Generally, Infrastructure stocks gain in anticipation of or after winning orders as it provides visibility to the business. BGR Energy Systems, the company which provides balance of plant services to power projects and has gradually extended its business model with manufacturing of power equipment through joint venture with Japan’s Hitachi, is no exception.
The stock gained 14% in three days before it announced that it has emerged as the lowest bidder for steam turbines-generators in NTPC’s bulk tender order round 2 (9*800mw) worth Rs 6,750 crore. According to the terms of the contract the company will get 4 units (Rs 3,000 crore). Sensex gained around 3% and BSE Capital Goods (CG) index was flat in the same period.
The same movements was witnessed again when the company emerged as the lowest bidder for boilers in NTPC’s bulk tender order round 1 (11*660mw) worth Rs 10,164 crore. The stock gained 16% in three days before the announcement. This time, Sensex was flat and CG index was down 1.3%. According to the terms of contract, the company will get 7 units (three projects) worth Rs 6,500 crore out of which the company is already awarded two projects of 2*660mw each (Solapur in Maharashtra and Meja in Uttar Pradesh). Third project of 2*660mw (Raghunathpur of West Bengal) will be awarded by May-end.
From the date the company has got the turbine order (September 16, 2011) till the boiler order (February 29, 2012), the stock has remained stable gaining 1.75% while CG index has crashed by 13.5%. This is partly because of the investors hope and confidence of the company receiving the boiler order in round 1 after beating infrastructure giants like Bharat Heavy Electricals and Larsen and Toubro) in turbine order of round 2.
However, the stock has lost momentum after receiving the boiler order and it is down 15% since then, despite the order book of Rs 8,200 crore (as on February-end) more than doubling after winning the bulk tender orders. CG index has further declined by 15% in the said period.
Scrapping of orders worth Rs 12,000 crore (4*660mw), which was expected to be ordered in the current quarter, announced by Rajasthan Rajya Vidyut Utpadan Nigam (RRVUNL) on April 30 is also partly responsible for the free-fall. Before RRVUNL announcement, stock and CG index was down around 10% each from the date of receiving the boiler order.
BHEL and BGR were lowest and second lowest bidder respectively. Analysts had not factored RRVUNL order into their estimates for BGR as there was uncertainty surrounding the awarding. But RRVUNL is now going to refloat the tenders and number of bidders are expected to double from three earlier. Thus, BGR will have to compete even more aggressively than before for boosting its order book as ordering pipeline appears to be limited. Analysts remain negative on the company and consensus recommendation is to ‘sell’. Says Rohit Singh, analyst, IDBI capital, “Margins will remain under pressure due to stiff competition in BTG (Boiler-turbine-generator) and BoP (balance of plant).”
After remaining in the negative zone, the stock suddenly zoomed towards the end of today’s trading session and closed with 3.08% gain. After the markets closed, the company announced that the contract with State Company of Oil Projects (SCOP), Iraq for development of two gas fields namely Akas and Al-Mansuria valued at $80.50 million (around Rs 427 crore) has been terminated with mutual consent of the Company and customer. It has also been agreed that contractual claims of the Company will be settled with mutual agreement.