BGR Energy Systems Ltd.|Q2FY15 Result Update | No respite from poor performance :: India Nivesh

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BGR Energy Systems reported poor set of performance in Q2FY15. Company
continue to face execution headwinds and margin pressure.Net revenue for the
quarter declined by 16% to Rs 6,943 mn, below our estimate of Rs 7,475 mn.Gross
margin for the quarter contracted by 210 bps to 18.5%. Company’s employee cost
has continued to decline in past few quarters, which is a cause for concern for the
operations of the company.EBITDA for the quarter declined by 189 bps to 10.4%.
Lower top-line and reduced margin has led to 28.9% decline in EBITDA to Rs 723
mn (vs our estimate of Rs 841 mn). Reduced EBITDA, Sharp increase in depreciation
charges by 57.2% and high finance cost at Rs 496 mn caused net profit to decline
severely by 68.3% to Rs 95 mn. (Way below our estimate of Rs 172 mn).
No respite from poor performance
BGR Energy Systems
Rs mn Q2FY15 Q2FY14 Q1FY15 y/y q/q INSPL Variance
Net Revenue 6,943 8,263 6,345 -16.0% 9.4% 7,475 -7.1%
EBITDA 723 1,016 704 -28.9% 2.7% 841 -14.0%
Net Profit 95 300 92 -68.3% 3.5% 172 -44.8%
EPS (Rs) 1.32 4.16 1.27 -68.3% 3.5% 2.39 -44.8%
Standalone, Source: Company, IndiaNivesh Research
Half-yearly Performance:
Inspite of huge order book of Rs ~120 bn, topline of the compay has declined by
19.3% to Rs ~13.3 bn in H1FY15. Slower execution rate and legacy of low margin
orders has taken a heavy toll on EBITDA margin which declined by 187 bps to 10.7%.
EBITDA for H1FY15 declined by 31.3% to Rs 1,426 mn. Depreciation for six months
increased sharply by 45.9% to Rs 139 mn. Elevated debt of the company has also
increased finance cost by 15.5% to Rs ~1 bn. Net profit for H1FY15 declined heavily
by 70% to Rs 187 mn.
Balance sheet and Order book update:
Company has increased its short term borrowing by Rs ~1.3 bn from Q4FY14. In
Q2FY15, short term borrowing of the company stands at Rs ~Rs 21.4 bn. On positive
note trade receivables has reduced by Rs ~3.7 bn to Rs ~23.8 bn.
After execution of part of order book, company has current order book of Rs 106.34
bn, which gives it a revenue visibility of next 2-3 years.
Outlook and Valuation:
BGR Energy Systems is not able to ramp up execution of projects due to which
benefits of large order book is not effectively flowing to financial performance of
the company. Also margin of the company has shown a downward trend in past
many quarters, and is not showing any signs of stability. Company has increased its
reliance on short term borrowing for working capital needs in Q2FY15.
Taking cues from the poor operating performance of the company, we reduce our
target price to Rs 172 (valuing company at 8x FY16E EPS). Accordingly we are
changing are rating from BUY to HOLD.

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