BGR Energy: FairWealth Securities’ Research Report

FairWealth Securities is bullish on BGR Energy and has recommended buy rating on the stock with a target of Rs 607 on the following investment rationale:

We met the management of BGR Energy, one of the fastest growing engineering companies in power sector especially in BoP and EPC space. Over the years, BGR Energy has transformed itself from a mere small BoP player to a one point responsibility in EPC space. Integrated product portfolio offerings and cost competitiveness in EPC segment and entrance into BTG space through JV with Hitachi provides BGR Energy an edge over its competitors in BoP segment. Considering the current order backlog of approx. Rs 8,000cr and as BGR Energy has already placed bids worth Rs 18,000cr, we are quite optimistic about the top-line to grow by 15% during FY12E and the margins to be seized over industry average.

BGR Energy‘s total order backlog as on 31st march 2011, stood at Rs 7971cr, however the fresh order intake during FY11 remained subdued by 22% at Rs 3000cr. Commenting on the muted order intake in FY11, BGR Energy had bid for projects worth Rs. 18000cr, which was not materialized in the year gone. We expect the entire order inflow in FY12 to reach at Rs. 13000cr which includes BoP, BTG and EPC contracts during the current financial year. BGR Energy has already placed its offering for projects worth Rs 18,000cr in FY2011, constituting Rajasthan tender of Rs 6,100cr, NTPC order of Rs 6,000cr, Ennore order of Rs 3,000cr and Rs 3,000cr order in Surat. These orders are expected to be finalized in Q2FY12. Apart from these orders, BGR Energy has identified projects worth Rs 40,000cr which it intends to compete during the current financial year.

BGR Energy’s BTG venture is going on track; BGR Energyhas procured the necessary land to set up its Boiler facility. BGR Energy plans to initiate the construction work post monsoon and it is expected to commence production during Q1FY13. Construction work for turbine facility is expected to start in second half of FY11 and is expected to deliver goods only in H2FY13.

The massive power generation capacity addition targets in XII plan will augur plethora of opportunities for BGR Energy being one of the key player in EPC segment. The stock is available at 8.8x and 7.8x of it FY12E and FY13E earnings. We recommend ‘BUY’ BGR Energy with a price objective of Rs 607, based on 12x FY12E EPS.