BGR Energy Systems: Buy

-


Investors with a three-year perspective can consider investing in the stock of BGR Energy Systems.

The recent results posted by the company and the strong growth in order book belie fears of a slow down in the engineering services space. BGR's well entrenched position as an EPC player in the power segment and a multi-equipment supplier in the oil and gas segment makes it a good proxy for the energy sector.

The current market price, at a sharp discount to its offer price of Rs 480, provides an attractive entry point. The stock currently trades at about 13 times its expected per share earnings for FY 2010.

BGR has an order backlog of Rs 3,212 crore and secured 46 per cent more orders than the previous year. This order growth inspires confidence at a time when some companies in the engineering sector have reported slowdown in the growth of order intake. Order inflows are key indicators of any slowdown in the sectors serviced by engineering companies. BGR's strong order intake is indicative of capex spending in the power and oil and gas space.

Of the total order book, power EPC and balance of plant (BOP) segment account for 85 per cent. BOP involves other works in a power plant excluding the key equipments boiler-turbine-generator (BTG). BGR has managed to stay competitive in this segment as it manufactures in-house 40-50 per cent of the products needed to execute a BOP.

The company has recently stated that it would soon announce its entry into the BTG segment as well, through foreign tie-ups. This segment, currently dominated by a few players such as BHEL, would enable forward integration. If successful in this planned foray, BGR could be among the few integrated solutions provider for power plants.

Therefore while the company would continue to receive orders in the oil and gas space, we expect the power segment to be the key contributor to revenues over the next few years.

BGR Energy's sales for the year ended March 2008 grew by 190 per cent to Rs 1,521 crore, while net profits registered a 223 per cent jump. Operating profit margins, however, declined 100 basis points to 10.2 per cent. The company has written off some losses from its Kochi road project, although the same is still under arbitration. We believe that this one-time write-off could be the reason for the dent. On the raw material front, while bulk buying of steel and price escalation clauses could provide some relief, any further hike in cement prices could pose a risk to margins.

Popular posts from this blog

IOB capitalises on hike in stake by LIC

-
Indian Overseas Bank rose 1.53% to Rs 46.45 at 10:31 IST on BSE, after the biggest domestic instutional investors Life Insurance Corporation of India hiked its stake in the state-run bank. The bank made this announcement after trading hours on Wednesday, 25 March 2009. Meanwhile, the BSE Sensex was up 126.19 points, or 1.31%, to 9,794.09. On BSE, 31,003 shares were traded in the counter. The stock had an average daily volume of 1.93 lakh shares in the past one quarter. The stock hit a high of Rs 47 and a low of Rs 45.95 so far during the day. The stock hit a 52-week high of Rs 156.80 on 2 May 2008 and a 52-week low of Rs 37.55 on 9 March 2009. The mid-cap bank stock had underperformed the market over the past one month till 25 March 2009, falling 3.17% as compared to the Sensex's 8.60% rise. It had also underperformed the market in the past one quarter, declining 33.94% as compared to the Sensex's 1.04% rise. The bank's current equ The current price of ...
Read more

Lok Housing & Constructions builds on fund raising plans

-
Lok Housing & Constructions jumped 6.99% to Rs 107.90 at 11:20 IST on BSE ahead of a board meeting to consider fund raising options from both foreign and local market, including an institutional placement. Meanwhile, the BSE Sensex was down 50.50 points, or 0.30%, at 15203.73. On BSE, 1.86 lakh shares were traded in the counter. The scrip had an average daily volume of 4.74 lakh shares in the past one quarter. The stock hit a high of Rs 115 and a low of Rs 102 so far during the day. The stock had a 52-week high of Rs 390.50 on 1 January 2008 and a 52-week low of Rs 96.25 on 12 June 2008. The scrip had underperformed the market over the past one month till 12 June 2008, falling 26.55% compared to the Sensex's 10.18% decline. It had also underperformed the market in the past one quarter, falling 31.39% compared to Sensex's 3.24% fall. The small-cap housing projects developer has an equity capital of Rs 42.88 crore. Face value per share is Rs 10. The current...
Read more

economic times picks

-
CMP: Rs 70.50 Target Price: Rs 90 CLSA Asia-Pacific Markets maintains an 'outperform' on Jagran Prakashan, with a 12-month price target of Rs 90. "An economic slowdown notwithstanding, improving literacy and income levels in Hindi heartland imply that drivers for Jagran's growth are still in place. With a 35% ad rate hike in 2008, Jagran continues to narrow the gap with its more expensive English rivals," the foreign brokerage said in a client note, after a Q&A reply from the management. "Rising newsprint prices have made Jagran cautious on launching new editions in FY09 and its focus this year will be profitability. While management has budgeted for a minor increase in FY10 newsprint prices, it believes that prices are likely to peak in Q2FY08 and decline thereon," it added. Neyveli Lignite CMP: Rs 117.15 Target Price: Rs 160 MERRILL Lynch has maintained its 'neutral' rating on Neyveli Lignite, with a price target of Rs 160 ...
Read more