Sell BGR Energy; target Rs 224: KRChoksey
KRChoksey is bearish on BGR Energy and has recommended sell rating on the stock with a target price of Rs 224 in its November 5, 2012 research report.
November 06, 2012 / 13:30 IST
KRChoksey is bearish on BGR Energy and has recommended sell rating on the stock with a target price of Rs 224 in its November 5, 2012 research report.
"BGR Energy Ltd net sales declined by 19% on a YoY basis to Rs. 627 cr. Operating profit margins increased by 91 bps to 15.2% on account of higher proportion of BOP contract execution. However, interest cost increased sharply by 33% to Rs 34.2 cr offsetting impact of higher EBIDTA margins. Consequently PAT declined by 32.4% YoY to Rs 34.7 cr. Order backlog as of Q2FY13 stands at Rs 13,979 cr (including L1 orders from NTPC).Lull in order inflows and projects nearing completion impacts execution
Net sales decreased by 19% YoY to Rs 627 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. For FY13, the management maintained its sales guidance at Rs 3,750 cr. NTPC projects in which BGR is L1 will start contributing from FY14/15 onwardsExecution of BOP contracts leads to improvements in operating margins
Operating margins increased by 91bps to 15.2%. This was primarily on account of higher proportion of execution of BOP contracts. BOP contracts namely Chandrapur, Marwa and Krishnapatnam constituted 68% of sales mix from power segment.Interest cost erodes earnings
Interest cost increased by 33% to Rs. 40.1 cr as short borrowing (WC related borrowing) increased to Rs. 2,095 cr. Retention money of Rs 1,270 cr has stretched debtor to Rs 3,900 cr (Debtors turnover of 0.85x on FY12). Consequently, PAT declined by 32.4% to Rs. 34.7 crTotal backlog of Rs 13979 cr including L1 orders from NTPC: Total order backlog stands at Rs. 13,979 cr which includes L1 orders from NTPC. Excluding NTPC orders (bulk tender), project order backlog stands at Rs 4,725 cr. Product orders constitute Rs. 650 cr. NTPC orders (worth Rs 8,600) are BTG orders which would start contributing to revenues from FY14/15 onwards. Our View & Valuation: At CMP of Rs 267, BGR is trading at a P/E of 8.3x FY13E and 9.6 x FY14E. Execution has been disappointing on account of lull in order inflows. Although BGR is L1 in NTPC bulk tender orders, 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 224 (P/E of 8 x its FY14E 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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