BGR Energy Systems Ltd.

BGR Energy Systems Ltd.
BUY
CMP `199
Target Price `273
Sensex
25,031
Nifty
7,493
BSE 100
Industry
7,603
Electrical
Equipment
Scrip Details
Mkt Cap (` cr)
1,438
BVPS (`)
178.8
O/s Shares (Cr)
7.2
Av Vol (Lacs)
1.7
52 Week H/L
243/71
Div Yield (%)
3.3
FVPS (`)
10.0
Shareholding Pattern
Shareholders
%
Promoters
75.0
DIIs
2.5
FIIs
1.6
Public
20.9
Total
100.0
BGR vs. Sensex
We initiate coverage on BGR Energy as a BUY with a Price
Objective of `273, implying a potential upside of 37% over a
period of 18 months. At the CMP of `199, the stock is trading at
11.2x and 9.5x its forward earnings for FY15E and FY16E,
respectively.
Our optimism regarding the company’s prospects is based on
the following:
 The strategy of the company to be extremely selective in
favour of Govt. / PSU sponsored projects has helped it
navigate difficult times, which plagued the power sector
over the last 3 years. This has ensured good health of its
financials.
 The strong order book of ~`11,700 crore provides good
revenue visibility over the next 3-4 years.
 Post the union budget of FY15, we expect new business
opportunities to emerge, helping the sector regain its
growth momentum. BGR is expected to benefit from this
positive uptrend in the investment cycle.
We expect revenue to grow at a CAGR of 12.7% over FY14-16E
to `4,191.5 crore, while earnings are expected to grow faster at
33% CAGR over the period FY14-16E.
 Strategy to be favourably selective of government / PSU
projects has played out well for BGR
The BGR management, as a strategy, has been extremely selective in favour of
PSU / government projects. And this strategy has benefitted the company vis-àvis its peers, which have been confounded by all the issues plaguing the power
sector today.
Key Financials (` in Cr)
Net
Y/E Mar
EBITDA
Sales
2013
3,113.3
473.4
2014
3,300.8
416.8
2015E
3,597.8
445.3
2016E
4,191.5
511.9
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PAT
162.1
93.2
128.6
151.3
EPS
(`)
22.5
12.9
17.8
21.0
EPS Growth
(%)
-27.7
-42.5
37.9
17.7
RONW
(%)
13.1
6.1
9.3
10.2
ROCE
(%)
20.3
16.3
16.3
16.8
P/E
(x)
8.9
15.4
11.2
9.5
EV/EBITDA
(x)
7.3
8.3
7.8
6.7
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Monday 23 June, 2014
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
STOCK POINTER
Index Details
FY16E PE 9.5x
BGR’s Order Book is Predominantly Focused on Govt / PSU Projects
Project Completed
Aban Power - CCPP, Karuppur, Tamil Nadu
TNEB - CCPP, Valathur (Phase II), Tamil Nadu
Madras Aluminium Company Ltd Mettur
TNEB - Mettur TPS, Tamil Nadu
Aditya Cement CPP, Rajasthan
TNEB - CCPP, Valathur (Phase I), Tamil Nadu
RRVUNL - CCPP, Dholpur, Rajasthan
APGENCO - Vijayawada TPS, AndhraPradesh
APGENCO - Kakatiya TPS, AndhraPradesh
MAHAGENCO - Khaperkheda TPS, Maharashta
APGENCO-Kothagudem TPS, AndhraPradesh
MW
120
92
25
600
23
95
330
500
500
500
500
Fuel
Gas
Gas
Coal
Coal
Coal
Gas
Gas
Coal
Coal
Coal
Coal
Scope
EPC
EPC
EPC
EPC
BOP
BOP
BOP
BOP
BOP
BOP
BOP
Project in Progress
RRVUNL - Kalisindh TPS, Rajasthan
TRN Energy Pvt. Ltd., Nawapara, Chhattisgarh
Ministry of Electricity Iraq - Nasiriya
MAHAGENCO - Chandrapur STPS, Maharashtra
CSPGCL - Marwa TPS, Chhattisgarh
TPCIL - Krishnapatnam, Andhra Pradesh.
