Sell BGR Energy; target of Rs 224: KRChoksey

KRChoksey is bullish on BGR Energy and has recommended sell rating on the stock with a target of Rs 224 in its June 5, 2012 research report.

“BGR Energy Ltd net sales declined by 22.2% on a YoY basis to Rs. 1,137.7 cr. Operating profit margins increased by 47 bps to 11.9%. However, interest cost increased sharply by 124.7% to Rs 41.1 cr offsetting impact of higher EBIDTA margins. Consequently PAT declined by 31.7% YoY to Rs 67.2cr. Order backlog as of Q4FY12 stands at Rs 7,516 cr.”

“Net sales decreased by 22% YoY to Rs 1,137.7 cr as major EPC projects are nearing completion (Mettur – 95% completed and Kalisindh – 88% completed) and new orders have dried on account of headwinds in power sector. For FY13, the management has revised its sales guidance to Rs 4,300 cr from Rs 4,500 cr to 5,000 cr earlier. Rajasthan EPC order (2 x 660 MW) in which the company was L1 got cancelled and is expected to be re-tendered in current fiscal. NTPC projects in which BGR is L1 will start contributing from FY13 onwards. Net working capital (excluding cash) increased from 132 days in FY11 to 211 days in FY12. Retention money currently stands at Rs 1,400 cr (Rs 400 cr for completed projects and Rs 1,100 for projects under execution) vs Rs 1,300 cr in FY11. Higher working capital requirement along with higher borrowing cost led to a 124.7% increase in interest cost, which resulted in a PAT decline of 31.7%.”

“We have lowered our sales estimate for FY13 on account of cancellation of Rajasthan EPC order of 2 x 660 MW. 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 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 224 (P/E of 8 x its FY13E earnings),” says KRChoksey research report.  

Public holding more than 90% in Indian cos

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