3QFY213 Result Update Capital Goods February 8, 213 BGR Energy Systems Performance Highlights Quarterly Highlights (Standalone) (` cr) 3QFY13 3QFY12 % chg (yoy) 2QFY13 % chg (qoq) Revenue 85 84.2 627 28.3 EBITDA 111 131 (15.8) 95 16.1 EBITDA margin (%) 13.7 16.3 (259)bp 15.2 (145)bp Reported PAT 41 55 (24.3) 35 19.3 BGR Energy (BGR) reported a flat top-line performance at `85cr and 24% yoy decline in PAT to `41cr for 3QFY213. The increase in interest cost (due to higher working capital borrowings) and margin pressure led to a sharp decline in PAT. Key highlights: The 22% yoy decline in revenue from the Capital Goods segment at `59cr (`75cr in 3QFY212) was offset by a 2.4% yoy growth in revenue from the Construction and EPC segment at `746cr (`729cr in 3QFY212). On the operating front, the EBITDA margin contracted by 259bp yoy to 13.7%, mainly on account of a 289bp yoy contraction in margin of the Construction and EPC segment. Interest cost grew by 9% yoy to `5cr (owing to elevated interest rate scenario and enhanced working capital requirements). Consequently, the net profit declined by 24% yoy to `41cr. During the quarter, the company has won the Notification of Award (NOA) from NTPC s Lara STTP for steam turbine and generators. The order is approximately valued at `1,548cr. Order backlog at the end of 3QFY213 stood at ~`13,578cr up 65% yoy as NTPC bulk order is recognized in the order book. However, the company has bid aggressively for some of these orders and hence, we remain cautious on the margin front. Outlook and Valuation: BGR's working capital has seen deterioration over the past few quarters, mainly due to high receivables. In our view, tight liquidity is likely to transmit negatively on BGR's books. At the current market price, the stock is trading at a PE multiple of 9.x on our FY214E EPS, which we believe is reasonable amidst the structural issues (slowdown of order inflow in boiler turbine generator [BTG] space and high leverage) faced by the company. Hence, we maintain our Neutral view on the stock. NEUTRAL CMP `235 Target Price - Investment Period - Stock Info Sector Capital Goods Market Cap (` cr) 1,695 Net Debt (` cr) 85 Beta 1.7 52 Week High / Low 374/229 Avg. Daily Volume 174,967 Face Value (`) 1 BSE Sensex 19,485 Nifty 5,94 Reuters Code BGRE.BO Bloomberg Code BGRL@IN Shareholding Pattern (%) Promoters 81.1 MF / Banks / Indian Fls 2.1 FII / NRIs / OCBs 1.8 Indian Public / Others 15. Abs. (%) 3m 1yr 3yr Sensex 3.4 1. 22.3 BGR (12.) (5.4) (51.9) Key financials (Consolidated) Y/E March (` cr) FY211 FY212 FY213E FY214E Net sales 4,75 3,451 3,412 4,14 % chg 54.5 (27.4) (1.1) 2.3 Net profit 323 224 178 189 % chg 6.5 (3.5) (2.8) 6.2 EBITDA (%) 11.3 13.5 13. 11.6 EPS (`) 44.8 31.1 24.6 26.2 P/E (x) 5.3 7.6 9.6 9. P/BV (x) 1.8 1.5 1.4 1.3 RoE (%) 4.4 31.9 3.7 25.7 RoCE (%) 24.4 16.9 14.3 13.5 EV/Sales (x).4.8.9.8 EV/EBITDA (x) 3.8 5.6 6.6 6.8 Amit Patil 22-393578 Ext: 6839 amit.patil@angelbroking.com Please refer to important disclosures at the end of this report 1
