BGR Energy Systems Limited IPO Message Board (Page 91)

Hey gr8 jackas Tulsian has said that IPO is expensive, that means the IPO is very good. Still remember his take on Maytas Infra and Powergrid

BGR Energy Systems carries on business in two segments, the supply of systems and equipment and turnkey engineering project contracting. The business segments and prospects for the coming years are extremely buoyant with good growth and margin visibility. But ultimately, everything has a price tag, which needs to be valued in its right perspective.

As the company procures item from outside for its BOP and EPC contracts, working capital requirements are quite high. Due to this, Sundry Debtors as at 31st March, 07 were at Rs 369 crore. Sundry Debtors on 30-06-07 were at Rs 421 crore, almost 172% of first quarter topline.

Realising huge requirement of working capital to ramp up its business, the company has estimated a working capital requirement of Rs 215 crore, while Rs 83 crore has been estimated for establishing new manufacturing and assembly facilities. The debt burden of the company also sharply improved to Rs 268 crore as at 30-06-07 from Rs 90 crore as at 30-09-05.

The company may report a topline of Rs 1,400 crore and bottomline of Rs 115 crore for FY 08 which would translate into an EPS of Rs 16. As against this, BHEL, maker of Turbines and Boilers, is likely to report an EPS of close to Rs 72 with topline of Rs 25,000 crore and bottomline of Rs 3,500 crore for FY 08. If BHEL is now ruling at a PER of 36 times, what is the justification of valuing this company at a PER of 30 times.

The company does not have its own manufacturing facilities of the equipments and most of them are outsourced. Expertise of the company lies in sourcing and financing coupled with technical expertise of execution. This area of business, bound to have huge competition from large players like Reliance Energy, Engineers India, L&T and other EPC players in the time to come, thus bringing down the margins of the company as well as putting huge working capital pressure. Cash Accruals of Rs100 crore may not be able to give good growth thereafter.

Considering all these, share looks quite expensive at the upper band of Rs 480. Lower band of Rs 425 seems more reasonable.-----------s. p. Tulsian

Chennai-Based BGR Energy Systems is coming out with an IPO comprising 4.32 million new equity shares and 4.82 million equity shares of its promoters. Post-issue, shareholding of promoters will fall to 81.3%. It plans to raise Rs 207 crore from the IPO and Rs 138 crore from pre-IPO placements, at the upper price band, to fund its long-term working capital needs of Rs 125 crore and expansion plans of Rs 80 crore. It will set up manufacturing facilities in India, China and Bahrain over the next 12 months. Investors with a 12-month horizon can invest in the IPO.

Business : BGR supplies systems and equipment to process industries and undertakes turnkey engineering projects in power, environmental engineering and infrastructure sectors. In power generation projects, it undertakes turnkey projects to supply balance of plant (BOP) or all items other than boiler, turbine and generator. It has executed 131 projects so far in 42 countries and has an order book of over Rs 3,300 crore, 75% of which is contributed by power projects, with the oil & gas industry representing 13%.

Growth Strategy : The company is well placed to benefit from the spurt in domestic power generation industry, which may invest Rs 3 lakh crore in the next five years to add over 65,000 mw of capacity. From BOP contracts, it’s moving up the value chain to obtain main engineering, procurement and construction (EPC) contracts. Overseas manufacturing facilities and Mundra SEZ will help reduce delivery time and improve cost efficiencies.

Financials : BGR’s financials are not comparable with its past performance due to a change in its financial year and also because it sold a part of its business in June ’07. A comparison of the performance for the 18-month period ended March ’07 against comparable adjusted figures for the year ended September ’05, shows that sales have risen 77% to Rs 786.8 crore. With improving operating margins, net profit is up 97% at around Rs 40 crore.

Valuations : Given the post-listing equity of Rs 72 crore, it demands a P/E of 49.4 at the higher price band. This is on an annualised EPS of Rs 9.7 for the June ’07 quarter. Based on annualised EPS for the 18-month period ended March ’07, P/E stands at 129.7 at the higher price band. The group of comparable listed companies from engineering/capital goods space trades at an average P/E of 61.4 based on EPS of trailing 12 months. IPO valuations are stretched based on past performance. But considering high growth potential, long-term investors can subscribe to it.

RISKS: BGR’s move to become the main EPC contractor for power projects will put it in direct competition with players which have hitherto been its clients. Moreover, the ban imposed on it by Bhel for three years may adversely impact its business in future.

Source: ET

[ 72 ] Asha,

Premium of BGR 425/-

73(amit) Same case with me for Religare. All Banks are trying to fool the investors.

i have not recieved my refund of mundra.on calling thy repl they hav made d ecs but bankers r saying ithas not been presented in my a/c

What Premium we can expect on BGR. They are offering for
Rs.480. Kindly give the Openion

Akka (70),
Please don't blame anyone, unless you have full facts and figures.
Santosh is right in stating that BHEL has banned BGR Energy.
It was because of some discrepancy in work contracted to BGR (then GEA Energy Systems) by BHEL's Hyderabad unit.

However, it does not mean that the company is bad. Most of the verticals of BGR are in very lucrative segments, with high profit margins.

The only concern, to me, is that the company does not have any manufacturing capacity of its own for major and critical equipments like turbines & boilers, and relies on procurement from China, which is cost-efficient, but is risky performance-wise, and service-wise.

If the promoters have good intentions, they can take the company to great heights. I am going to apply.

DEAR YANTHA,nilesh is quite right BGR is good ipo.at present gmp of BGR is 400/- santosh is trying to fool every one. dont believe him and use your mind also and follow other exepert on other board also

Dont Apply - See what happened to Empee , huge sell off on liting day will pull this stock down by atleast 30% - Plus many Govt compnays have banned the servcies of BGR. They have just timed the Issue when the market is bullish about Power Companies!!!!

Nilesh, how can u say this. Santhosh said about this regarding BHEL and NCPE.

Which share is better BGR or Eclarx for investment

Considering India's power crunch, this IPO is looking good. But one more this to be notice is that, NTPC has banned to do businees with company for next three years.

Can anyone suggest me whether to go for BGR.

Regards
Kamal

i m very happy to surf this site.

i got very information regarding stock market and new issue.

thanx and regards .........

vinay

DEAR ASHOK KUMAR MEHAN,

CAPITAL MARKET HAS ALREADY GIVEN RATION OF 45 TO BGR ENERGY AND 44 RANKING TO ECLEREX SERVICES. YOU WILL SEE THE SAME IN THE TOMORROWS ISSUE. HAPPY INVESTING

moneycontrol.com and capitalmarket.com has not rated the
BGR energy stock yet. has any site rated the bgr energy
issue.

i feel the company has good future as there are lot of power plants coming up in near future reliance power isone of the example as these cos. are setting up power plants in the future to meet the growing demand of power in india, BGR is an equipment supplier to energy plants so i will suggest a buy for this stock as it has great future

for me it is a definate buy

my calculation says we must apply for the same and get rid of it on listing... it will be atleast 45 - 50% listing gain

Lot Shares Amount
1 14 6720
2 14 13440
3 14 20160
4 14 26880
5 14 33600
6 14 40320
7 14 47040
8 14 53760
9 14 60480
10 14 67200
11 14 73920
12 14 80640
13 14 87360
14 14 94080