OPGC - BanaharpalliSTPP, Odisha
NTPC Ltd. - Solapur TPP, Maharashtra
MUVNL Ltd. - Meja TPP, Uttar Pradesh
DVC Ltd. - Raghunathpur, West Bengal
NTPC Ltd. - Lara TPP, Chhattisgarh
2 x 600
2 x 300
4 x 125
2 x 500
2 x 500
2 x 660
2 x 660
2 x 660
2 x 660
2 x 660
2 x 800
Coal
Coal
Gas
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
EPC
EPC
EPC
BOP
BOP
BOP
BOP
BG
BG
BG
BTG
Source: BGR Energy , Ventura Research
 Order book of ~`11,700 crore augurs well for revenue visibility
The order backlog of ~`11,700 crore provides strong revenue visibility for 3 – 4
years. Of this order book, the BTG segment (mostly NTPC projects) accounts for
65% of the total order book, while BoP and EPC projects contribute the balance 30%
and 5%, respectively.
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Quarterly Order Inflow Trend
16000
` Crore
3450
3500
4.5
4.3
4.1
3.9
3.7
3.5
3.3
3.1
2.9
2.7
2.5
12000
2770
2500
10000
2160
1890
2000
8000
1500
6000
1500
4000
Order Book
Order Inflow
Source: BGR Energy, Ventura Research
Order Book (` Cr)
Book To Bill (x)
Crompton Greaves
3600
0.3
Alstom India
6470
2.5
ABB
7876
1.0
11700
3.5
BHEL
102000
2.6
Larsen & Toubro
163000
1.9
BGR Energy Systems
Source: BGR Energy, Ventura Research
Order book to Sales (x) RHS
Source: BGR Energy, Ventura Research
Book to Bill Ratio Favourable Compared to Peers
Company Name
0
Q4FY14
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
0
2000
Q3FY14
0
Q2FY14
0
Q1FY14
90
Q4FY13
500
Q3FY13
1000
Q2FY13
3000
` Crore
14000
Q1FY13
4000
Order Book and Book-to-Bill Trend
Segment Wise Order Book
Order Book Size
FY14 - `11,700 Crore
EPC
5%
BoP
30%
BTG
65%
Source: BGR Energy, Ventura Research
 Expect order book to grow post the Union Budget as more
projects are announced
Marred by controversy and lack of political will to resolve issues, the capital goods
business order flow had literally been reduced to a trickle. However with the new
government in place and Prime Minister Modi at the helm of affairs we are confident
that policy and decision making would regain traction. Most industry players are
waiting for the Union Budget of FY15 to be announced, post which new projects
would be initiated and the capital goods industry would get a much needed boost.
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Monday 23 June, 2014
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 Revenues and earnings expected to resume their growth
trajectory from FY15
Over the past couple of years BGR’s earnings were going downhill mainly due to the
extremely competitive bidding scenario in the industry. Particularly in FY14, lower
revenue booking, margin pressures and recognition of deferred taxation led to a
sharply lower performance.
We believe that the poor performance of the company has bottomed out and expect
a gradual recovery to take place over the next couple of years. We expect sales of
`4,191.5 crore in FY16E (CAGR of 12.7%) from the current `3,300.8 crore and an
earnings growth of 33% CAGR to `151 crore by FY16E from `86 crore clocked in
FY14.
Going ahead, we expect higher BoP segment revenue bookings (which have better
margins) to be billed as compared to FY14, which saw higher revenue being
recognized in its EPC segment (which has comparatively lower margins). However,
in our model we have assumed a marginal 25 bps contraction in EBITDA margins,
leaving a substantial upside risk to our estimates.
