BGR Energy: Order-win is a positive

Earnings estimate and target price under review as its bid looks aggressive

BGR Energy has emerged as the lowest bidder for NTPC’s order for 11 units of boiler sets of 660 Mw. Analysts say the company, which has a joint venture with Hitachi, has bid rather aggressively for this order. According to them, BGR Energy is expected to bag seven units at Rs 1.4 crore/Mw. This is 11.4 per cent lower than the second lowest bidder. While this implies an incremental order flow of over Rs 4,500 crore for BGR, analysts believe such an aggressive bid would put pressure on margins.

Goldman Sachs says the Rs 4,500-crore of incremental order inflow provides strong revenue visibility over the next three years. However, the foreign brokerage continues to believe the pricing of bids, in light of 40 per cent of components being imported, may be aggressive. This would result in margin pressure, but should nonetheless help BGR increase profitability in a difficult order inflow environment in the power equipment space.

However, analysts say the management is expecting to clock Ebitda margins of 12-13 per cent and six-seven per cent net profit margins from these orders. JM Financial is ‘optimistically’ factoring 12 per cent Ebitda margins for FY13/14 (vs 10-11 per cent historically), despite aggressive bid pricing risk.

According to the management, the company currently has an order book of Rs 8,200 crore, which is likely to expand 80 per cent to Rs 15,000 crore by March. The company is also hopeful about the Rs 6,100-crore Rajasthan SEB order till May 2012, claim analysts.

Most brokerages are revising the order-inflow upwards, but are not convinced about the company’s profitability. Edelweiss Securities says: “While we revise our order intake assumption for FY12 and FY13, and revenue assumptions for FY13 substantially, we remain concerned on the overall profitability given stiff competition, higher interest and depreciation burden.”