bgr, 12th february 2013

7/29/2019 BGR, 12th February 2013

1/10

Please refer to important disclosures at the end of this report 1

EBITDA 111 131 (15.8) 95 16.1

EBITDA margin (%) 13.7 16.3 (259)bp 15.2 (145)bp

Source: Company, Angel Research

BGR Energy (BGR) reported a flat top-line performance at `805cr and 24% yoy

decline in PAT to`41cr for 3QFY2013. The increase in interest cost (due to higher

working capital borrowings) and margin pressure led to a sharp decline in PAT.

The 22% yoy decline in revenue from the Capital Goods segment

at`59cr (`75cr in 3QFY2012) was offset by a 2.4% yoy growth in revenue from

the Construction and EPC segment at `746cr (`729cr in 3QFY2012). On the

operating front, the EBITDA margin contracted by 259bp yoy to 13.7%, mainly on

account of a 289bp yoy contraction in margin of the Construction and EPC

segment. Interest cost grew by 9% yoy to `50cr (owing to elevated interest rate

scenario and enhanced working capital requirements). Consequently, the net

profit declined by 24% yoy to`41cr.

During the quarter, the company has won the Notification of Award (NOA) from

NTPCs Lara STTP for steam turbine and generators. The order is approximatelyvalued at`1,548cr. Order backlog at the end of 3QFY2013 stood at ~`13,578cr

up 65% yoy as NTPC bulk order is recognized in the order book. However, the

company has bid aggressively for some of these orders and hence, we remain

cautious on the margin front.

BGR's working capital has seen deterioration over the

past few quarters, mainly due to high receivables. In our view, tight liquidity is

likely to transmit negatively on BGR's books. At the current market price, the stock

is trading at a PE multiple of 9.0x on our FY2014E EPS, which we believe is

reasonable amidst the structural issues (slowdown of order inflow in boiler turbine

generator [BTG] space and high leverage) faced by the company.

% chg 54.5 (27.4) (1.1) 20.3

% chg 60.5 (30.5) (20.8) 6.2

EBITDA (%) 11.3 13.5 13.0 11.6

P/E (x) 5.3 7.6 9.6 9.0

P/BV (x) 1.8 1.5 1.4 1.3

RoE (%) 40.4 31.9 30.7 25.7

RoCE (%) 24.4 16.9 14.3 13.5

EV/Sales (x) 0.4 0.8 0.9 0.8

EV/EBITDA (x) 3.8 5.6 6.6 6.8


CMP `235

Target Price -

Investment Period -

Stock Info

Sector

Net Debt (` cr) 805

Bloomberg Code BGRL@IN

Shareholding Pattern (%)

Promoters 81.1

MF / Banks / Indian Fls 2.1

FII / NRIs / OCBs 1.8

Indian Public / Others 15.0

Abs. (%) 3m 1yr 3yr

Sensex 3.4 10.0 22.3

BGR (12.0) (5.4) (51.9)

Capital Goods

Market Cap (` cr) 1,695

Beta 1.7

52 Week High / Low 374/229

Avg. Daily Volume 174,967

Face Value (`) 10BSE Sensex 19,485

Nifty 5,904

Reuters Code BGRE.BO

022-39357800 Ext: 6839

[email protected]

Performance Highlights

3QFY2013 Result Update | Capital Goods

February 8, 2013

7/29/2019 BGR, 12th February 2013

2/10

BGR Energy | 3QFY2013 Result Update

February 8, 2013 2

Exhibit 1:Quarterly performance (Standalone)

Other operating income 0 1 1 1 3

Stock adjustments 2.6 0.2 (1.1) 1 0

Raw Material 605 587 3.0 457 32.3 1,517 1,746 (13.1)

(% of total income) 75.5 73.1 2.4 72.7 74.2 75.7

Employee Cost 56 48 15.8 49 13.2 143 124 14.9

(% of total income) 6.9 6.0 7.8 7.0 5.4

Other Expenses 31 37 (15.4) 27 16.2 89 102 (13.1)

(% of total income) 3.9 4.6 4.3 4.3 4.4

(EBITDA %) 13.7 16.3 (259)bp 15.2 (145bp) 14.4 14.5

Interest 50 46 9.0 40 25.5 125 94 32.1

Depreciation 4 4 7.5 4.3 2.8 13 12 8.5

Other Income 5 0 0.5 6 3

(% of total income) 7.6 10.1 8.2 8.0 10.0

(% of PBT) 32.5 32.5 32.4 32.4 32.4

(% of total income) 5.1 6.8 5.5 5.4 6.8


Exhibit 2:Segment-wise performance (Standalone)

