>BGR ENERGY SYSTEMS LTD. (IDBI CAPITAL)

LEVERAGING GROWTH

Summary
BGR Energy Systems Ltd. (BGR) is all set to outperform in the medium term due to huge opportunities in the Power Sector for Balance of Plant Equipments (BOP), robust order book, diversified business model, technological collaborations, likely entry into boiler and turbine manufacturing space and strong balance sheet.

Going forward, BGR plans to cater to variety of clients by expanding existing facilities in India. We believe that the robust order book, diversified business model and technical collaborations with strong management team would help it maintain its revenue growth in the medium term. BGR raised a sum of Rs.3.37bn from equity issuances from private Equity and IPO last year to withstand large capital expansion and working capital needs for the ongoing projects.

At current market price the stock is quoting at 12.2x the FY10E EPS of Rs.25.3 and 9.4x FY11E EPS of Rs.33.0. We recommend ‘Accumulate’ with a target price of Rs.321.

Investment Highlights

■ Huge opportunity for BOP and EPC contracts in the 11th and 12th Plan
Government of India planned capacity additions of 78,577MW for 11th 5-year plan. Till today, around 91% of the projects are under construction. Despite continuous slippages in the last two 5-year plans, we believe that 45-50GW capacity additions look realistic in the 11th 5-year plan. In addition, the GoI would continue its thrust in the power sector and planned to add 82,200 MW in the 12th Plan.

■ Robust order book to lead a steep rise in revenue & profit growth
BGR has a robust order book of Rs.95bn with a majority of projects from the Power Projects division. The company has recently won large BOP and EPC orders of Rs 49bn from RRVUNL and Rs. 31bn from TNEB with an expected execution period of 3-4 years. As a result, the company's revenues and profits are also expected to pick up strongly in the next few years.

■ Diversified business model to enable BGR to de-risk business in the long term.
Though BGR's large order book consists of Central and State Utility orders, it diversified into Air fin Cooler and Oil and Gas Equipment businesses, which can become a major growth drivers in the next couple of years. The company also manufacturers related equipments and products through its divisions and associates. BGR is executing an EPC contract for 1200 MW for RRVUNL which was awarded on international competitive bidding.

■ Technical Collaborations & Strong management to grab large & complex projects
BGR has technological tie-ups with world leading Power Equipment companies for various products. The company is poised to execute power plants of sizes upto 1,000 MW using the latest technologies. The company has a strong management team with an average experience of more than 25 years. The company has also worked with reputed clients such APGENCO and RRVUNL & other SEBs.

To see full report: BGR ENERGY