Revenue & PAT Trend
5000
EBITDA & PAT Margin (%)
` Crore
350
4500
300
4000
18%
14%
3500
250
3000
200
10%
2000
150
8%
1500
100
2500
14.8%
12.8%
12.4%
6.6%
6.8%
500
0
FY10
FY11
FY12
Revenue
FY13
FY14
FY15E
PAT (RHS)
Source: BGR Energy, Ventura Research
FY16E
15.2%
12.6%
12.4%
12.2%
3.6%
3.6%
FY15E
FY16E
12%
6.5%
5.2%
6%
1000
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(%)
16%
2.6%
4%
50
2%
0
0%
FY10
FY11
FY12
FY13
EBITDA (%)
FY14
PAT (%)
Source: BGR Energy, Ventura Research
rd
Monday 23 June, 2014
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Major projects tentative completion schedule
Projects to be completed in FY15-16
MAHAGENCO - Chandrapur STPS, Maharashtra
CSPGCL - Marwa TPS, Chhattisgarh
TPCIL - Krishnapatnam, Andhra Pradesh.
TRN Energy Pvt. Ltd., Nawapara, Chhattisgarh
OPGC - BanaharpalliSTPP, Odisha
Ministry of Electricity Iraq - Nasiriya
NTPC Ltd. - Solapur TPP, Maharashtra
NTPC Ltd. - Lara TPP, Chhattisgarh
Tentative
Completion
MW
FY15
FY15
FY15
FY16
FY16
FY16
FY16
FY16
2 x 500
2 x 500
2 x 660
2 x 300
2 x 660
4 x 125
2 x 660
2 x 800
Rs. Cr.
1792
1833
2166
1924
1573
1525
1855
1549
Source: BGR Energy, Ventura Research
 Financial Performance
BGR’s revenue declined by 23.6% in Q4FY14 to `812.2 crore owing to the lower
execution and collections than anticipated. This was due to higher revenue being
recognized in its EPC segment (completion of works at Mettur and Jhalawar), which
had comparatively lower margins.
EBITDA during Q4FY14 fell by 38% while the EBITDA margin dropped by 250 bps
to 10.5%, led by the higher revenue share of low margin NTPC orders in the quarter.
Lower execution during the quarter led to a 65% fall in PAT to `19 crore.
Revenues in the quarter came from projects such as TRN Energy (Chhattisgarh),
Krishnapatnam (A.P.), Chandrapur Super TPS, etc. The company commenced work
for the NTPC bulk tenders I and II at Sholapur, Meja, Raghunathpur and Lara, but
these have not yet contributed meaningfully to revenues.
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Quarterly Financial Performance (` in crore)
Particulars
Net Sales
Growth %
Total Expenditure
EBIDTA
EBDITA Margin %
Depreciation
EBIT (EX OI)
Other Income
EBIT
Margin %
Interest
Exceptional items
PBT
Margin %
Provision for Tax
PAT
PAT Margin (%)
Q4FY14
812.23
-23.6
726.56
85.67
10.5
4.96
80.7
0.05
80.8
9.9
48.9
0
31.8
3.9
12.73
19.1
2.4
Q4FY13
1062.88
924.66
138.22
13.0
5.7
132.5
0.04
132.6
12.5
50.13
0
82.4
7.8
29.08
53.4
5.0
FY14
3295.6
6.1
2900.4
395.2
12.0
19.6
375.7
0.5
376.2
11.4
181.7
-2.0
192.4
5.8
82.4
110.0
3.3
FY13
3107.2
2673.8
433.3
13.9
18.6
414.8
5.4
420.2
13.5
174.7
0.0
245.5
7.9
81.8
163.7
5.3
Source: BGR Energy, Ventura Research
 Valuation
We initiate coverage on BGR Energy as a BUY with a Price Objective of `273,
representing a potential upside of 37% over a period of 18 months. At the CMP of
`199, the stock is trading at 11.2x and 9.5x its forward earnings for FY15E and
FY16E, respectively. Historically, the company has traded at an average of 13x its
forward earnings and we have assigned a similar multiple.
Power being the need of the hour, we expect the newly formed government’s policy
reform measures to provide traction to the order inflow.
