwinds on both supply (increasing competition) and demand side
(project delays lead by fuel uncertainty). On one side local name plate domestic BTG manufacturing
capacity has gone up to 35+ GWs (peak demand of capacity addition of 20 GWs/p.a.), on another side
foreign players like Alstom-Shanghai electric JV & Doosan have also started to bid for Public Sector orders.
In fact, Doosan has beaten BHEL to be L1 in recent NTPC 9x 800 MW boilers tender. This could put serious
dent on growth expected by Indian power equipment manufacturers.
Valuation
Due to the delays BGR is facing in order inflow, rising capex cycle and increasing capital expenditure on
account of its BTG venture, we have valued the firm on DCF basis. Based on our DCF model (which assumes
WACC at 12.8% and terminal growth rate of 4% from FY21), we value BGR at `360, implying FY13 P/E of 9x.
Key Risk to our Recommendation
Owing to the nature of the business, order inflow tends to be lumpy in nature. Hence, more then one EPC
order win of size `60 bn could prove to be an upside risk on our target price and on other hand similar or lesser
order inflow then FY11 could pose as an adverse downside risk to our recommendation.
No comments:
Post a Comment