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BGR Energy: De-growth all over - Views on News from Equitymaster
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BGR Energy: De-growth all over
Dec 7, 2012

BGR Energy has announced the second quarter results of financial year 2012-2013 (2QFY13). Both topline and bottomline have declined by around 18.6% YoY and 32.4% YoY respectively. Here is our analysis of the results.

Performance summary
  • Top-line declines by 18.6% YoY in 2QFY13.
  • Operating profits decline 12.8% YoY during the quarter due to muted performance at the top-line level. However, margins improve marginally to 15.2% in 2QFY13 from 14.2% in 2QFY12.
  • 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 32.4% 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 at over Rs 109.3 bn.
  • The debt/equity ratio at the end of the quarter stood at 1.8x

Standalone performance snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Income from operations 7,707 6,273 -18.6% 15,030 12,382 -17.6%
Expenditure 6,613 5,320 -19.6% 12,994 10,548 -18.8%
Operating profit (EBDITA) 1,094 953 -12.8% 2,037 1,834 -10.0%
Operating profit margin (%) 14.2% 15.2%   13.5% 14.8%  
Other income 9 5 -45.5% 27 6 -78.3%
Finance cost 302 401 32.8% 482 743 54.2%
Depreciation 40 43 7.8% 77 84 9.0%
Profit before tax 761 514 -32.4% 1,504 1,012.3 -32.7%
Tax 247 167 -32.5% 488 328 -32.7%
Profit after tax/(loss) 513 347 -32.4% 1,016 684 -32.7%
Net profit margin (%) 6.7% 5.5%   6.8% 5.5%  
No. of shares (m)         72.2  
Basic earnings per share (Rs)         9.5  
P/E ratio (x) *         10.3  
*On trailing 12 months earnings

What has driven performance in 2QFY13?
  • Net sales declined 18.6% YoY during the quarter due to poor execution amidst difficulty in getting coal linkages. Revenues from the Construction & EPC segment declined 16.4% YoY while that from the Capital Goods segment declined 35.3% YoY.

  • Operating profits declined 12.8% YoY due to muted sales performance during the quarter. Nonetheless, operating margins registered an improvement of about 100 bps to 15.2% during the quarter. This can be due to higher execution of BoP projects during the quarter which have better margins compared to EPC contracts.

    Segment wise performance (Standalone)
      2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Capital Goods            
    Revenue (Rs m) 915 592 -35.3% 1,498 1,016 -32.2%
    % share 11.9% 9.4%   10.0% 8.2%  
    PBIT margin 17.0% 2.0%   11.9% 3.4%  
    Construction & EPC Contracts            
    Revenue (Rs m) 6,792 5,680 -16.4% 13,533 11,366 -16.0%
    % share 88.1% 90.6%   90.0% 91.8%  
    PBIT margin 13.2% 15.8%   13.2% 15.1%  
    Revenue (Rs m) 7,707 6,273 -18.6% 15,030 12,382 -17.6%
    PBIT margin 13.7% 14.5%   13.0% 14.1%  

  • Net profits declined 32.4% YoY due to muted performance at the operating level, fall in other income and rise in interest expenses.

What to expect?
Considering the 1HFY13 performance (where revenues fell 17.6% YoY) it would be interesting to see whether management will be able to meet its revenue guidance for the current fiscal of about Rs 37.5 bn that was guided in the previous quarter. Difficulty in getting coal linkages has slowed the execution cycle. This has impacted revenue growth. And we do not see the situation improving dramatically in the next 6 months. Also, rising working capital requirements has seen the interest cost rise and impact bottomline. Thus, overall, the situation does not look bright as order inflows are slowing down and execution, too, is getting impacted.

While the inflows may be slowing the company has healthy order book because of the NTPC orders bagged recently. However, these orders have a long gestation cycle. Hence, it would take a while for the revenue growth to show substantial improvement which has been declining since the last 4-5 quarters. Bottomline growth may also remain under stress unless the working capital constraints ease out. However, we believe that the current price captures most of these negatives and there is very limited downside from these levels. As such, we maintain our HOLD view on the stock.

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