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BGR Energy: Guidance cut on order delays - Views on News from Equitymaster

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BGR Energy: Guidance cut on order delays

Aug 9, 2012

BGR Energy has announced the first quarter results of financial year 2012-2013 (1QFY13). Both topline and bottomline have declined by around 16.6% YoY and 33.0% YoY respectively. Here is our analysis of the results.

Performance summary
  • Top-line declines by 16.6% YoY in 1QFY13.
  • Operating profits decline 7.1% YoY during the quarter due to muted performance at the top-line level. However, margins improved to 14.4% in 1QFY13. It may be noted that margins are a function of revenue mix/segregation between Balance of Plant (BoP) and Engineering, Procurement & Construction (EPC) contracts. BoP contracts have higher margins than EPC contracts.
  • Net profits decline 33.0% YoY during the quarter due to muted performance at the operating level, rise in interest expenses and fall in other income.
  • The company's order backlog at the end of the quarter stood over Rs 150 bn. This is inclusive of NTPC boiler and turbine orders.

Standalone performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Income from operations 7,329 6,109 -16.6%
Expenditure 6,381 5,229 -18.1%
Operating profit (EBDITA) 948 881 -7.1%
Operating profit margin (%) 12.9% 14.4%  
Other income 13 1 -92.4%
Finance cost 180 342 90.0%
Depreciation 37 41 10.4%
Profit before tax 743 498 -33.0%
Tax 241 162 -32.9%
Profit after tax/(loss) 503 337 -33.0%
Net profit margin (%) 6.9% 5.5%  
No. of shares (m)   72.2  
Basic earnings per share (Rs)   4.7  
P/E ratio (x) *   10  
* On the basis of trailing 12 months earnings

What has driven performance in 1QFY13?
  • Net sales declined 16.6% YoY during the quarter as more civil billing happens in the first quarter where the progress of work depends on the terms predefined with the customer. Revenues from the Construction & EPC segment declined 15.7% YoY while that from the Capital Goods segment declined 27.2% YoY.

  • Operating profits declined 7.1% YoY due to muted sales performance during the quarter. Nonetheless, operating margins registered an improvement of about 150 bps to 14.4% during the quarter. This was mainly due to higher execution of BoP projects during the quarter which have better margins compared to EPC contracts.

    Segment wise performance (Standalone)
      1QFY12 1QFY13 Change
    Capital Goods
    Revenue (Rs m) 582 424 -27.2%
    % share 7.9% 6.9%  
    PBIT margin 4.0% 5.4%  
    Construction & EPC Contracts
    Revenue (Rs m) 6,747 5,686 -15.7%
    % share 92.1% 93.1%  
    PBIT margin 13.1% 14.4%  
    Total
    Revenue (Rs m) 7,329 6,109 -16.6%
    PBIT margin 12.4% 13.7%  

  • Net profits declined 33% YoY due to muted performance at the operating level and rise in interest expenses. Interest cost increased due to rising working capital requirements. As of 30th June 2012, the total working capital requirement stood at Rs 19 bn compared to 17 bn in the previous quarter. This led to an increase in bank borrowing.

What to expect?
Management has toned down its revenue guidance for the current fiscal to about Rs 37.5 bn from about Rs 43 bn previously. This was mainly due to a delay in getting orders from NTPC which was factored into the estimates. Apart from that, slowdown in execution in the Rajasthan project has also resulted in the slippage. However, despite a strong margin performance in the first quarter (14.4%) management reiterated its full year guidance of 11-12% as more EPC projects are likely to be executed during the course of the year which have lower margins.

As far as the progress on the boiler, turbine and generator (BTG) factories is concerned it may be noted that management has applied for the construction permit and is waiting for the approval to start the construction process. The total cost for the same is now estimated to be around Rs 35 bn. Management's share of equity stands at Rs 7.5-8bn out of which Rs 2.5 bn is already invested.

At these levels we believe that the stock is fairly priced. Thus, we maintain our hold view on the stock.

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