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Please refer to important disclosures at the end of this report 1

Quarterly Highlights (Standalone)(` cr) 4QFY13 4QFY12 % chg (yoy) 3QFY13 % chg (qoq)Revenue 1,063 1,138 (6.5) 805 32.1EBITDA 139 136 2.3 111 25.4

EBITDA margin (%) 13.0 11.9 113bp 13.7 (70)bp

Reported PAT 54 67 (19.8) 41 29.9Source: Company, Angel Research

BGR Energy (BGR)s top-line performance for 4QFY2013 was in-line with our

expectations, declining by 6.5% yoy to `1,063cr. However, the companys

operating margin came in better than our estimates, expanding 113bp yoy to

13.0% (aided by better project mix and cost control measures). But an increase in

interest cost (due to higher working capital borrowings) led to a 19.8% yoy decline

in PAT to `54cr.Margin expands yoy: BOP projects at Chandrapur, Marwa and Krishnapatamcontributed bulk of the revenues (~52% of top-line), while EPC projects

contributed 38% to the top-line. The higher execution of BOP projects (generally

having higher margins than EPC projects) in the quarter led to an 113bp yoy

expansion in margins to 13.0%.

Order book: During the quarter, the company has not won any new orders.Consequently, order backlog at the end of 4QFY2013 declined by 19% yoy to

`11,000cr. However, order backlog is up 46% yoy as NTPC bulk order is

recognized in the order book. Although, the company has an order book to sales

ratio of 3.5x, we remain cautious on account of longer execution cycle of existing

projects, and muted order inflow. Further, margin pressure remains a concern

since the company has bid aggressively for some of the orders. Outlook and Valuation: BGR's working capital has seen deterioration over thepast 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 6.0x on our FY2015E 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, wemaintain our Neutral view on the stock.Key financials (Consolidated)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet sales 3,451 3,113 3,756 4,569% chg (27.4) (9.8) 20.7 21.6

Net profit 224 162 157 205% chg (30.6) (27.7) (3.3) 30.6

EBITDA (%) 13.5 13.7 11.3 10.7

EPS (`) 31.1 22.5 21.7 28.3P/E (x) 5.5 7.5 7.8 6.0

P/BV (x) 1.1 1.0 0.9 0.8

RoE (%) 31.9 28.4 22.3 23.4

RoCE (%) 16.9 13.3 12.0 13.7

EV/Sales (x) 0.8 1.0 0.8 0.7

EV/EBITDA (x) 5.7 7.0 6.9 6.3

Source: Company, Angel Research

NEUTRALCMP `170

Target Price -

Investment Period -

Stock Info

Sector

Net Debt (`cr) 1,220

Bloomberg Code BGRL@IN

Shareholding Pattern (%)

Promoters 81.1

MF / Banks / Indian Fls 2.1

FII / NRIs / OCBs 1.9

Indian Public / Others 14.8

Abs. (%) 3m 1yr 3yr

Sensex 3.7 22.8 15.2

BGR (18.5) (38.7) (74.0)

Capital Goods

Market Cap (`cr) 1,223

Beta 1.2

52 Week High / Low 320/162

Avg. Daily Volume 77,547

Face Value (`) 10

BSE Sensex 19,610

Nifty 5,939

Reuters Code BGRE.BO

Amit Patil022-39357800 Ext: 6839

[email protected]

BGR Energy SystemsPerformance Highlights

4QFY2013 Result Update | Capital Goods

June 3, 2013

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BGR Energy | 4QFY2013 Result Update

June 3, 2013 2

Exhibit 1:Quarterly performance (Standalone)

(` cr) 4QFY13 4QFY12 % chg (yoy) 3QFY13 % chg (qoq) FY2013 FY2012 % chg (yoy)Net Sales 1,063 1,138 (6.6) 805 32.0 3,105 3,442 (9.8)Other operating income 1 0 0 1 3Total income 1,063 1,138 (6.5) 805 32.1 3,107 3,445 (9.8)Stock adjustments (0.8) 0.1 2.6 1 0

Raw Material 833 937 (11.1) 605 37.6 2,349 2,682 (12.4)

(% of total income) 78.2 82.3 (4.1) 75.5 75.6 77.9

Employee Cost 54 47 14.4 56 (3.5) 196 171 14.8

(% of total income) 5.1 4.1 6.9 6.3 5.0

Other Expenses 39 18 112.5 31 25.8 128 120 6.1

(% of total income) 3.7 1.6 3.9 4.1 3.5

Total Expenditure 925 1,002 (7.7) 694 33.2 2,674 2,974 (10.1)EBITDA 139 136 2.3 111 25.4 433 471 (8.0)(EBITDA %) 13.0 11.9 13.7 13.9 13.7