Exhibit 1: Quarterly performance (Standalone) (` cr) 3QFY13 3QFY12 % chg (yoy) 2QFY13 % chg (qoq) 9MFY13 9MFY12 % chg (yoy) Net Sales 85 82.3 626 28.5 2,42 2,34 (11.4) Other operating income 1 1 1 3 Total income 85 84.2 627 28.3 2,43 2,37 (11.4) Stock adjustments 2.6.2 (1.1) 1 Raw Material 65 587 3. 457 32.3 1,517 1,746 (13.1) (% of total income) 75.5 73.1 2.4 72.7 74.2 75.7 Employee Cost 56 48 15.8 49 13.2 143 124 14.9 (% of total income) 6.9 6. 7.8 7. 5.4 Other Expenses 31 37 (15.4) 27 16.2 89 12 (13.1) (% of total income) 3.9 4.6 4.3 4.3 4.4 Total Expenditure 694 672 3.3 532 3.5 1,749 1,972 (11.3) EBITDA 111 131 (15.8) 95 16.1 294 335 (12.2) (EBITDA %) 13.7 16.3 (259)bp 15.2 (145bp) 14.4 14.5 Interest 5 46 9. 4 25.5 125 94 32.1 Depreciation 4 4 7.5 4.3 2.8 13 12 8.5 Other Income 5.5 6 3 PBT 61 81 (24.3) 51 19.4 163 231 (29.8) (% of total income) 7.6 1.1 8.2 8. 1. Total Tax 2 26 (24.3) 17 19.4 53 75 (29.8) (% of PBT) 32.5 32.5 32.4 32.4 32.4 PAT 41 55 (24.3) 35 19.3 11 156 (29.8) (% of total income) 5.1 6.8 5.5 5.4 6.8 EPS (`) 5.7 7.6 4.8 19.3 15.2 21.7 Exhibit 2: Segment-wise performance (Standalone) Y/E March (` cr) 3QFY13 3QFY12 % chg (yoy) 2QFY13 % chg (qoq) 9MFY13 9MFY12 % chg (yoy) Revenue Capital goods 59 75 (22.) 59 (1.) 16 225 (28.8) Const. and EPC contracts 746 729 2.4 568 31.4 1,883 2,82 (9.6) Total revenue 85 84.2 627 28.3 2,43 2,37 (11.4) EBIT (excl. net unallocable inc.) Capital goods 7 9 (25.1) 1 1 27 (61.7) Const. and EPC contracts 99 118 (15.8) 9 271 296 (8.6) Total EBIT 16 127 (16.5) 91 281 323 (13.) Revenue mix (%) Capital goods 7.3 9.4 9.4 7.8 9.8 Const. and EPC contracts 92.7 9.6 9.6 92.2 9.2 EBIT margin (%) Capital goods 11.7 12.2 2. 6.5 12. Const. and EPC contracts 13.3 16.2 15.8 14.4 14.2 February 8, 213 2
Top-line flat yoy During 3QFY213, BGR s top-line growth came in flat yoy at `85cr. The 22% yoy decline in revenue from the Capital Goods segment to `59cr (`75cr in 3QFY212) was offset by a 2.4% yoy growth in revenue from the Construction and EPC segment at `746cr (`729cr in 3QFY212). Exhibit 3: Revenue 1,6 1,4 97.9 12 1 1,2 1, 8 6 4 2 1,257 (11.9) 1,462 (19.) 734 (32.1) (36.1) 772 83.7 (22.2) 1137.7 (16.8) (18.7) 61.9 627.3.2 85. 8 6 4 2 (2) (4) (6) 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 Sales (` cr, LHS) Growth (yoy %, RHS) Operating margin contracts 259bp yoy For 3QFY213, the company s operating margin expanded by 259bp yoy to 13.7%, mainly on account of a 289bp yoy contraction in margin of the Construction and EPC segment. Interest cost grew by 9% yoy to `5cr (owing to elevated interest rate scenario and enhanced working capital requirements). Consequently, the net profit declined by 24% yoy to `41cr. Exhibit 4: EBITDA and EBITDAM Exhibit 5: PAT impacted by high interest cost and margin pressure 18 16 14 12 1 11.7 11.5 13.1 14.3 16.3 11.9 14.4 15.2 13.7 2 16 12 125 1 75 7. 6.7 6.8 6.7 6.8 5.9 5.5 5.5 5.1 1 8 6 8 6 8 5 4 4 2 147 167 96 11 131 136 88 95 111 4 25 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 88 98 5 4QFY12 1QFY13 2QFY13 3QFY13 51 55 67 34 35 41 2 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 EBITDA (` cr, LHS) EBITDAM (%, RHS) PAT (` cr, LHS) PATM (%, RHS) February 8, 213 3
