3QFY2013 Result Update | Capital Goods

February 8, 2013

BGR Energy Systems

Performance Highlights
Quarterly Highlights (Standalone)
(` cr) Revenue EBITDA EBITDA margin (%) Reported PAT 3QFY13
805 111 13.7

NEUTRAL
CMP Target Price
% chg (yoy)
0.2 (15.8) (259)bp (24.3)

`235 -

3QFY12
804 131 16.3 55

2QFY13
627 95 15.2 35

% chg (qoq)
28.3 16.1 (145)bp 19.3

Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Capital Goods 1,695 805 1.7 374/229 174,967 10 19,485 5,904 BGRE.BO BGRL@IN

41 Source: Company, Angel Research

BGR Energy (BGR) reported a flat top-line performance at `805cr and 24% yoy decline in PAT to `41cr for 3QFY2013. The increase in interest cost (due to higher working capital borrowings) and margin pressure led to a sharp decline in PAT. Key highlights: The 22% yoy decline in revenue from the Capital Goods segment at `59cr (`75cr in 3QFY2012) was offset by a 2.4% yoy growth in revenue from the Construction and EPC segment at `746cr (`729cr in 3QFY2012). On the operating front, the EBITDA margin contracted by 259bp yoy to 13.7%, mainly on account of a 289bp yoy contraction in margin of the Construction and EPC segment. Interest cost grew by 9% yoy to `50cr (owing to elevated interest rate scenario and enhanced working capital requirements). Consequently, the net profit declined by 24% yoy to `41cr. During the quarter, the company has won the Notification of Award (NOA) from NTPCs Lara STTP for steam turbine and generators. The order is approximately valued at `1,548cr. Order backlog at the end of 3QFY2013 stood at ~`13,578cr up 65% yoy as NTPC bulk order is recognized in the order book. However, the company has bid aggressively for some of these orders and hence, we remain cautious on the margin front. Outlook and Valuation: BGR's working capital has seen deterioration over the past few quarters, mainly due to high receivables. In our view, tight liquidity is likely to transmit negatively on BGR's books. At the current market price, the stock is trading at a PE multiple of 9.0x on our FY2014E EPS, which we believe is reasonable amidst the structural issues (slowdown of order inflow in boiler turbine generator [BTG] space and high leverage) faced by the company. Hence, we maintain our Neutral view on the stock. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 81.1 2.1 1.8 15.0

Abs. (%) Sensex BGR

3m (12.0)

1yr (5.4)

3yr 22.3 (51.9)

3.4 10.0

FY2011 4,750 54.5 323 60.5 11.3 44.8 5.3 1.8 40.4 24.4 0.4 3.8

FY2012 3,451 (27.4) 224 (30.5) 13.5 31.1 7.6 1.5 31.9 16.9 0.8 5.6

FY2013E 3,412 (1.1) 178 (20.8) 13.0 24.6 9.6 1.4 30.7 14.3 0.9 6.6

FY2014E 4,104 20.3 189 6.2 11.6 26.2 9.0 1.3 25.7 13.5 0.8 6.8
Amit Patil 022-39357800 Ext: 6839 amit.patil@angelbroking.com

Please refer to important disclosures at the end of this report

BGR Energy | 3QFY2013 Result Update

Exhibit 1: Quarterly performance (Standalone)

(` cr) Net Sales Other operating income Total income Stock adjustments Raw Material (% of total income) Employee Cost (% of total income) Other Expenses (% of total income) Total Expenditure EBITDA (EBITDA %) Interest Depreciation Other Income PBT (% of total income) Total Tax (% of PBT) PAT (% of total income) EPS (`)
Source: Company, Angel Research

3QFY13
805 0 805 2.6 605 75.5 56 6.9 31 3.9 694 111 13.7 50 4 5 61 7.6 20 32.5 41 5.1 5.7

3QFY12
802 1 804 0.2 587 73.1 48 6.0 37 4.6 672 131 16.3 46 4 0 81 10.1 26 32.5 55 6.8 7.6

% chg (yoy)
0.3 0.2 3.0 2.4 15.8 (15.4) 3.3 (15.8) (259)bp 9.0 7.5 (24.3) (24.3) (24.3)

2QFY13
626 1 627 (1.1) 457 72.7 49 7.8 27 4.3 532 95 15.2 40 4.3 0.5 51 8.2 17 32.4 35 5.5 4.8

% chg (qoq)
28.5 28.3 32.3 13.2 16.2 30.5 16.1 (145bp) 25.5 2.8 19.4 19.4 19.3 19.3

