bgr, 12th february 2013

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  • 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

    Source: Company, Angel Research

    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

    amit.patil@angelbroking.com

    Performance Highlights

    3QFY2013 Result Update | Capital Goods

    February 8, 2013

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    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

    Source: Company, Angel Research

    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

    Source: Company, Angel Research

  • 7/29/2019 BGR, 12th February 2013

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    BGR Energy | 3QFY2013 Result Update

    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

    Source: Company, Angel Research

    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

    Source: Company, Angel Research

    Exhibit 5:PAT impacted by high interest cost andmargin pressure

    Source: Company, Angel Research

    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

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    BGR Energy | 3QFY2013 Result Update

    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

    Source: Company, Angel Research

    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

    BGR Energy | 3QFY2013 Result Update

    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

    Source: Company, Angel Research

    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