Order book: During the quarter, the company has won the NOA from NTPC s Lara STTP for steam turbine and generators. The order is approximately valued at `1,548cr. Order backlog at the end of 3QFY213 stood at ~`13,578cr up 65% yoy as the NTPC bulk order has been recognized in the order book. However, the company has bid aggressively for some of these orders and hence, we remain cautious on the margin front. Exhibit 6: Order book 16, 14, 12, 1, 8, 6, 4, 2, - 11,69 1,23 9,397 1,532 9,317 8, 7,516 7,27 3QFY1 8,215 4QFY1 7,516 1QFY11 15,1 2QFY11 13979 3QFY11 13578 4QFY11 1QFY12 2QFY12 (` cr) 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 Investment concerns Investment commitments + Elongated working capital = Soaring debt: BGR's working capital has seen severe deterioration over the past few quarters (from 74 days in FY21 to ~166 days in FY212), mainly due to high receivables (owing to the retention money from SEBs such as RRVUNL and TNEB, which are facing high financial strain). Further, with persistent headwinds in the power sector, we expect tepid order inflow and delays in execution adding to BGR s woes. Moreover, the company has bid aggressively for some of recent orders and hence, we remain cautious on the margin front. Outlook and valuation BGR's working capital has seen deterioration over the past few quarters, mainly due to high receivables. Amid issues impairing the power sector, credit availability may harden for SEBs, as banks have already chosen to remain risk-averse. Hence, in our view, tight liquidity is likely to transmit negatively on BGR's books. At the current market price, the stock is trading at a PE multiple of 9.x FY214E EPS, which we believe is reasonable amidst the structural issues (slowdown of order inflow in BTG space and high leverage) faced by the company. Hence, we maintain our Neutral view on the stock. February 8, 213 4
Exhibit 7: Angel EPS forecast vs consensus Y/E March Angel forecast Bloomberg consensus Var. (%) FY213E 24.6 24.5 1. FY214E 26.2 25.8 1.1 Exhibit 8: PE Band 98 84 7 56 42 28 14 Apr-8 Aug-8 Dec-8 Apr-9 Aug-9 Dec-9 Apr-1 Aug-1 Dec-1 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Share Price (`) 6x 9x 12x 15x Exhibit 9: Peer comparison Company Reco. CMP Tgt. price Upside P/BV(x) P/E(x) FY212-14E RoE (%) (`) (`) (%) FY13E FY14E FY13E FY14E EPS CAGR FY13E FY14E ABB* Reduce 647 573 (11.3) 5.1 4.5 74.4 29.3 59.1 7.1 16.5 BHEL Neutral 29 - - 2.6 2.2 8.7 1. (15.3) 32.9 23.6 BGR Energy Neutral 235 - - 1.4 1.2 9.5 9. (8.3) 3.7 25.7 Crompton Greaves Buy 14 129 24.6 1.8 1.7 31.3 15.1 8.7 5.8 11.5 Jyoti Structures Buy 39 49 25.6.4.4 5.1 3.6 (1.4) 9.6 12.1 KEC International Buy 55 75 36.1 1.2 1. 1.3 6.5 1.8 17. 