Interest 50 41 22.0 50 (0.3) 175 135 29.0

Depreciation 6 4 34.1 4.4 28.7 19 16 15.3

Other Income 0 5 5.5 6 8

PBT 83 95 (13.1) 61 35.2 246 327 (24.9)(% of total income) 7.8 8.4 7.6 7.9 9.5

Total Tax 29 28 3.0 20 46.1 82 103 (20.8)(% of PBT) 35.1 29.6 32.5 33.3 31.6

PAT 54 67 (19.8) 41 29.9 164 224 (26.8)(% of total income) 5.1 5.9 5.1 5.3 6.5

EPS (`) 7.5 9.3 5.7 29.9 22.7 31.0Source: Company, Angel Research

Exhibit 2:Segment-wise performance (Standalone)

Y/E March (` cr) 4QFY13 4QFY12 % chg (yoy) 3QFY13 % chg (qoq) FY2013 FY2012 % chg (yoy)RevenueCapital goods 79 87 (8.9) 59 34.4 239 312 (23.3)

Const. and EPC contracts 985 1,051 (6.3) 746 31.9 2,867 3,133 (8.5)

Total revenue 1,063 1,138 (6.5) 805 32.1 3,107 3,445 (9.8)EBIT (excl. net unallocable inc.)Capital goods 7 11 (39.6) 7 17 38 (55.4)

Const. and EPC contracts 126 121 4.9 99 397 417 (4.7)

Total EBIT 133 131 1.3 106 414 454 (8.9)Revenue mix (%)Capital goods 7.4 7.6 7.3 7.7 9.0

Const. and EPC contracts 92.6 92.4 92.7 92.3 91.0

EBIT margin (%)Capital goods 8.3 12.5 11.7 7.1 12.1

Const. and EPC contracts 12.8 11.5 13.3 13.9 13.3


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Top-line declines 6.5% yoy

BGRs top-line performance was in-line with our expectations, declining by 6.5%

yoy to `1,063cr. The capital goods segments revenues declined by 8.9% yoy to

`79cr (`87cr in 4QFY2012) while the construction and EPC segment revenues

declined by 6.3% yoy to `985cr (`1,051cr in 4QFY2012).

Exhibit 3:RevenueTrend


Operating margin expands yoy

BOP projects at Chandrapur, Marwa and Krishnapatam contributed bulk of therevenues (~52% of top-line), while EPC projects contributed 38% to the top-line.

The higher execution of BOP projects (generally having higher margins than EPC

projects) during the quarter led to an 113bp yoy expansion in margins to 13.0%.

However, the increase in interest cost (due to higher working capital borrowings)

led to a 19.8% yoy decline in PAT to `54cr.Exhibit 4:EBITDA and EBITDAM


Exhibit 5:PAT impacted by high interest cost


1,4

62

734

772

804

1138

611

627

805

1063

(11.9)

(19.0) (32.1)(36.1)

(22.2)

(16.8)(18.7)

0.2

(6.5)

(40)

(35)

(30)(25)

(20)

(15)

(10)

(5)

0

5

0

200

400

600

800

1,000

1,200

1,400

1,600

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

Growth o % RHS

167

96

110

131

136

88

95

111

139

11.5

13.1

14.316.3

11.9 14.415.2

13.7 13.0

0

4

8

12

16

20

0

20

40

60

80

100

120

140

160

180

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

EBITDA (` cr, LHS) EBITDAM (%, RHS)

98

50

51

55

67

34

35

41

54

6.7

6.8 6.76.8

5.95.5 5.5

5.1 5.1

0

2

4

6

8

10

0

25

50

75

100

125

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

PAT (` cr, LHS) PATM (%, RHS)

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Order book: During the quarter, the company has not won any new orders.Consequently, order backlog at the end of 4QFY2013 declined by 19% yoy to

`11,000cr. However, order backlog is up 46% yoy as NTPC bulk order is

recognized in the order book. Although BGR has an order book to sales ratio of3.5x, we remain cautious on account of longer execution cycle of existing projects,

as well as muted order inflow. Further, margin pressure remains a concern since

the company has bid aggressively for some of these orders.

Exhibit 6:Order book


Investment concerns

Investment commitments + Elongated working capital = Soaring debt:

BGR's working capital cycle has seen severe deterioration over the past few

quarters (from 74 days in FY2010 to ~143 days in FY2013), 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 the 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 6.0x on our FY2015E

EPS, which we believe is reasonable amidst the structural issues (slowdown in order

inflow in BTG space and high leverage) faced by the company. Hence, wemaintain our Neutral view on the stock.

