BGR Energy Systems: Mixed performance in Q1FY13
- Mixed performance in 1QFY13: BGR Energy (BGRL) reported mixed performance for 1QFY13. Revenue declined 17% y-o-y to Rs6.1b, significantly below estimates. Net profit declined 33% y-o-y to Rs335m, in line with estimates, driven by 150bp y-o-y EBITDA margin expansion to 14.4% v/s the estimate of 13.1%.
- Management cuts revenue guidance: Revenue was lower because, of the four projects under execution, two are in the initial stages. Though both these projects are likely to pick up in the remaining part of the year, the management has cut its revenue guidance for FY13 to Rs37-38b from Rs47b earlier due to delayed order inflows from NTPC projects, etc.
- Favorable product mix supports EBITDA margin: EBITDA margin improved on account of favorable mix, driven by higher contribution from BOP contracts (at 65%) relative to EPC contracts. Currently, EPC contracts constitute ~70% of the total order book, and going forward, a large part of the incremental orders are likely to be through the EPC route, impacting margins. The management expects EBITDA margin to stabilize at 11-12% in FY13/14.
- Excluding NTPC project awards, order inflow remains muted: Order book as at the end of June 2012 stood at Rs150b, of which Rs7b are product orders and Rs143b are projects. Projects include NTPC bulk tenders of Rs86b (57% of total order book), Rs22b of EPC and Rs30b of BOP, indicating no major order inflow other than booking of NTPC projects. The management indicated that bidding pipeline stands at ~11GW for FY13.
- Working capital remains at elevated level: Net working capital at Rs17b remains at elevated level, though slightly down from Rs19b on q-o-q basis. Retention money is at Rs14, of which Rs10b is against various projects under construction and the remaining Rs4b is against three major projects that have already been completed. The management expects realization of the same by the end of FY13.
Cutting estimates; maintain Neutral: Motilal Oswal has cut their FY13 estimates by 11%, given deteriorating order inflow. The Indian power equipment market is going through a tough phase, with slowing demand and rising costs. Maintain Neutral rating on the stock, with a revised target price of Rs253 (10x FY14E earnings).
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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