9MFY13
2,042 1 2,043 1 1,517 74.2 143 7.0 89 4.3 1,749 294 14.4 125 13 6 163 8.0 53 32.4 110 5.4 15.2

9MFY12
2,304 3 2,307 0 1,746 75.7 124 5.4 102 4.4 1,972 335 14.5 94 12 3 231 10.0 75 32.4 156 6.8 21.7

% chg (yoy)
(11.4) (11.4) (13.1) 14.9 (13.1) (11.3) (12.2) 32.1 8.5 (29.8) (29.8) (29.8)

Exhibit 2: Segment-wise performance (Standalone)

Y/E March (` cr) Revenue Capital goods Const. and EPC contracts Total revenue EBIT (excl. net unallocable inc.) Capital goods Const. and EPC contracts Total EBIT Revenue mix (%) Capital goods Const. and EPC contracts EBIT margin (%) Capital goods Const. and EPC contracts
Source: Company, Angel Research

3QFY13 59 746 805 7 99 106 7.3 92.7 11.7 13.3

3QFY12 75 729 804 9 118 127 9.4 90.6 12.2 16.2

% chg (yoy) (22.0) 2.4 0.2 (25.1) (15.8) (16.5)

2QFY13 59 568 627 1 90 91 9.4 90.6 2.0 15.8

% chg (qoq) (1.0) 31.4 28.3

9MFY13 160 1,883 2,043 10 271 281 7.8 92.2 6.5 14.4

9MFY12 225 2,082 2,307 27 296 323 9.8 90.2 12.0 14.2

% chg (yoy) (28.8) (9.6) (11.4) (61.7) (8.6) (13.0)

February 8, 2013

BGR Energy | 3QFY2013 Result Update

Top-line flat yoy

During 3QFY2013, BGRs top-line growth came in flat yoy at `805cr. The 22% yoy decline in revenue from the Capital Goods segment to `59cr (`75cr in 3QFY2012) was offset by a 2.4% yoy growth in revenue from the Construction and EPC segment at `746cr (`729cr in 3QFY2012).

Exhibit 3: Revenue
1,600 1,400 1,200 1,000 800 600 1,257 400 200 0 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 (11.9) 1,462 (19.0) 734 (16.8) 1137.7 (32.1) 772 (36.1) 803.7 (18.7) (22.2) 0.2 97.9 120 100 80 60 40 20 0 610.9 627.3 805.0 (20) (40) (60)

Sales (` cr, LHS) Source: Company, Angel Research

Growth (yoy %, RHS)

Operating margin contracts 259bp yoy

For 3QFY2013, the companys operating margin expanded by 259bp yoy to 13.7%, mainly on account of a 289bp yoy contraction in margin of the Construction and EPC segment. Interest cost grew by 9% yoy to `50cr (owing to elevated interest rate scenario and enhanced working capital requirements). Consequently, the net profit declined by 24% yoy to `41cr.

Exhibit 4: EBITDA and EBITDAM

180 160 140 120 100 80 60 147 167 110 131 136 111 40 20 0 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 96 88 95 11.7 11.5 13.1 16.3 14.3 11.9 12 8 4 0 14.4 15.2 13.7 20 16

Exhibit 5: PAT impacted by high interest cost and margin pressure

125 100 75 50 25 88 98 50 51 55 67 34 35 0 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 41 0 7.0 6.7 6.8 6.7 6.8 5.9 5.5 5.5 5.1 10 8 6 4 2

EBITDA (` cr, LHS)

EBITDAM (%, RHS)

PAT (` cr, LHS)

PATM (%, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

February 8, 2013

BGR Energy | 3QFY2013 Result Update

Order book: During the quarter, the company has won the NOA from NTPCs Lara STTP for steam turbine and generators. The order is approximately valued at `1,548cr. Order backlog at the end of 3QFY2013 stood at ~`13,578cr up 65% yoy as the NTPC bulk order has been recognized in the order book. However, the company has bid aggressively for some of these orders and hence, we remain cautious on the margin front.

Exhibit 6: Order book

16,000 14,000 12,000 10,000 (` cr) 8,000 6,000 11,609 10,230 10,532 15,100 13979 2QFY13 13578 3QFY13 9,397 9,317 8,000 7,516 7,270 8,215 3QFY12 7,516 4QFY12 4,000 2,000 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 1QFY13

Source: Company, Angel Research

Investment concerns
Investment commitments + Elongated working capital = Soaring debt:
BGR's working capital has seen severe deterioration over the past few quarters (from 74 days in FY2010 to ~166 days in FY2012), mainly due to high receivables (owing to the retention money from SEBs such as RRVUNL and TNEB, which are facing high financial strain). Further, with persistent headwinds in the power sector, we expect tepid order inflow and delays in execution adding to BGRs woes. Moreover, the company has bid aggressively for some of recent orders and hence, we remain cautious on the margin front.