10,2

30

9,3

97

10,5

32

9,3

17

8,0

00

7,5

16

7,2

70

8,2

15

7,5

16

15,1

00

13979

13578

11000

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

(`cr)

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June 3, 2013 5

Exhibit 7:PE Band


Exhibit 8:Peer comparison

Company Reco. CMP Tgt. price Upside P/BV(x) P/E(x) FY2013-15E RoE (%)(`) (`) (%) FY14E FY15E FY14E FY15E EPS CAGR FY14E FY15E

ABB* Sell 644 461 (28.4) 5.1 4.9 55.9 38.0 61.6 9.3 13.1

BHEL Neutral 197 - - 2.1 1.9 9.6 12.3 (23.3) 23.5 16.1

BGR Energy Neutral 170 - - 0.9 0.8 7.8 6.0 12.3 22.3 23.4Crompton Greaves Buy 92 117 27.2 1.5 1.4 13.9 10.3 - 11.4 14.0Jyoti Structures Buy 27 33 20.8 0.3 0.3 3.1 2.6 15.2 9.9 10.5

KEC International Buy 39 63 61.8 0.8 0.7 6.4 4.6 83.5 20.2 23.0

Thermax Neutral 577 - - 3.3 2.9 19.4 17.5 10.7 17.9 17.4


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 EPCcontracts. 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).

0

140

280

420

560

700

840

980

Apr-08

Aug-0

8

Dec-08

Apr-09

Aug-0

9

Dec-09

Apr-10

Aug-1

0

Dec-10

Apr-11

Aug-1

1

Dec-11

Apr-12

Aug-1

2

Dec-12

Apr-13

Share Price (`) 6x 9x 12x 15x

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Profit & loss account (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EOperating income 3,073 4,750 3,451 3,113 3,756 4,569% chg 59.2 54.5 (27.4) (9.8) 20.7 21.6Total Expenditure 2,729 4,214 2,984 2,686 3,330 4,080Raw Materials 2,187 3,446 2,173 1,946 2,496 3,061

Mfg costs 236 406 449 397 470 576

Personnel Costs 126 145 176 212 192 233

Other Costs 180 217 185 131 173 210

EBITDA 344 536 467 427 426 489% chg 64.8 55.8 (12.9) (8.6) (0.2) 14.8

(% of Net Sales) 11.2 11.3 13.5 13.7 11.3 10.7

Depreciation & Amortization 10 17 17 20 28 33

EBIT 334 519 450 407 397 455

% chg 65.8 55.4 (13.4) (9.6) (2.2) 14.6

(% of Net Sales) 10.9 10.9 13.0 13.1 10.6 10.0

Interest & other Charges 54 60 135 175 179 166

Other Income 25 22 14 12 15 16

(% of PBT) 8.2 4.6 4.4 4.9 6.4 5.1

Recurring PBT 305 481 328 244 234 305

% chg 74.2 57.6 (31.7) (25.9) (4.0) 30.6

Extraordinary Expense/(Inc.) 0 0 0 0 0 0

PBT (reported) 305 481 328 244 234 305Tax 104 158 104 82 77 101

(% of PBT) 34.0 32.8 31.7 33.8 33.0 33.0

PAT (reported) 201 323 224 161 157 205Add: Share of earnings of asso. 0 0 0 0 0 0

Less: Minority interest (MI) 0 0 0 (1) 0 0

Prior period items 0 0 0 0 0 0

PAT after MI (reported) 201 323 224 162 157 205ADJ. PAT 201 323 224 162 157 205% chg 74.4 60.5 (30.6) (27.7) (3.3) 30.6

(% of Net Sales) 6.6 6.8 6.5 5.2 4.2 4.5

Basic EPS (`) 28.0 44.8 31.1 22.5 21.7 28.3Fully Diluted EPS ( ) 28.0 44.8 31.1 22.5 21.7 28.3% chg 74.4 60.1 (30.6) (27.7) (3.3) 30.6

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

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Balance sheet (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 72 72 72 72 72 72Preference Capital 0 0 0 0 0 0

Reserves & Surplus 634 880 1,045 1,151 1,249 1,394

Shareholders Funds 706 952 1,117 1,223 1,321 1,466Minority Interest 3 52 91 91 91 91

Total Loans 807 1,327 1,747 2,204 2,001 1,899

Deferred Tax Liability 155 308 397 420 420 420

Long term liablities 784 653 842 842 842

Long term provisions 170 205 222 222 227

Total Liabilities 1,672 3,593 4,210 5,002 4,897 4,945APPLICATION OF FUNDSGross Block 182 251 379 529 629 709