Capital goods 59 75 (22.0) 59 (1.0) 160 225 (28.8)

Const. and EPC contracts 746 729 2.4 568 31.4 1,883 2,082 (9.6)

Capital goods 7 9 (25.1) 1 10 27 (61.7)

Const. and EPC contracts 99 118 (15.8) 90 271 296 (8.6)

Capital goods 7.3 9.4 9.4 7.8 9.8

Const. and EPC contracts 92.7 90.6 90.6 92.2 90.2

Capital goods 11.7 12.2 2.0 6.5 12.0

Const. and EPC contracts 13.3 16.2 15.8 14.4 14.2


7/29/2019 BGR, 12th February 2013

3/10


February 8, 2013 3

Top-line flat yoy

During 3QFY2013, BGRs top-line growth came in flat yoy at`805cr. The 22% yoy

decline in revenue from the Capital Goods segment to`59cr (`75cr in 3QFY2012)

was offset by a 2.4% yoy growth in revenue from the Construction and EPC

segment at`746cr (`729cr in 3QFY2012).

Exhibit 3:Revenue


Operating margin contracts 259bp yoy

For 3QFY2013, the companys operating margin expanded by 259bp yoy to13.7%, mainly on account of a 289bp yoy contraction in margin of the

Construction and EPC segment. Interest cost grew by 9% yoy to `50cr (owing to

elevated interest rate scenario and enhanced working capital requirements).

Consequently, the net profit declined by 24% yoy to`41cr.

Exhibit 4:EBITDA and EBITDAM


Exhibit 5:PAT impacted by high interest cost andmargin pressure


1,2

57

1,4

62

734

772

803.7

1137.7

610.9

627.3

805.0

97.9

(11.9)

(19.0) (32.1) (36.1)

(22.2)

(16.8) (18.7)

0.2

(60)

(40)

(20)

0

20

40

60

80

100

120

0

200

400

600

800

1,000

1,200

1,400

1,600

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

Sales (` cr, LHS) Growth (yoy %, RHS)

147

167

96

110

131

136

88

95

111

11.711.5

13.1

14.3

16.3

11.9

14.415.2

13.7

0

4

8

12

16

20

0

20

40

60

80

100

120

140

160

180

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

EBITDA (` cr, LHS) EBITDAM (%, RHS)

88

98

50

51

55

67

34

35

41

7.0 6.7 6.86.7

6.8

5.95.5 5.5

5.1

0

2

4

6

8

10

0

25

50

75

100

125

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

PAT (` cr, LHS) PATM (%, RHS)

7/29/2019 BGR, 12th February 2013

4/10


February 8, 2013 4

During the quarter, the company has won the NOA from NTPCs

Lara STTP for steam turbine and generators. The order is approximately valued at

`1,548cr. Order backlog at the end of 3QFY2013 stood at ~`13,578cr up 65%

yoy as the NTPC bulk order has been recognized in the order book. However, thecompany has bid aggressively for some of these orders and hence, we remain

cautious on the margin front.

Exhibit 6:Order book


Investment concerns

Investment commitments + Elongated working capital = Soaring debt:

BGR's working capital has seen severe deterioration over the past few quarters

(from 74 days in FY2010 to ~166 days in FY2012), mainly due to high

receivables (owing to the retention money from SEBs such as RRVUNL and TNEB,

which are facing high financial strain). Further, with persistent headwinds in the

power sector, we expect tepid order inflow and delays in execution adding to

BGRs woes. Moreover, the company has bid aggressively for some of recent

orders and hence, we remain cautious on the margin front.

Outlook and valuation

BGR's working capital has seen deterioration over the past few quarters, mainly

due to high receivables. Amid issues impairing the power sector, credit availability

may harden for SEBs, as banks have already chosen to remain risk-averse. Hence,

in our view, tight liquidity is likely to transmit negatively on BGR's books. At the

current market price, the stock is trading at a PE multiple of 9.0x FY2014E EPS,

which we believe is reasonable amidst the structural issues (slowdown of order

inflow in BTG space and high leverage) faced by the company.