Outlook and valuation

BGR's working capital has seen deterioration over the past few quarters, mainly due to high receivables. Amid issues impairing the power sector, credit availability may harden for SEBs, as banks have already chosen to remain risk-averse. Hence, in our view, tight liquidity is likely to transmit negatively on BGR's books. At the current market price, the stock is trading at a PE multiple of 9.0x FY2014E EPS, which we believe is reasonable amidst the structural issues (slowdown of order inflow in BTG space and high leverage) faced by the company. Hence, we maintain our Neutral view on the stock.

February 8, 2013

BGR Energy | 3QFY2013 Result Update

Exhibit 7: Angel EPS forecast vs consensus

Y/E March FY2013E FY2014E
Source: Company, Angel Research

Angel forecast 24.6 26.2

Bloomberg consensus 24.5 25.8

Var. (%) 1.00 1.01

Exhibit 8: PE Band
980 840 700 560 420 280 140 0 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12
15x

Dec-08

Dec-09

Dec-10

Dec-11

Share Price (`)

6x

9x

12x

Source: Company, Angel Research

Exhibit 9: Peer comparison

Company ABB* BHEL BGR Energy Crompton Greaves Jyoti Structures KEC International Thermax Reco. Reduce Neutral Neutral Buy Buy Buy Neutral CMP (`) 647 209 235 104 39 55 582 Tgt. price (`) 573 129 49 75 Upside (%) (11.3) 24.6 25.6 36.1 P/BV(x) FY13E 5.1 2.6 1.4 1.8 0.4 1.2 3.7 FY14E 4.5 2.2 1.2 1.7 0.4 1.0 3.3 P/E(x) FY13E 74.4 8.7 9.5 31.3 5.1 10.3 21.5 FY14E 29.3 10.0 9.0 15.1 3.6 6.5 19.2 FY2012-14E EPS CAGR 59.1 (15.3) (8.3) 8.7 (1.4) 1.8 (5.5) RoE (%) FY13E 7.1 32.9 30.7 5.8 9.6 17.0 18.5 FY14E 16.5 23.6 25.7 11.5 12.1 22.8 18.2

Source: Company, Angel Research

Company background
BGR Energy Systems (BGR) is one of the leading players in the Balance of Plant (BoP) and EPC space of the power sector. The company has taken several big leaps over the year from being a mere manufacturer of a few BoP components to executing turnkey BoP projects and now gradually executing full-fledged EPC contracts. In 2010, BGR ambitiously ventured into setting up a manufacturing facility of 4,000MW for supercritical boilers and turbine generators in a JV with Hitachi (76:24).

February 8, 2013

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Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

BGR Energy | 3QFY2013 Result Update

Profit & loss account (Consolidated)

Y/E March (` cr) Operating income % chg Total Expenditure Raw Materials Mfg costs Personnel Costs Other Costs EBITDA % chg (% of Net Sales) Depreciation & Amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E
1,930 27.0 1,721 1,352 172 74 123 209 34.5 10.8 8 201 34.4 10.4 58 32 18.1 175 35.2 0 175 60 34.0 116 0 0 0 115 115 32.2 6.0 16.0 16.0 32.2 3,073 59.2 2,729 2,187 236 126 180 344 64.8 11.2 10 334 65.8 10.9 54 25 8.2 305 74.2 0 305 104 34.0 201 0 0 0 201 201 74.4 6.6 28.0 28.0 74.4 4,750 54.5 4,214 3,446 406 145 217 536 55.8 11.3 17 519 55.4 10.9 60 22 4.6 481 57.6 0 481 158 32.8 323 0 0 0 323 323 60.5 6.8 44.8 44.8 60.1 3,451 (27.4) 2,984 2,173 449 176 185 467 (12.9) 13.5 17 450 (13.4) 13.0 135 14 4.4 328 (31.7) 0 328 104 31.7 224 0 0 0 224 224 (30.5) 6.5 31.1 31.1 (30.5) 3,412 (1.1) 2,968 2,276 444 102 147 443 (5.0) 13.0 26 417 (7.2) 12.2 170 16 6.1 263 (19.9) 0 263 86 32.5 178 0 0 0 178 178 (20.8) 5.2 24.6 24.6 (20.8) 4,104 20.3 3,626 2,855 492 123 156 477 7.6 11.6 38 439 5.4 10.7 174 14 5.0 280 6.2 0 280 91 32.5 189 0 0 0 189 189 6.2 4.6 26.2 26.2 6.2

