Buy BGR Energy; target of Rs 504: Way2Wealth

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Buy BGR Energy; target of Rs 504: Way2Wealth

Way2Wealth is bullish on BGR Energy Systems and has recommended buy rating on the stock with a target of Rs 504 in its July 28, 2011 research report.

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Way2Wealth is bullish on BGR Energy Systems and has recommended buy rating on the stock with a target of Rs 504 in its July 28, 2011 research report.

"BGR Energy Systems, order backlog for the fiscal stood at Rs.75bln down by 20% yoy of which EPC constitutes 21% and BOP constitutes 79% with an order intake of just Rs.40 cr. Contributions have been from Kalisindh which is 77% complete, Mettur which is 87% complete, Kothgudam which is 93% complete, Chandrapur which 36% complete & Marwa which is 21% complete. Net sales have been down by 19% with operating profits down by 7% & PAT down by 17%. Total expenditure has reduced by 21% due to reduced raw material cost owing to change in revenue mix from EPC contracts to BOP contracts & well controlled other expenditure. EPC contributed 60% and BoP contributed 40% in total turnover.This resulted in improved operating margins at 13% and improved PAT at 6.9%. Interest cost has increased due to requirement of higher working capital at an average cost of 12-13%."

"Current debt on books of account is 18000mn. The average cost of lending for buyer's credit is 2%, short term loan carry an interest rate of 11% & other loans stand at 12%. Orders worth 20000 MW are in pipeline in this fiscal out of which NTPC orders are of close to 12000MW, remaining 6000MW are Government orders & the rest is from IPPs. Out of these coal linkages are for 80% of the orders."

"At the CMP of Rs 407, the stock quotes a PE of 8x and 7x its FY12E and FY13E cons. earnings of Rs 51 and 56 respectively. Amidst all the concerns, we believe BGR to win orders in Q2FY12 & maintain our positive rating on the stock, with a target price of Rs 504 based on a PE of 9x consolidated FY13E EPS of Rs 56 per share," says Way2Wealth research report. 

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To read the full report click on the attachment