11,6

09

10,2

30

9,3

97

10,5

32

9,3

17

8,0

00

7,5

16

7,2

70

8,2

15

7,5

16

15,1

00

13979

13578

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

(`cr)

7/29/2019 BGR, 12th February 2013

5/10


February 8, 2013 5

Exhibit 7:Angel EPS forecast vs consensus

FY2013E 24.6 24.5 1.00

FY2014E 26.2 25.8 1.01Source: Company, Angel Research

Exhibit 8:PE Band


Exhibit 9:Peer comparison

ABB* Reduce 647 573 (11.3) 5.1 4.5 74.4 29.3 59.1 7.1 16.5

BHEL Neutral 209 - - 2.6 2.2 8.7 10.0 (15.3) 32.9 23.6

Crompton Greaves Buy 104 129 24.6 1.8 1.7 31.3 15.1 8.7 5.8 11.5

Jyoti Structures Buy 39 49 25.6 0.4 0.4 5.1 3.6 (1.4) 9.6 12.1

KEC International Buy 55 75 36.1 1.2 1.0 10.3 6.5 1.8 17.0 22.8

Thermax Neutral 582 - - 3.7 3.3 21.5 19.2 (5.5) 18.5 18.2


Company background

BGR Energy Systems (BGR) is one of the leading players in the Balance of Plant

(BoP) and EPC space of the power sector. The company has taken several big

leaps over the year from being a mere manufacturer of a few BoP components to

executing turnkey BoP projects and now gradually executing full-fledged EPC

contracts. In 2010, BGR ambitiously ventured into setting up a manufacturing

facility of 4,000MW for supercritical boilers and turbine generators in a JV with

Hitachi (76:24).

0

140

280

420

560

700

840

980

Apr-08

Aug-0

8

Dec-0

8

Apr-09

Aug-0

9

Dec-0

9

Apr-10

Aug-1

0

Dec-1

0

Apr-11

Aug-1

1

Dec-1

1

Apr-12

Aug-1

2

Dec-1

2

Share Price (`) 6x 9x 12x 15x

7/29/2019 BGR, 12th February 2013

6/10


February 8, 2013 6

Profit & loss account (Consolidated)

% chg 27.0 59.2 54.5 (27.4) (1.1) 20.3

Raw Materials 1,352 2,187 3,446 2,173 2,276 2,855

Mfg costs 172 236 406 449 444 492

Personnel Costs 74 126 145 176 102 123

Other Costs 123 180 217 185 147 156

% chg 34.5 64.8 55.8 (12.9) (5.0) 7.6

(% of Net Sales) 10.8 11.2 11.3 13.5 13.0 11.6

Depreciation & Amortization 8 10 17 17 26 38

EBIT 201 334 519 450 417 439

% chg 34.4 65.8 55.4 (13.4) (7.2) 5.4

(% of Net Sales) 10.4 10.9 10.9 13.0 12.2 10.7

Interest & other Charges 58 54 60 135 170 174

Other Income 32 25 22 14 16 14

(% of PBT) 18.1 8.2 4.6 4.4 6.1 5.0

Recurring PBT 175 305 481 328 263 280

% chg 35.2 74.2 57.6 (31.7) (19.9) 6.2

Extraordinary Expense/(Inc.) 0 0 0 0 0 0

Tax 60 104 158 104 86 91

(% of PBT) 34.0 34.0 32.8 31.7 32.5 32.5

116 201 323 224 178 189

Add: Share of earnings of asso. 0 0 0 0 0 0

Less: Minority interest (MI) 0 0 0 0 0 0

Prior period items 0 0 0 0 0 0

% chg 32.2 74.4 60.5 (30.5) (20.8) 6.2

(% of Net Sales) 6.0 6.6 6.8 6.5 5.2 4.6

% chg 32.2 74.4 60.1 (30.5) (20.8) 6.2

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable withprevious year numbers

7/29/2019 BGR, 12th February 2013

7/10


February 8, 2013 7

Balance sheet (Consolidated)

