Sell BGR Energy; target of Rs 197: KRChoksey

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Sell BGR Energy; target of Rs 197: KRChoksey

KRChoksey is bearish on BGR Energy Systems and has recommended sell rating on the stock with a target of Rs 197 in its February 7, 2012 research report.

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KRChoksey is bearish on BGR Energy Systems and has recommended sell rating on the stock with a target of Rs 197 in its February 7, 2012 research report.

"BGR Energy Ltd net sales declined by 36.1% on a YoY basis to Rs. 803 cr on account of slippages in execution and as EPC projects are nearing completion. The company however registered healthy operating profit margins of 16.3% as proportion of BOP contracts increased in the sales mix. Interest cost increased sharply to Rs 46.2 cr offsetting impact of higher EBIDTA margins. Consequently PAT declined by 37.5% YoY to Rs 54.7cr. Current order backlog stands at Rs 8,200 cr."

"Net sales decreased by 36.1% YoY to Rs 803.7 cr, on account of slippages in execution in Chandrapur and Marwa. We believe order execution was also slow as projects are nearing completion and new orders have dried on account of headwinds in power sector. For FY12, the management has revised downwards its sales guidance to Rs3,400 cr from Rs 4,400cr to 4,500 cr earlier. For Q3FY12, BGR reported healthy EBIDTA margins of 16.3% vs 11.7% in Q3FY11 as proportion of BOP contracts increased in the sales mix. During the quarter, BOP contracts contributed ~60% of total sales, while EPC projects constituted ~ 38%. Execution of Chandrapur and Marwa projects contributed to EBIDTA margins. The company booked total of ~Rs 360 cr worth of revenues from Chandrapur and Marwa. Higher EBIDTA margins were offset by significant rise in interest cost. Interest cost increased by 175.4% to Rs 46.2 cr vs 16.8 cr in Q3FY11 as RBI raised ceilings on cost of overseas borrowing. Consequently, net profits decreased sharply Rs 54.7 cr vs Rs 87.6 cr in Q3FY11."

"BGR Energy has lowered FY12E sales guidance on account of subdued order inflows and slow execution. Award of the Rajasthan EPC order continues to delay. BGR is L1 in NTPC bulk tender 1(TG sets). However, order has not yet been placed on account of issues related to land acquisition. Margins related to the order are a point of concern. Margins w.r.t recently won TRN Energy Private Limited's EPC project are also expected to be thin. In addition, working capital is also a concern as debtors on balance sheet stand at Rs 3,800 cr vs expected FY12E topline of~3,400 cr. Considering the same; we maintain our SELL recommendation on the stock with a price target of Rs 197 (P/E of 7x its FY13E earnings)," says KRChoksey research report.    

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To read the full report click on the attachment