Feb 14, 2013, 12.53 PM | Source: Moneycontrol.com
KRChoksey has recommended reduce rating on BGR Energy Systems with a target price of Rs 222 in its February 11, 2013 research report.
, KRChoksey |
"BGR registered flat 0.2% YoY growth in net sales, as net sales increased to Rs. 805 cr. Operating margins declined by 259 bps to 13.7% on account of 240 bps increase in raw material cost. Interest cost increased by 9% YoY to Rs. 50.3 cr which further eroded earnings. Consequently PAT declined by 24% to Rs.41.4 cr. Order backlog as of Q3FY13 stands at Rs 13,578 cr (including L1 orders from NTPC ).
BGR registered flat revenues of Rs 805 cr in Q3FY13 vs 803.7 cr in Q3FY12 as major EPC projects are almost completed (Mettur and Kalisindh 95% and above completion) and new orders have dried on account of headwinds in power sector. We believe FY13 sales guidance at Rs 3,750 cr looks difficult considering current execution and order backlog mix. NTPC projects in which BGR is L1 will start contributing primarily from FY15 onwards.
BGR operating margins declined by 259 bps to 13.7% on account of change in sales mix. BOP contract contributed Rs. 370 cr (50%) of sales mix, while EPC contract constituted remaining Rs 370 cr of revenues from EPC and construction. In Q3FY12 the revenue mix was 70:30 in favor of BOP contracts.
Interest cost increased by 9% to Rs. 50.3 cr as short borrowing (WC related borrowing) increased to Rs. 2,170 cr. Retention money of Rs 1,242 cr has stretched debtor to Rs 4,300 cr (Debtors turnover of 0.80x on FY12). Consequently, PAT declined by 24.3% to Rs. 41.4 cr.
Our View & Valuation: At CMP of Rs 230, BGR is trading at a P/E of 9.7x FY13E and 8.3x FY14E. Execution has been disappointing on account of lull in order inflows. Although BGR has a backlog which includes NTPC bulk tender BTG orders worth Rs 8,600 cr, margin related to the order is a point of concern. Margin w.r.t TRN Energy Private Limited’s EPC project is also expected to be thin. In addition, stretched working capital also remains a concern. Considering the same; we recommend a REDUCE recommendation on the stock with a price target of Rs 222 (P/E of 8 x its FY14E earnings)," says KRChoksey research report.
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