Sell BGR Energy; target of Rs 221: KRChoksey

KRChoksey is bearish on BGR Energy and has recommended sell rating on the stock with a target of Rs 221 in its August 6, 2012 research report.

“BGR Energy Ltd net sales declined by 16.6% on a YoY basis to Rs. 610.9 cr. Operating profit margins increased by 148 bps to 14.4% on account of higher proportion of BOP contract execution. However, interest cost increased sharply by 90% to Rs 34.2 cr offsetting impact of higher EBIDTA margins. Consequently PAT declined by 33% YoY to Rs 33.7 cr. Order backlog as of Q1FY13 stands at Rs 15,000 cr (including L1 orders from NTPC).”
Net sales decreased by 16.6% YoY to Rs 610.9 cr as major EPC projects are nearing completion (Mettur and Kalisindh – 90% and above completion) and new orders have dried on account of headwinds in power sector. EPC projects contributed Rs. 200 cr followed by Marwa Rs 150 cr, Krishnapatnam Rs 135 cr and Chandrapur Rs 100 cr. For FY13, the management has revised its sales guidance to Rs 3,750 cr from 4,300 cr. Earlier it had revised it to Rs 4,300 cr from Rs 4,500 cr to 5,000 cr. NTPC projects in which BGR is L1 will start contributing from FY14 onwards. Operating margins increased by 148 bps to 14.4%. This was primarily in account of higher proportion of execution of BOP contracts. BOP contracts namely Chandrapur, Marwa and Krishnapatnam constituted 65% of sales mix.”
“At CMP, BGR is trading at a P/E of 10.3x FY13E and FY14E. The company has lowered its sales guidance for three consecutive quarters. Although BGR is L1 in NTPC bulk tender orders however, margins related to the order are a point of concern and these projects would start contributing from FY14/15 onwards. 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 maintain our SELL recommendation on the stock with a price target of Rs 221 (P/E of 8 x its FY13E earnings),” says KRChoksey research report.   FIIs holding more than 30% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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