3 November 2012
2QFY13 Results Update | Sector: Capital Goods
BGR Energy
BSE SENSEX
S&P CNX
18,562
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,645
BGRL IN
72.0
374/173
-3/27/-24
19.2
0.4
CMP: INR266
TP: INR230
Neutral
2QFY13 operational performance ahead of expectations:
BGR Energy Systems (BGRL) posted better than
expected operating performance for 2QFY13. EBITDA margin expanded 90bp YoY to 15.2% (v/s our estimate of
12.5%). Revenue declined 19% to INR6.2b, well below our estimate. However, PAT of INR347m (down 33%)
was higher than our estimate.
EBITDA margin expands, driven by improved mix:
EBITDA margin expanded on account of favorable mix driven
by higher contribution from BOP contracts (at 65%) relative to EPC contracts. We believe that the current
EBITDA margin is not sustainable. We expect EBITDA margin to contract 195bp in FY13, driven by ramp-up in
project-specific deliveries and increased share of EPC contract revenue. The management expects EBITDA
margin to stabilize at 11-12% in FY13/FY14.
Order intake remains sluggish:
Order book stands at INR140b (products: INR6b; projects: INR134b) as at
September 2012. Projects include NTPC bulk tenders of INR86b (61% of total order book), EPC contracts of
INR21b and BOP contracts of INR25b. BGRL is executing four major projects, of which Thermal Powertech's
2x660MW is at the peak of execution while TRN Energy's 2x600MW is at an early stage of execution. These are
likely to drive revenue in the remaining part of the year.
Working capital deteriorates further:
Net working capital remains elevated at INR21b, up from INR19b as at
the end of March 2012. This is led by further increase in receivables (up to 244 days from 210 days at the end of
March 2012). Retention money (part of receivables) is at INR14b-15b, of which INR10b is against various
projects under construction and INR4b is against three major projects that have already been completed. Due
to high debt and increased cost of borrowing, interest cost stood at INR401m, up 33% YoY.
Valuation and view:
We have cut our FY14 EPS estimate by 17% to factor in poor order inflow and slower
execution of NTPC orders. We believe it will be challenging for BGRL to secure new orders in the foreseeable
future without resorting to aggressive pricing, given the upcoming new capacity of BTG manufacturing in a
tough market. We maintain our
Neutral
rating, with a revised target price of INR230 (11x FY14E earnings).
Satyam Agarwal
(AgarwalS@MotilalOswal.com); +91 22 3982 5410
Deepak Narnolia
(Deepak.Narnolia@MotilalOswal.com); +91 22 3029 5126
Investors are advised to refer through disclosures made at the end of the Research Report.
1

BGR Energy
2QFY13 operational performance ahead of expectations
BGR Energy Systems (BGRL) posted better than expected operating performance for
2QFY13. EBITDA margin expanded 90bp YoY to 15.2% (v/s our estimate of 12.5%).
Revenue declined 19% to INR6.2b, well below our estimate. However, PAT of INR347m
(down 33%) was higher than our estimate.
EBITDA margin expands, driven by improved mix
EBITDA margin expanded on account of favorable mix driven by higher contribution
from BOP contracts (at 65%) relative to EPC contracts. Currently, EPC contracts
constitute ~70% (including NTPC bulk tenders) of the total order book. Going forward,
a large part of the incremental orders would be EPC contracts, impacting margins. We
expect EBITDA margin to contract 195bp in FY13, driven by ramp-up in project-specific
deliveries and increased share of EPC contract revenue. The management expects
EBITDA margin to stabilize at 11-12% in FY13/FY14.
Revenue growth declining on depleting order book
EBITDA margin supported by favorable mix; likely to decline
Source: Company, MOSL
PAT impacted by slowing sales and higher interest cost
Source: Company, MOSL
3 November 2012
2

BGR Energy
Order intake remains sluggish
Order book stands at INR140b (products: INR6b; projects: INR134b) as at September
2012. Projects include NTPC bulk tenders of INR86b (61% of total order book), EPC
contracts of INR21b and BOP contracts of INR25b. The order book includes orders
worth INR30b for NTPC Lara and Darlipalli that are yet to be awarded. Both these
projects are getting delayed due to land acquisition issues.
BGRL is executing four major projects: Mahagenco's 2x500MW INR16.3b (over 90%
complete), Chhattisgarh State Electricity Board's 2x500MW INR16.3b (over 65%
complete), Thermal Powertech Corporation's Krishnapatnam 2x660MW INR21.7b
(30% complete) and BOP order from TRN Energy 2x600MW of INR17b (yet to start).
Thermal Powertech's 2x660MW is at the peak of execution while TRN Energy's
2x600MW is at an early stage of execution. These are likely to drive revenue in the
remaining part of the year.
BTB ratio - improved on the back of NTPC bulk orders
Source: Company, MOSL
Working capital deteriorates further
Net working capital remains elevated at INR21b, up from INR19b as at the end of
March 2012. This is led by further increase in receivables (up to 244 days from 210
days at the end of March 2012). Retention money (part of receivables) is at INR14b-
15b, of which INR10b is against various projects under construction and INR4b is
against three major projects that have already been completed. Due to high debt
and increased cost of borrowing, interest cost stood at INR401m, up 33% YoY.
Cost of borrowing has increased to ~11% v/s 6-7% last year, mainly on account of
reduction in low cost buyer's credit (@ LIBOR + 1.5%) due to completion of EPC
projects. Currently, buyer's credit forms 10-15% of total debt, down from 35% last
year. Gross debt has increased by INR3.6b in comparison to March 2012; however,
net debt has largely remained at the same level.
3 November 2012
3