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Peer Valuation (` in crore)
Y/E Mar
Net
Revenue
EBITDA
PAT
EPS
(%)
RONW
(%)
P/E
(x)
3300.8
3597.8
4191.5
416.8
445.3
511.9
93.2
128.6
151.3
12.9
17.8
21.0
-42.5
37.9
17.7
7.2
9.3
10.2
15.5
11.2
9.5
15.5
11.2
9.5
92733.9
110446.4
137715.4
12443.6
15028.8
19243.1
5438.0
6827.0
9049.4
58.3
73.2
97.0
6.9
25.6
32.6
14.5
16.1
17.2
28.2
22.5
17.0
18.5
15.6
13.1
36354.5
37049.2
40124.5
4087.9
4215.5
4908.4
2955.8
3116.7
3404.0
12.2
12.7
13.9
-16.3
4.8
9.2
8.5
8.6
10.3
19.9
19.0
17.4
11.8
11.1
8.8
14770.7
16414.3
18439.1
955.5
1219.8
1637.7
491.3
683.3
994.6
7.8
10.9
15.9
83.1
39.4
45.2
12.6
15.8
19.3
25.1
18.0
12.4
13.9
10.7
7.2
7597.0
7934.4
8676.6
442.7
596.7
771.7
176.2
272.4
386.2
8.4
12.8
18.2
29.4
52.8
42.1
6.6
9.8
12.6
122.8
80.4
56.6
49.9
36.5
27.4
EPS
EV/EBITDA
(x)
BGR Energy
2014
2015E
2016E
L&T
2014
2015E
2016E
BHEL
2014
2015E
2016E
Cromption Greaves
2014
2015E
2016E
ABB Ltd
2014
2015E
2016E
Source: BGR Energy, Ventura Research
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 Company background
BGR Energy Systems was incorporated in 1985 as a joint venture between GEA
Energietechnik GmbH, Germany & Mr. B.G. Raghupathy. GEA later sold its stake to
the promoters in 1993. It is one of the leading players in the balance of plant (BoP)
and engineering, procurement and construction (EPC) segment in the power
industry. Its business segments include power projects, oil and gas equipment, air
fin coolers, environmental engineering and electrical projects.
Organisational Structure
BGR Energy Systems Limited
Promoter Holding – 75%
BGR Turbines Company
Pvt Ltd
(Total capex – Rs 184 cr)
BGR-Hitachi – 74:26
BGR Boilers Pvt Ltd
Sravanaa Properties Ltd
(Total capex – Rs 135.6 cr)
BGR-Hitachi – 70:30
(Total capex – Rs 20 lakh)
BGR’s Stake – 100%
Progen Systems &
Technologies Ltd
(Total capex – Rs 6.1 cr)
BGR’s Stake – 100%
Source: BGR Energy, Ventura Research
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P/E
1000
900
800
700
600
500
400
300
200
100
0
Mar-08
CMP
Mar-10
6.5X
Mar-12
10.1X
13.6X
Mar-14
17.2X
20.8X
Source: BGR Energy, Ventura Research
P/BV
1200
1000
800
600
400
200
0
Mar-08
Mar-10
CMP
1X
Mar-12
2X
3X
Mar-14
4X
5X
Source: BGR Energy, Ventura Research
EV/EBITDA
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Mar-08
Mar-10
EV
3X
Mar-12
5X
7X
Mar-14
9X
11X
Source: BGR Energy , Ventura Research
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Financials and Projections
Y/E Mar, Fig in ` Cr
FY 2013
FY 2014 FY 2015E FY 2016E
Profit & Loss Statement
Net Sales
% Chg.
Total Expenditure
FY 2013
FY 2014 FY 2015E FY 2016E
Per Share Data (Rs)
3113.3
3300.8
3597.8
4191.5
-9.8
6.0
9.0
16.5
2639.9
2884.0
3152.5
3679.6
9.2
9.3
16.7
% Chg.
