BGR Energy Systems - 4QFY2012 Result Update - Angel Broking

BGR Energy (BGR) reported an average set of results for 4QFY2012. The company's top line declined during the quarter, leading to downbeat earnings growth. Order backlog at the end of 4QFY2012 stood at Rs.7,516cr, down 6% yoy. Including the NTPC bulk order, for which the company is the L1 bidder, the total backlog stood at ~Rs.15,000cr. Management has guided for revenue growth of 25% yoy along with EBITDA margin of 11-12%. We more or less agree with management's guidance regarding revenue growth and profitability margins. We expect revenue to grow by 21.7% and 15.3% during FY2013E and FY2014E, respectively, with EBITDAM at 11.0% for both the years. Opaque visibility on new orders remains an overhang, thus capping any upside to the stock. We maintain our Neutral view on the stock.

Execution decelerates, margin expands: The company's top line declined by 22.2% yoy to Rs.1,138cr (Rs.1,462cr), which was 9.8% higher than our expectation of Rs.1,036cr. The company's EBITDA margin reported a 47bp yoy expansion to 11.9%. Interest cost jumped by 124.7% to Rs.41cr, mainly due to high working capital borrowings leading to a 31.7% yoy decline in PAT to Rs.67cr, higher than our estimate of Rs.57.8cr.

Outlook and valuation: BGR's working capital has deteriorated 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 CMP, the stock is trading at a PE multiple of 9.2x and 8.6x on our FY2013E and FY2014E EPS estimates, respectively, which we believe is reasonable amidst structural issues (slowdown of order inflow in the BTG space and high leverage) faced by the company. Hence, we maintain our Neutral view on the stock.

Source : Equity Bulls

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