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

February 8, 2013

BGR Energy | 3QFY2013 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Long term liablities
Long term provisions

FY2009 FY2010 FY2011 72 0 492 564 3 709 75 72 0 634 706 3 807 155 72 0 880 952 52 1,327 308 784 170 1,350 125 27 98 5 1 1 2,569 615 643 14 1,279 18 1,323 1,246 0 1,350 1,672 182 37 145 10 1 1 3,644 902 727 16 1,980 18 2,129 1,515 0 1,672 3,593 251 53 198 86 1 1 175 4,788 1,041 573 41 3,103 30 1,714 3,074 59 3,593

FY2012 FY2013E FY2014E 72 0 1,045 1,117 91 1,747 397 653 205 4,211 379 69 310 103 1 1 273 4,656 941 523 31 3,138 24 1,735 2,922 602 4,211 72 0 1,164 1,236 91 1,947 397 653 205 4,931 579 95 484 110 1 1 385 5,095 826 640 48 3,552 30 1,735 3,360 592 4,931 72 0 1,294 1,366 91 2,097 397 653 205 5,064 679 133 546 110 1 1 445 5,444 650 752 76 3,935 30 2,024 3,420 542 5,064

Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Deferred Tax Asset Current Assets Cash Loans & Advances Inventories Debtors Others Current liabilities Net Current Assets Mis. Exp. not written off Total Assets

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

February 8, 2013

BGR Energy | 3QFY2013 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in WC Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 175 8 (129) (32) (60) (38) (62) 151 32 121 206 25 44 181 308 307 615 305 10 18 (25) (104) 205 (65) 0 25 (40) 98 59 83 39 287 615 902 481 17 (641) (22) (158) (323) (147) 0 22 (125) 0.2 519 84 151 435 139 902 1041 FY2012 FY2013E FY2014E 328 17 (393) (14) (104) (165) (150) 0 14 (136) 420 59 (160) 361 (100) 1041 941 263 26 (464) (16) (86) (276) (207) 0 16 (191) 200 59 211.6 141 (115) 941 826 280 38 (296) (14) (91) (84) (100) 0 14 (86) 150 59 (97) 91 (176) 826 650

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

February 8, 2013

BGR Energy | 3QFY2013 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets OB/Sales Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis(%) EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Pre-tax) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to Equity Net debt to EBITDA Interest Coverage 0.2 0.4 3.5 (0.1) (0.3) 6.2 0.3 0.5 8.6 1.6 1.7 3.3 1.7 2.5 2.5 1.8 3.0 2.5 19.6 3 190 182 107 20.1 2 194 209 74 22.0 2 195 152 72 11.0 4 330 201 166 7.1 4 358 205 185 6.5 6 333 183 196 17.0 31.4 22.3 22.1 44.9 31.7 24.4 47.0 40.4 16.9 28.5 31.9 14.3 19.6 30.7 13.5 16.1 25.7 10.4 66.0 3.0 31.2 20.6 6.3 0.3 24.6 10.9 66.0 4.1 44.4 29.3 4.7 0.0 29.3 10.9 67.2 4.1 45.0 30.2 3.8 0.1 33.4 13.0 68.3 2.1 26.9 18.3 6.0 0.8 27.9 12.2 67.5 1.5 18.7 12.6 6.2 1.7 23.3 10.7 67.5 1.4 15.5 10.5 5.8 1.7 18.6 16.0 16.0 17.1 3.0 78.3 28.0 28.0 29.4 7.0 98.1 44.8 44.8 47.2 10.0 131.9 31.1 31.1 33.5 7.0 154.9 24.6 24.6 28.3 7.0 171.3 26.2 26.2 31.4 7.0 189.3 14.8 13.9 3.0 1.3 0.9 8.6 1.3 4.9 8.5 8.1 2.4 3.0 0.5 4.6 1.0 3.3 5.3 5.0 1.8 4.2 0.4 3.8 0.8 1.7 7.6 7.1 1.5 3.0 0.8 5.6 0.9 2.2 9.6 8.4 1.4 3.0 0.9 6.6 0.9 2.0 9.0 7.5 1.3 3.0 0.8 6.8 0.9 1.5 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

February 8, 2013

BGR Energy | 3QFY2013 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

BGR Energy Systems No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 8, 2013

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