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Since Friday, BGR Energy Sytems's share has lost almost 30 per cent after the news of B G Raghupathy, its 59-year-old chairman and managing director, died on Sunday night. Post the event Street has shown its apprehensions about succession plans and management of the company’s operations.
Street believes B G Raghupathy was the key person handling its key business and operations. After his death there could be lack of good leadership and ability to manage the company.
On the contrary to Street’s concern, the company officials have said that there is efficient set of people heading the company, and a strong board. Meanwhile stock has fallen significantly and trades 3 times its estimated earnings and 0.4 time its book value of FY14, which is far less compared to its own history and peers in the industry.
"They had recently inducted B.G. Raghupathy's daughter in the management role, but all this happened unexpectedly and peoples were not prepared. I think the stock has come to attractive levels, at about Rs 500 crore market capitalisation it is worth buying for a company with consolidated order book of Rs 13,000 crore. Operational nothing is wrong once the new management will be inducted this stock will get rerated"," said Rabindra Nath Nayak, analyst, SBICAP Securities.
Last few years were though for BGR Energy and its management. Its share prices have corrected almost 90 per cent from its peak of about Rs 950 in 2010 to currently at Rs 80.70 a shares. The industry wide issues in the power equipments segment arising due to the delays in execution of the power plants, lack of fresh orders and a lengthy working capital cycle has hit many companies especially the companies which have huge borrowings.
BGR too has its share of worries. In June 2013, the promoters announced an OFS representing 6.13 per cent of the outstanding capital at Rs 163 a share at a time when the stock was trading at around Rs 200. But even at these lower prices, the OFS failed to elicit sufficient response.
Stock continues to slide thereafter and the demise of its founder has added more fuel to the fire. Now the real question that market eagerly waiting is who is going to succeed the B.G. Raghupathy and could he or she have that same impact in these difficult times.
Industry believes that under his leadership the company has grown rapidly from just about Rs 123.2 crore sales turnover in FY02 to currently at about Rs 3,111 crore. When most of the power equipment companies were struggling, BGR was among the first to quickly move into this space taking the advantage of huge demand and capacity constraints.
In 2008 it got listed and raised funds to expand its capacities. Its shift from pure BOP (balance of plant) player to handling power EPC work unlocked the value and allowed the company to undertake bigger projects.
B G Raghupathy was key person behind joint venture with Hitachi to set up a boiler and a turbine manufacturing facility in Tamil Nadu with an estimated investment of Rs 4,400 crore. This gave the company additional edge in terms of capabilities at a time when there was large demand for supercritical technologies.
Raghupathy was considered to be instrumental in company’s growth. His strategic thinking and future planning along with industry contacts have had huge positive impact. Though he is now survived by his wife Sasikala Raghupathy (currently non executive director), a son and three daughters but Street is looking for more clarity as analysts believe that his children are still young to play any large role in managing the company.