BGR Energy
Balance Sheet (INR m)
Share Capital
Reserves & surpluses
Net worth
Loan Funds
Deferred Tax Liability
Capital Employed
Net Fixed Assets
Investments
Inventories
Sundry Debtors
Cash and bank balance
Sept'10
721
7,743
8,464
14,224
1,884
24,572
1,618
1,368
252
28,875
8,275
March'11
722
8,776
9,498
13,363
3,117
25,978
1,754
1,368
384
31,572
9,465
Sept'11
722
9,792
10,514
23,074
3,304
36,891
1,972
2,149
387
39,325
9,026
March'12
Sept'12
722
722
10,424
11,109
11,146
11,830
17,450
21,112
4,014
3,976
32,609
36,919
1,984
2,054
2,359
2,359
296
368
31,375
33,650
8,448
11,283
Source: Company, MOSL
Valuation and view: Cutting FY14 EPS estimate by 17%; maintain Neutral
We have cut our FY14 EPS estimate by 17% to factor in poor order inflow and
slower execution of NTPC orders. We believe it will be challenging for BGRL to
secure new orders in the foreseeable future without resorting to aggressive pricing,
given the upcoming capacity of BTG manufacturing in a tough market.
We believe that the Indian power equipment market is going through a tough
phase, with slowing demand and rising costs. Lack of coal linkages, volatile spot
prices and several other hurdles like land availability have adversely impacted
new project awards.
We maintain our
Neutral
rating, with a revised target price of INR230 (11x FY14E
earnings).
3 November 2012
4

BGR Energy
BGR Energy: an investment profile
Company description
BGR Energy Systems (BGRL) is one of the India's growing
engineering companies in the power sector. BGRL carries
the business in two segments namely the supply of
systems and equipment and turnkey engineering project
contracting. The company has entered into a JV with
Hitachi to manufacture boilers and turbines.
Deteriorating working capital days in an environment
of tightening liquidity remains a key balance sheet
risk.
Recent developments
BGR has already invested INR2.5b on BTG factory out
of total equity investment of INR7.5b. The land have
been already and construction work is expected to
start soon.
BGR has already been awarded orders for two
projects (Sholapur and Meja) worth INR37b in NTPC
bulk tenders. The company has received letter of
intent for the Ragunathpur project while the
remaining two orders for 4 units of boilers are
expected in next two quarters.
Key investment arguments
BGRL, a strong BOP contractor, entered the power
plant EPC business over the past two years. It is
wellplaced to capitalize on a growing shortage of
power plant contractors in India. BGRL has a JV with
Hitachi to make boilers and turbine-generators,
which could be a huge long-term growth driver.
The company has bagged meaningful orders in NTPC
bulk tender which would drive strong revenue
growth in next 3-4 years. Success in one or two EPC
projects could drive strong earnings growth.
Valuation and view
We maintain our
Neutral
rating, with a revised target
price of INR230 (11x FY14E earnings).
Key investment risks
Sector view
Margin compression is possible due to the entry into
the super-critical BTG due to high initial import
content (18-20%). Also the company has resorted to
aggressive pricing in NTPC bulk tender which is likely
to be a strain on profitability.
We are
Neutral
on the sector.
Comparative valuations
BGR
BHEL
L&T
EPS: MOSL forecast v/s consensus (INR)
13.1
12.7
1.6
1.5
1.1
1.1
9.0
9.0
8.7
11.7
1.9
1.7
1.0
1.1
5.2
6.7
18.8
17.3
3.5
3.1
1.7
1.5
14.5
12.4
MOSL
Forecast
20.4
20.9
Consensus
Forecast
24.8
28.3
Variation
(%)
-17.6
-26.2
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13
FY14
Target price and recommendation
Current
Price (INR)
266
Target
Price (INR)
230
Upside
(%)
-13.5
Reco.
Neutral
Stock performance (1 year)
Shareholding pattern (%)
Sep-12
Promoter
Domestic Inst
Foreign
Others
3 November 2012
81.1
1.9
5.2
11.8
Jun-12
81.1
2.3
4.7
11.9
Sep-11
81.1
2.7
5.6
10.6
5

BGR Energy
Financials and Valuation
3 November 2012
6

BGR Energy
N O T E S
3 November 2012
7

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BGR Energy
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