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BGR Energy IPO Anaysis

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BGR Energy IPO A Case Study

U408046 Shantanu Das shantanu@shantanu.in

TABLE OF CONTENTS

1. 2. 3. 4. 5. 6. 7. 8.

Introduction ..................................................................................................... 3 About the Issue ................................................................................................ 4 Objective of the Issue....................................................................................... 5 Utilization of Issue Proceeds ............................................................................ 6 Share holding Pattern ....................................................................................... 6 Benefits of going Public .................................................................................... 8 Cost involved for going public......................................................................... 11 Why Investor invest in BGR Energy ................................................................ 128.1. 8.2. 8.3. Investment Rational ..........................................................................................12 Risk Factors .......................................................................................................13 Recommendation - Subscribe with a medium term view ...................................13

9. 10. 11.

BGR Energy Financials .................................................................................... 14 Offer price justification ................................................................................... 18 IPO Grading History in Indian Stock Market ................................................... 2311.1. 11.2. ICRA Rating for BGR Energy ..............................................................................24 ICRA Grading Perspective..................................................................................24

12. 13.

Post Listing performance of BGR Energy......................................................... 26 References ...................................................................................................... 29

Page 1 of 31

ACKNOWLEDGEMENT

We take this opportunity to convey our sincere thanks and gratitude to all those who have directly or indirectly helped and contributed towards the completion of this project.

First and foremost, we would like to thank Prof Soumya Guha Deb for his constant guidance and support throughout this project. During the project, we realized that the degree of relevance of the learning being imparted in the class is very high. The learning enabled us to get a better understanding of the nitty-gritty of the topic which we studied.

We would also like to thank our batch mates for the discussions that we had with them. All these have resulted in the enrichment of our knowledge and their inputs have helped us to incorporate relevant issues into our project.

Page 2 of 31

1.

Introduction

BGR Energy was incorporated in 1985 as a JV between GEA Energietechnik GmbH and the promoter Mr. B. G. Raghupathy. At that point of time the product portfolio of the company encompassed on-line condenser tube cleaning systems, debris filters and rubber cleaning balls used in thermal and power plants. By 1993 the promoters became the sole shareholders of the company and also started expanding their product portfolio. In 2007 the company changed its name from GEA Energy Systems (India) Ltd. to BGR Energy Systems Ltd. The company carries out its business in two segments, the supply of systems and equipments and turnkey engineering project contracting. In the systems and equipments business BGR designs, engineers, manufactures sells and service a range of systems and equipment for the power, oil & gas, refinery, petrochemical and process industries. BGR does turnkey contracts to supply the Balance of Plant (BOP) equipments, services and civil works for power generation projects in which they supply all the items other than boiler, turbine and generator. The company has also started focusing on Engineering, Procurement and Construction (EPC) in which the company provides all the solutions to the power projects including the boiler, turbine, generator and civil works. BGR has seven complementary businesses which include: Power projects business providing turnkey EPC and BOP services for coal-based thermal power plants and gas based combined cycle power plants typically over 100 megawatts. Captive power projects business providing turnkey EPC and BOP services for power plants typically under 100 MW which are generally designed primarily to service particular commercial facilities. Oil and gas equipment business designing and manufacturing gas conditioning and metering skids, storage tanks, pipeline pig launching & receiving systems, gas processing complexes and gas compressor packages related to the oil and gas industry for companies in India and abroad. Air fin coolers business manufacturing products designed to cool process fluids and gases used in the refining, petrochemical, and oil and gas industries. Environmental engineering business manufacturing and providing deaerators and other products to treat water used in the operation of various types of power and utility plants and also provides industrial effluent treatment plants.

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Electrical projects business supplying electrical systems and equipment such as gas insulated switchgear substations, optical fiber power ground wires, extra high voltage substations and transmission lines to power stations, refineries and petrochemical plants.

Infrastructure business capable of building roads and industrial buildings.

2.

About the Issue

In December 2007 BGR Energy Systems announced its decision to go public. Under the plan the company would offer 8,636,000 shares to the public and 500,000 shares to employees. The maximum subscription amount for retail investors would be Rs 100,000. The issue would be 100% book built and the price would be in the band of Rs 425 Rs 480 per share. Upon completion of the issue the company would get listed on the National Stock Exchange and Bombay Stock Exchange. The company appointed SBI Capital Markets, Kotak Mahindra Capital, UBS Securities India and CLSA India as lead managers to the issue.

THE ISSUEEquity Shares Offered byIssue* Of which I) Fresh Issue by the Company II) Offer for Sale by the Selling 4,320,000 Equity Shares 4,816,000 Equity Shares 9,136,000

Shareholders Of which: Employee reservation portion* Therefore Net Issue to the Public* Of which A) Qualified Institutional Buyers (QIB) At least 5,181,600 Equity Shares(Allocation on a proportionate basis) 500,000 Equity Shares 8,636,000 Equity Shares

portion

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Of which Mutual Funds Portion 259,080 Equity Shares (Allocation on a

proportionate basis) Balance for all QIBs including Mutual Funds 4,922,520 Equity Shares (Allocation on a proportionate basis) B) Non-Institutional Portion Not less than 863,600 Equity Shares

(Allocation on a proportionate basis) C) Retail Portion Not less than 2,590,800 Equity Shares

(Allocation on a proportionate basis) Equity Shares outstanding prior to the Issue Equity Shares outstanding after the Issue 72,000,000 Equity Shares* 64,800,000 Equity Shares*

Table 1* BGR Energy Company has entered into agreements dated November 6, 2007 with certain investors for a placement of 2,880,000 Equity Shares and a transfer by our Promoter of 1,440,000 Equity Shares. The Company proposes to complete the above transactions after the closing of the Bidding / Issue Period and before the Allotment of shares in the Issue to successful Bidders. (1) Allocation to QIBs is proportionate as per the terms of this Red Herring Prospectus. 5% of the QIB Portion shall be available for allocation to Mutual Funds. Mutual Funds participating in the 5% reservation in the QIB Portion will also be eligible for allocation in the remaining QIB Portion (2) Subject to valid bids being received at or above the Issue Price, under-subscription, if any, in the Non-Institutional Bidder and Retail Individual Bidder categories, would be allowed to be met with spill-over from other categories or a combination of categories, at the discretion of the Company and the Selling Shareholders, in consultation with the BRLMs

3.

Objective of the Issue Augment long term working capital requirements Investment in establishment of manufacturing and assembly facilities

Page 5 of 31

Investment in establishment of manufacturing facilities in the Mundra Special Economic Zone, Gujarat

Investment in establishment of manufacturing facilities in Bahrain International Investment Park

Investment in establishment of assembly facilities in China Fund expenditure for general corporate purposes. Achieve the benefits of listings on the stock exchange

4.

Utilization of Issue ProceedsExpenditure Items Total cost Estimated amount to be financed from Net Proceeds Estimated Proceeds utilization on March 31, 2008 1 Augment long term working capital requirements 2 Establish manufacturing and assembly facilities 3 Fund general purposes Total [] [] [] [] expenditure for [] [] [] [] 82.6 80 41.8 38.2 214.5 125 125 2009 as Net

S. No.

of the Issue

corporate

Table 2

5.

Share holding Pattern

The table below presents our shareholding pattern before the proposed Issue and as adjusted for the Issue, and the Offer for Sale by the Selling Shareholders:

Page 6 of 31

Pre-Issue No of shares Promoter Mr. B.G. Raghupathy Promoter Group Ms. Sasikala Raghupathy Swarna Leasing Private Limited Priya Securities Private Limited Vani Securities Private