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 companys 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-vis 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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STOCK POINTER

Index Details

FY16E PE 9.5x

BGRs 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

Q4FY14

Q4FY14

Q3FY14

Q2FY14

Q1FY14

Q4FY13

Q3FY13

Q2FY13

Q1FY13

2000

Q3FY14

Q2FY14

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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 Revenues and earnings expected to resume their growth

trajectory from FY15
Over the past couple of years BGRs 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%
FY10

FY11

FY12

FY13

EBITDA (%)

FY14
PAT (%)

Source: BGR Energy, Ventura Research

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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
BGRs 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 governments 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)

BGRs Stake 100%

Progen Systems &

Technologies Ltd
(Total capex Rs 6.1 cr)
BGRs 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
no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities
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