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Research
BGR Energy Systems - Lower Sales, High Interest Cost Drag Performance; Maintain "SELL" - Karvy
Posted On : 2013-06-05 21:11:12( TIMEZONE : IST )
BGR Energy Systems (BGR Energy) has registered 6.5% decline in revenue to Rs. 11.37 bn in the quarter ended Mar'13, while the Company's operating margin rose 110 bps to 13%, which has improved operating profit by 2.3% to Rs. 1,387 mn. However, due to higher interest cost, its PBT declined 13% to Rs. 829 mn. Eventually, the Company's net profit declined by 20% to Rs. 538 mn on account of 550 bps rise in tax rate to 35% on YoY basis.
Segmental Performance: While the contribution of Capital Goods to the topline of BGR Energy stood at 7.4% in Q4FY13, same as previous corresponding period. Meanwhile, greater contribution from BoP projects (Chandrapur & Marwa) has boosted the margin of the Company.
Working Capital Loan: BGR Energy's working capital loan stood at Rs. 21.5 bn as of Mar'13 and the long-term loan was at just Rs. 200 mn. The Company expects a reduction of Rs. 3-3.5 bn in working capital limits by end of FY14. Overall Order Inflow Remains Muted sans NTPC Orders: BGR is executing nine major projects while its current order-book stands at Rs. 110 bn with orders worth Rs. 72 bn from NTPC. Hence, the order inflow remains muted excluding the projects secured from NTPC. We expect lower EBITDA margins going forward on account of project execution of NTPC orders.
Outlook & Valuation
We expect the financial performance of BGR Energy to deteriorate with the beginning of JV with Hitachi Again, with capacity utilization likely to remain low, it seems difficult to win profitable orders amidst stiff competition. We downgrade earnings for FY14 & FY15 by 2.7% & 13.6% due to delay in projects execution of NTPC & Krishnapatnam projects. We expect BGR Energy's revenue to register 10.5% CAGR, while earning could see -8.7% CAGR in FY12-15E. Based on 8xFY15E earnings at 40% discount to its mean multiple of 13x, we maintain our "SELL" recommendation on the stock with downwardly revised target price of Rs. 188 per share (from Rs. 215 earlier).