22.8 Thermax Neutral 582 - - 3.7 3.3 21.5 19.2 (5.5) 18.5 18.2 Company background BGR Energy Systems (BGR) is one of the leading players in the Balance of Plant (BoP) and EPC space of the power sector. The company has taken several big leaps over the year from being a mere manufacturer of a few BoP components to executing turnkey BoP projects and now gradually executing full-fledged EPC contracts. In 21, BGR ambitiously ventured into setting up a manufacturing facility of 4,MW for supercritical boilers and turbine generators in a JV with Hitachi (76:24). February 8, 213 5
Profit & loss account (Consolidated) Y/E March (` cr) FY29 FY21 FY211 FY212 FY213E FY214E Operating income 1,93 3,73 4,75 3,451 3,412 4,14 % chg 27. 59.2 54.5 (27.4) (1.1) 2.3 Total Expenditure 1,721 2,729 4,214 2,984 2,968 3,626 Raw Materials 1,352 2,187 3,446 2,173 2,276 2,855 Mfg costs 172 236 46 449 444 492 Personnel Costs 74 126 145 176 12 123 Other Costs 123 18 217 185 147 156 EBITDA 29 344 536 467 443 477 % chg 34.5 64.8 55.8 (12.9) (5.) 7.6 (% of Net Sales) 1.8 11.2 11.3 13.5 13. 11.6 Depreciation & Amortization 8 1 17 17 26 38 EBIT 21 334 519 45 417 439 % chg 34.4 65.8 55.4 (13.4) (7.2) 5.4 (% of Net Sales) 1.4 1.9 1.9 13. 12.2 1.7 Interest & other Charges 58 54 6 135 17 174 Other Income 32 25 22 14 16 14 (% of PBT) 18.1 8.2 4.6 4.4 6.1 5. Recurring PBT 175 35 481 328 263 28 % chg 35.2 74.2 57.6 (31.7) (19.9) 6.2 Extraordinary Expense/(Inc.) PBT (reported) 175 35 481 328 263 28 Tax 6 14 158 14 86 91 (% of PBT) 34. 34. 32.8 31.7 32.5 32.5 PAT (reported) 116 21 323 224 178 189 Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) 115 21 323 224 178 189 ADJ. PAT 115 21 323 224 178 189 % chg 32.2 74.4 6.5 (3.5) (2.8) 6.2 (% of Net Sales) 6. 6.6 6.8 6.5 5.2 4.6 Basic EPS (`) 16. 28. 44.8 31.1 24.6 26.2 Fully Diluted EPS (`) 16. 28. 44.8 31.1 24.6 26.2 % chg 32.2 74.4 6.1 (3.5) (2.8) 6.2 Note: Some of the figures from FY211 onwards are reclassified; hence not comparable with previous year numbers February 8, 213 6
Balance sheet (Consolidated) Y/E March (` cr) FY29 FY21 FY211 FY212 FY213E FY214E SOURCES OF FUNDS Equity Share Capital 72 72 72 72 72 72 Preference Capital Reserves & Surplus 492 634 88 1,45 1,164 1,294 Shareholders Funds 564 76 952 1,117 1,236 1,366 Minority Interest 3 3 52 91 91 91 Total Loans 79 87 1,327 1,747 1,947 2,97 Deferred Tax Liability 75 155 38 397 397 397 Long term liablities 784 653 653 653 Long term provisions 17 25 25 25 Total Liabilities 1,35 1,672 3,593 4,211 4,931 5,64 APPLICATION OF FUNDS Gross Block 125 182 251 379 579 679 Less: Acc. Depreciation 27 37 53 69 95 133 Net Block 98 145 198 31 484 546 Capital Work-in-Progress 5 1 86 13 11 11 Goodwill 1 1 1 1 1 1 Investments 1 1 1 1 1 1 Deferred Tax Asset 175 273 385 445 Current Assets 2,569 3,644 4,788 4,656 5,95 5,444 Cash 615 92 1,41 941 826 65 Loans & Advances 643 727 573 523 64 752 Inventories 14 16 41 31 48 76 Debtors 1,279 1,98 3,13 3,138 3,552 3,935 Others 18 18 3 24 3 3 Current liabilities 1,323 2,129 1,714 1,735 1,735 2,24 Net Current Assets 1,246 1,515 3,74 2,922 3,36 3,42 Mis. Exp. not written off 59 62 592 542 Total Assets 1,35 1,672 3,593 4,211 4,931 5,64 Note: Some of the figures from FY211 onwards are reclassified; hence not comparable with previous year numbers February 8, 213 7
