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BGR Energy: Conference Call Extracts

Sep 16, 2011

BGR Energy has emerged as a lowest bidder in the 9x800 MW bulk tender of NTPC. In light of the above development, the company organised a conference call today morning. Here are our key takeaways from the same.

Order Details: The JV conglomerate of BGR Energy and its foreign partner Hitachi has emerged as a lowest bidder in 9x800 MW supercritical turbine generator tender floated by NTPC. The total value of all the nine sets is pegged at Rs 65-70 bn. However, after taking into consideration the proportionate share of BGR Energy, the win would add approximately Rs 36 bn to the company's order book. We deem this as a significant development for the company as order pipeline over the last few quarters was relatively dry.

The first turbine will be commissioned in about 42 months and subsequent deliveries will happen every two months after that. High indigenization factor (40-45%) will enable the company to garner net margins in the range of 10%. The contract also includes price variation and foreign exchange variation clause.

The company's plan to set up a Boiler, Turbine & Generator (BTG) facility in Tamil Nadu is pretty much on track. It would require total capital investment of Rs 44 bn.

How critical was this order win?

It may be noted that the company's order pipeline witnessed a long lull due to delays in bulk tender orders from NTPC and environmental & coal linkage issues. As of 1QFY12 the order book of the company was Rs 75 bn (Trailing twelve months book to bill ratio was just under 2). An addition of Rs 36 bn to the existing order book from the recent win improves visibility as far as future revenue growth is concerned. While management reiterated its 15% revenue growth guidance for FY12, it may be noted that the revenue accretion from the recently won orders is likely to be minimal in the current fiscal. The top-line growth will be evident over the coming years as execution from the bulk tender offer materializes.

What to expect?

In the recent past, policy paralysis has plagued the power sector. Land acquisition hassles, environmental clearance issues and fuel linkages are prominent concerns that have impacted the order pipeline of the power equipment manufacturers. However, the company has finally managed to break the ice by emerging as the lowest bidder in the NTPC bulk tender floated recently. Nonetheless, with RBI maintaining its ant-inflationary stance, we do not expect the overall macro-environment to change meaningfully in the near term. However, it should be noted that the company has already bid for orders worth Rs 370 bn. And it also has plans to enter into captive BTG manufacturing. Further, considering the power deficit woes in India, the long term prospects of power equipment manufacturers appear bright. Thus, taking into consideration the current valuations and the long term macro-picture, we maintain our “Buy” view on the stock.

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Jun 18, 2021 03:37 PM


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