Equity Share Capital 72 72 72 72 72 72Preference Capital 0 0 0 0 0 0

Reserves & Surplus 492 634 880 1,045 1,164 1,294

Minority Interest 3 3 52 91 91 91

Total Loans 709 807 1,327 1,747 1,947 2,097

Deferred Tax Liability 75 155 308 397 397 397

Long term liablities 784 653 653 653

Long term provisions 170 205 205 205

Gross Block 125 182 251 379 579 679

Less: Acc. Depreciation 27 37 53 69 95 133

Net Block 98 145 198 310 484 546

Capital Work-in-Progress 5 10 86 103 110 110

Goodwill 1 1 1 1 1 1

Deferred Tax Asset 175 273 385 445

Cash 615 902 1,041 941 826 650

Loans & Advances 643 727 573 523 640 752

Inventories 14 16 41 31 48 76

Debtors 1,279 1,980 3,103 3,138 3,552 3,935

Others 18 18 30 24 30 30

Current liabilities 1,323 2,129 1,714 1,735 1,735 2,024

Mis. Exp. not written off 0 0 59 602 592 542


7/29/2019 BGR, 12th February 2013

8/10


February 8, 2013 8

Cash flow statement (Consolidated)

Depreciation 8 10 17 17 26 38(Inc)/Dec in WC (129) 18 (641) (393) (464) (296)

Less: Other income (32) (25) (22) (14) (16) (14)

Direct taxes paid (60) (104) (158) (104) (86) (91)

(Inc.)/Dec.in Fixed Assets (62) (65) (147) (150) (207) (100)

(Inc.)/Dec. in Investments 151 0 0 0 0 0

Other income 32 25 22 14 16 14

Issue of Equity - - 0.2 - - -

Inc./(Dec.) in loans 206 98 519 420 200 150

Dividend Paid (Incl. Tax) 25 59 84 59 59 59

Others 44 83 151 (160) 211.6 (97)

Inc./(Dec.) in Cash 308 287 139 (100) (115) (176)


7/29/2019 BGR, 12th February 2013

9/10


February 8, 2013 9

Key Ratios

P/E (on FDEPS) 14.8 8.5 5.3 7.6 9.6 9.0

P/CEPS 13.9 8.1 5.0 7.1 8.4 7.5

P/BV 3.0 2.4 1.8 1.5 1.4 1.3

Dividend yield (%) 1.3 3.0 4.2 3.0 3.0 3.0

EV/Sales 0.9 0.5 0.4 0.8 0.9 0.8

EV/EBITDA 8.6 4.6 3.8 5.6 6.6 6.8

EV / Total Assets 1.3 1.0 0.8 0.9 0.9 0.9

OB/Sales 4.9 3.3 1.7 2.2 2.0 1.5

EPS (Basic) 16.0 28.0 44.8 31.1 24.6 26.2

EPS (fully diluted) 16.0 28.0 44.8 31.1 24.6 26.2

Cash EPS 17.1 29.4 47.2 33.5 28.3 31.4

DPS 3.0 7.0 10.0 7.0 7.0 7.0

Book Value 78.3 98.1 131.9 154.9 171.3 189.3

EBIT margin 10.4 10.9 10.9 13.0 12.2 10.7

Tax retention ratio (%) 66.0 66.0 67.2 68.3 67.5 67.5

Asset turnover (x) 3.0 4.1 4.1 2.1 1.5 1.4

RoIC (Pre-tax) 31.2 44.4 45.0 26.9 18.7 15.5

RoIC (Post-tax) 20.6 29.3 30.2 18.3 12.6 10.5

Cost of Debt (Post Tax) 6.3 4.7 3.8 6.0 6.2 5.8Leverage (x) 0.3 0.0 0.1 0.8 1.7 1.7

Operating ROE 24.6 29.3 33.4 27.9 23.3 18.6

RoCE (Pre-tax) 17.0 22.1 24.4 16.9 14.3 13.5

Angel RoIC (Pre-tax) 31.4 44.9 47.0 28.5 19.6 16.1

RoE 22.3 31.7 40.4 31.9 30.7 25.7

Asset Turnover (Gross Block) 19.6 20.1 22.0 11.0 7.1 6.5

Inventory / Sales (days) 3 2 2 4 4 6

Receivables (days) 190 194 195 330 358 333

Payables (days) 182 209 152 201 205 183

WC cycle (ex-cash) (days) 107 74 72 166 185 196

Net debt to Equity 0.2 (0.1) 0.3 1.6 1.7 1.8

Net debt to EBITDA 0.4 (0.3) 0.5 1.7 2.5 3.0

Interest Coverage 3.5 6.2 8.6 3.3 2.5 2.5


7/29/2019 BGR, 12th February 2013

10/10


February 8, 2013 10

Research Team Tel: 022 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should makesuch investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in

the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, pleaserefer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited andits affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement BGR Energy Systems

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

bgr, 12th february 2013

Documents