EBITDA
Y/E Mar, Fig in Rs. Cr
EPS
22.5
12.9
17.8
21.0
Cash EPS
25.1
14.8
21.2
24.5
7.0
3.0
5.0
5.0
169.5
178.9
191.0
206.1
1.6
DPS
Book Value
473.4
416.8
445.3
511.9
EBITDA Margin %
15.2
12.6
12.4
12.2
Debt / Equity (x)
1.8
1.6
1.5
Other Income
11.9
5.7
8.4
9.9
Current Ratio (x)
1.4
1.3
1.4
1.4
0.0
2.0
0.0
0.0
ROE (%)
13.3
7.2
9.3
10.2
485.3
420.5
453.7
521.8
ROCE (%)
20.3
16.3
16.3
16.8
20.3
21.2
24.5
25.8
Dividend Yield (%)
3.5
1.5
2.5
2.5
Interest
221.4
230.7
237.3
270.1
Valuation Ratio (x)
PBT
P/E (x)
8.9
15.4
11.2
9.5
P/BV (x)
1.2
1.1
1.0
1.0
EV/Sales (x)
1.1
1.0
1.0
0.8
EV/EBIDTA (x)
7.3
8.3
7.8
6.7
Exceptional items
PBDIT
Depreciation
243.6
168.6
191.9
225.9
Tax Provisions
82.3
82.6
63.3
74.5
Reported PAT
161.3
86.0
128.6
151.3
-0.8
-7.3
0.0
0.0
162.1
93.2
128.6
151.3
Minority Interest
PAT
PAT Margin (%)
Employee Benefit / Sales (%)
Tax Rate (%)
Reserves & Surplus
Minority Interest
Long-Term Provisions
Long-Term Borrowings
Other Long-Term Liabilities
Total Liabilities
Gross Block
Less: Acc. Depreciation
Efficiency Ratio (x)
5.2
2.8
3.6
3.6
Inventory (days)
4.3
5.4
6.1
6.1
6.8%
6.2%
6.2%
6.2%
Debtors (days)
319.8
317.7
317.6
317.6
33.8
49.0
33.0
33.0
Creditors (days)
169.0
160.2
165.7
168.3
72.2
72.2
72.2
72.2
243.6
168.6
191.9
225.9
1151.2
1218.7
1305.9
1415.3
20.3
21.2
24.5
25.8
90.5
83.3
83.3
83.3
-210.5
8.2
4.6
-250.5
222.3
207.1
225.7
263.0
-74.5
13.8
7.8
11.1
11.2
842.3
986.8
1089.9
1269.5
Capital Expenditure
2392.2
2575.8
2788.0
3114.5
Dividend Received
536.9
543.8
712.3
725.1
Others
Balance Sheet
Share Capital
Capital, Liquidity, Returns Ratio
Cash Flow statement
Profit Before Tax
Depreciation & Amortisation
Working Capital Changes
Direct Taxes Paid and Others
Operating Cash Flow
87.0
103.6
128.1
153.9
Cash Flow from Investing
Net Block
449.9
440.2
584.2
571.3
Increase/(Decrease) in Loan Fund
Capital Work in Progress
125.3
157.2
0.0
0.0
Others
Non-Current Investments
0.5
0.4
0.5
0.5
Interest Paid
Net Current Assets
2141.0
2359.2
2732.0
3223.4
Deferred Tax Assets
-420.3
-506.5
-672.6
-848.4
Other Non-Current Assets
Total Assets
-19.4
-42.2
-63.3
72.7
240.3
284.4
75.7
-159.9
-6.9
-168.6
-12.8
0.0
0.0
0.0
0.0
-19.8
-32.0
157.2
0.0
-179.7
-38.9
-11.4
-12.8
456.8
-189.8
48.0
338.5
-58.7
-25.2
-41.9
-41.9
-175.3
-181.8
-186.0
-216.2
Cash Flow from Financing
222.8
-396.8
-179.9
80.3
Net Change in Cash
115.8
-195.4
93.1
143.2
95.9
125.3
143.9
167.7
Opening Cash Balance
519.2
635.0
439.6
532.7
2392.2
2575.8
2788.0
3114.5
Closing Cash Balance
635.0
439.6
532.7
675.9
Ventura Securities Limited
Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site, Vikhroli (W), Mumbai – 400079
This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but
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