Cash flow statement (Consolidated) Y/E March (` cr) FY29 FY21 FY211 FY212 FY213E FY214E Profit before tax 175 35 481 328 263 28 Depreciation 8 1 17 17 26 38 (Inc)/Dec in WC (129) 18 (641) (393) (464) (296) Less: Other income (32) (25) (22) (14) (16) (14) Direct taxes paid (6) (14) (158) (14) (86) (91) Cash Flow from Operations (38) 25 (323) (165) (276) (84) (Inc.)/Dec.in Fixed Assets (62) (65) (147) (15) (27) (1) (Inc.)/Dec. in Investments 151 Other income 32 25 22 14 16 14 Cash Flow from Investing 121 (4) (125) (136) (191) (86) Issue of Equity - -.2 - - - Inc./(Dec.) in loans 26 98 519 42 2 15 Dividend Paid (Incl. Tax) 25 59 84 59 59 59 Others 44 83 151 (16) 211.6 (97) Cash Flow from Financing 181 39 435 361 141 91 Inc./(Dec.) in Cash 38 287 139 (1) (115) (176) Opening Cash balances 37 615 92 141 941 826 Closing Cash balances 615 92 141 941 826 65 Note: Some of the figures from FY211 onwards are reclassified; hence not comparable with previous year numbers February 8, 213 8
Key Ratios Y/E March FY29 FY21 FY211 FY212 FY213E FY214E Valuation Ratio (x) P/E (on FDEPS) 14.8 8.5 5.3 7.6 9.6 9. P/CEPS 13.9 8.1 5. 7.1 8.4 7.5 P/BV 3. 2.4 1.8 1.5 1.4 1.3 Dividend yield (%) 1.3 3. 4.2 3. 3. 3. EV/Sales.9.5.4.8.9.8 EV/EBITDA 8.6 4.6 3.8 5.6 6.6 6.8 EV / Total Assets 1.3 1..8.9.9.9 OB/Sales 4.9 3.3 1.7 2.2 2. 1.5 Per Share Data (`) EPS (Basic) 16. 28. 44.8 31.1 24.6 26.2 EPS (fully diluted) 16. 28. 44.8 31.1 24.6 26.2 Cash EPS 17.1 29.4 47.2 33.5 28.3 31.4 DPS 3. 7. 1. 7. 7. 7. Book Value 78.3 98.1 131.9 154.9 171.3 189.3 DuPont Analysis(%) EBIT margin 1.4 1.9 1.9 13. 12.2 1.7 Tax retention ratio (%) 66. 66. 67.2 68.3 67.5 67.5 Asset turnover (x) 3. 4.1 4.1 2.1 1.5 1.4 RoIC (Pre-tax) 31.2 44.4 45. 26.9 18.7 15.5 RoIC (Post-tax) 2.6 29.3 3.2 18.3 12.6 1.5 Cost of Debt (Post Tax) 6.3 4.7 3.8 6. 6.2 5.8 Leverage (x).3..1.8 1.7 1.7 Operating ROE 24.6 29.3 33.4 27.9 23.3 18.6 Returns (%) RoCE (Pre-tax) 17. 22.1 24.4 16.9 14.3 13.5 Angel RoIC (Pre-tax) 31.4 44.9 47. 28.5 19.6 16.1 RoE 22.3 31.7 4.4 31.9 3.7 25.7 Turnover ratios (x) Asset Turnover (Gross Block) 19.6 2.1 22. 11. 7.1 6.5 Inventory / Sales (days) 3 2 2 4 4 6 Receivables (days) 19 194 195 33 358 333 Payables (days) 182 29 152 21 25 183 WC cycle (ex-cash) (days) 17 74 72 166 185 196 Solvency ratios (x) Net debt to Equity.2 (.1).3 1.6 1.7 1.8 Net debt to EBITDA.4 (.3).5 1.7 2.5 3. Interest Coverage 3.5 6.2 8.6 3.3 2.5 2.5 Note: Some of the figures from FY211 onwards are reclassified; hence not comparable with previous year numbers February 8, 213 9
Research Team Tel: 22 3935 78 E-mail: research@angelbroking.com Website: www.angelbroking.com DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement BGR Energy Systems 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors. Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to -15%) Sell (< -15%) February 8, 213 1