Less: Acc. Depreciation 37 53 69 89 117 151

Net Block 145 198 310 440 511 558

Capital Work-in-Progress 10 86 103 136 120 120

Goodwill 1 1 1 1 1 1

Investments 1 1 1 1 1 1Deferred Tax Asset 175 273 266 327 387

Current Assets 3,644 4,788 4,656 5,138 5,280 5,500Cash 902 1,041 854 983 832 612

Loans & Advances 727 573 523 452 483 561

Inventories 16 41 31 43 70 73

Debtors 1,980 3,103 2,616 2,861 3,396 4,005

Others 18 30 632 799 499 249

Current liabilities 2,129 1,714 1,735 1,573 1,887 2,117

Net Current Assets 1,515 3,074 2,921 3,564 3,393 3,384Mis. Exp. not written off 0 59 602 596 546 496

Total Assets 1,672 3,593 4,210 5,002 4,897 4,945Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

previous year numbers

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Cash flow statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 305 481 328 244 234 305Depreciation 10 17 17 20 28 33(Inc)/Dec in WC 18 (641) (479) (300) (40) (266)

Less: Other income (25) (22) (14) (12) (15) (16)

Direct taxes paid (104) (158) (104) (82) (77) (101)

Cash Flow from Operations 205 (323) (252) (130) 130 (43)(Inc.)/Dec.in Fixed Assets (65) (147) (150) (182) (85) (80)

(Inc.)/Dec. in Investments 0 0 0 0 0 (1)

Other income 25 22 14 12 15 16

Cash Flow from Investing (40) (125) (136) (171) (70) (65)Issue of Equity - 0.2 - - - 72.16

Inc./(Dec.) in loans 98 519 420 457 (203) (103)

Dividend Paid (Incl. Tax) 59 84 59 59 59 59

Others 83 151 (160) 32 50 (22)

Cash Flow from Financing 39 435 361 398 (262) (89)Inc./(Dec.) in Cash 287 139 (186) 129 (151) (219)

Opening Cash balances 615 902 1041 854 983 832Closing Cash balances 902 1041 854 983 832 612


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Key Ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 6.1 3.8 5.5 7.5 7.8 6.0

P/CEPS 5.8 3.6 5.1 6.7 6.6 5.1

P/BV 1.7 1.3 1.1 1.0 0.9 0.8

Dividend yield (%) 4.1 5.9 4.1 4.1 4.1 4.1

EV/Sales 0.5 0.4 0.8 1.0 0.8 0.7

EV/EBITDA 4.6 3.8 5.7 7.0 6.9 6.3

EV / Total Assets 1.0 0.8 1.0 0.9 0.9 0.9

OB/Sales 3.3 1.7 2.2 2.3 1.8 1.5

Per Share Data (`)EPS (Basic) 28.0 44.8 31.1 22.5 21.7 28.3

EPS (fully diluted) 28.0 44.8 31.1 22.5 21.7 28.3

Cash EPS 29.4 47.2 33.5 25.3 25.6 33.0

DPS 7.0 10.0 7.0 7.0 7.0 7.0

Book Value 98.1 131.9 154.8 169.5 183.0 203.2

DuPont Analysis(%)EBIT margin 10.9 10.9 13.0 13.1 10.6 10.0

Tax retention ratio (%) 66.0 67.2 68.3 66.2 67.0 67.0

Asset turnover (x) 4.1 4.1 2.0 1.5 1.6 1.8

RoIC (Pre-tax) 44.4 45.0 26.2 19.1 16.5 17.4

RoIC (Post-tax) 29.3 30.2 17.9 12.7 11.1 11.7

Cost of Debt (Post Tax) 4.7 3.8 6.0 5.9 5.7 5.7Leverage (x) 0.0 0.1 0.8 1.9 1.7 1.4

Operating ROE 29.3 33.4 27.8 25.2 20.2 20.1

Returns (%)RoCE (Pre-tax) 22.1 24.4 16.9 13.3 12.0 13.7

Angel RoIC (Pre-tax) 44.9 47.0 27.7 20.2 17.4 18.3

RoE 31.7 40.4 31.9 28.4 22.3 23.4

Turnover ratios (x)Asset Turnover (Gross Block) 20.1 22.0 11.0 6.9 6.5 6.8

Inventory / Sales (days) 2 2 4 4 5 6

Receivables (days) 194 195 302 321 304 296

Payables (days) 209 152 201 215 182 173

WC cycle (ex-cash) (days) 74 72 166 191 175 156

Solvency ratios (x)Net debt to Equity (0.1) 0.3 1.7 1.9 1.5 1.3

Net debt to EBITDA (0.3) 0.5 1.9 2.9 2.7 2.6

Interest Coverage 6.2 8.6 3.3 2.3 2.2 2.7


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June 3, 2013 10

Research Team Tel: 022 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement BGR Energy Systems

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

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

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Documents

BGR 4Q FY 2013