>BGR ENERGY SYSTEMS: In the fast lane (EDELWEISS)

We recently met the management of BGR Energy (BGR), and came back positive on its project execution, JV with Hitachi for manufacture of BTG equipment, and order inflows.

■ Robust order backlog and pipeline provides visibility
With several SEBs expected to tender orders of INR 350–400 bn during FY11, BGR’s order pipeline looks very strong. The management is confident of bagging orders of INR 150-200 bn in the current fiscal. The company has already placed bids for two EPC projects in Rajasthan worth INR 6.5 each and one BoP project in Maharashtra worth INR 20 bn, with orders expected to be awarded in the next 3–4 months. The company’s order backlog, at INR 102 bn (2.2x FY11E revenues), continues to provide strong visibility with execution cycle of 24-30 months.

■ JV with Hitachi to be signed in end July 2010
The JV with Hitachi will provide BGR credible support for its EPC bidding, eventually establishing it as a serious player with long-term visibility. At the same time, BGR continues to enjoy flexibility to go with other vendors for subcritical equipment. The company has already identified land for setting up the 4,000 MW BTG manufacturing facility at a total capex of INR 32 bn.

■ Revising up FY11 and FY12 earnings
Based on increased order inflow estimate, together with likelihood of strong execution in FY11E, we have revised up our revenue estimate by 8.8% and 3.9% for FY11E and FY12E, respectively. With the company turning cash positive during FY10, we have increased our other income estimate thereby raising our earnings estimate by 21.1% and 13.1% for FY11E and FY12E respectively.

■ Outlook and valuations: Orders accretion to improve; maintain ‘BUY’
Given strong execution during Q4FY10 and progress on its ongoing projects (details explained overleaf), we expect BGR to continue to grow strong in FY11. New orders would be crucial for continued strong growth of the company in FY12 and beyond. On our revised EPS estimate of INR 40.1 (FY11E) and INR 52.5 (FY12E), the stock is trading at P/E of 18.9x and 14.4x FY11E and FY12E, respectively. We reiterate our ‘BUY’ recommendation on the stock. On relative
return basis the stock is rated ‘Sector Outperformer’.

To read the full report: BGR ENERGY