Binging Big On BTG : BUY Key Take Away

Initiating Coverage BGR Energy Ltd.
October 19, 2010 Binging big on BTG…

Theme
BUY Incorporated in 1985, BGR Energy executes Turnkey Contracts for Balance of Plant ("BOP")
Equipment, Services and Civil works for Power Generation projects. It has graduated to
Key Take Away become one of the largest BOP contractor & the second largest EPC contractor in the
country with revenues touching 30 bn in FY10. It manufactures 22 products for power
CMP 737 generation industry & export its products to over 45 countries across the globe.
Target Price 972
Investment Rationale
Expected Upside 32%
Demand for power to stay strong: India is the second fastest growing economy, with the fifth
largest generation capacity of 159 giga watt (GW), as on April 30, 2010. However, India’s per
Market Data capita energy consumption, at 704 kWh, is much lower compared to developed countries like
the US (15000 kWh). In 2002-07, India had achieved only 21180 MW against a target of 41110 MW
Nifty Code BGRENERGY and for 2007-12, against the targetted 78700 MW, feasible capacity addition is only 62374 MW.
Sensex 20169 Further, capacity aggregating to about 60,600 MW is under execution at present for likely
Nifty 6076 benefits during 12th Plan. About 100000 MW capacity addition is being planned during 12th Plan.
Emerging as a Strong contender in the BTG segment: BGR has transformed itself from a BOP
52 week High/Low 871/424
player to an integrated EPC player and is now eligible to bid for the upcoming NTPC and other
Market Cap
power space tenders. This opens door in the segment where it will compete with bigger players
(Rs mns) 53116
like BHEL, L&T, Tata Projects & Reliance Infra. It has already entered the fray by submitting
FV 10 bids for the 9000 cr NTPC bulk procurement of 11 sets of 660 mw supercritical boilers and
turbines.
Shareholding Pattern (%) Robust Order book with strong execution skills: A dominant BOP industry player having a
market share of close to 72% in BOP segment, BGR’s current order book as on July 2010, stands
As on Dec 2009 at 9397 cr out of which power sector comprises 93%, oil & gas sector 5% whereas its equipment
81.26 business forms 2%. This gives a revenue visibility of more than 2 years.
Promoters
Revenue - CAGR growth of 28%: BGR has posted revenue CAGR growth of 28% from FY08-10
MFs, FIs & Banks 6.61
period, with a stronger CAGR growth of 18% expected to continue in future due to a
FIIs 7.09 phenomenal growth expected in the BOP segment and its recent entry in the BTG segment is
Other Bodies corporate 0.83 expected to boost its topline.
Public and others 4.22 JV formed with Hitachi: The recently signed JV with Hitachi for setting up a BTG facility would
incur a total capex of INR 44 bn of which BGR Boilers is allotted INR14 bn and BGR Turbines INR
30 bn. The capex would be funded in a Debt:Equity ratio of 74:26 and BGR’s equity infusion in
Comparative Price the JV would be INR 9.5 bn and this would be invested over a period of 3.5 years. The first 2 -3
Movement sets would be imported and thereafter the technology would be indigenized. Production would
commence in FY12 and boiler capacity should reach 4GW by FY12 and TG capacity 4GW by FY13-
25000 900 14.
20000
800
700
Improved Economic Outlook: The Equipment shortages primarily for Boilers, Turbines and
15000
600 Generators and lack of adequate supply of Balance of Plant (BOP) equipments like coal-handling,
500
10000
400 ash handling plants, etc. have been a significant reason for India missing its capacity addition
300
200
targets. To alleviate supply shortage of equipment measures such as enhancement of domestic
5000
100 equipment manufacturing capability by establishing JVs between Indian and foreign suppliers
0 0
are being adopted. This incremental demand for power equipment is expected to boost the
bottomlines of all industry players.
Valuation: BOP equipments and services industry which comprises close to 40% of the total
SENSEX BGR
power plant setup cost is a direct beneficiary of this surge in capacity additions planned by the
GOI. As BGR has already marched ahead in the BTG segment and it is already a established
leader in the BOP segment, it holds potentials of strong growth in future.
At the CMP of Rs 737, the stock quotes a PE of 17x and 13x its FY11E and FY12E cons. earnings of
Rs 40 and 54 respectively. We initiate with a BUY Rating on the stock, with a target price of Rs.
Sr. Analyst : Jigisha Jaini 972 based on an average PE of 18x consolidated FY12E EPS of Rs. 54 per share.
Email: jigishajaini@way2wealth.com
Key Financials
Contact: 022 – 40192900 Particulars (mlns 2008-09 2009-10 2010-11E 2011-12E 2012-13E
Net Sales 1429 1178 1749 2368 2699

% Growth -19% -18% 49% 35% 14%
PAT 1156 2015 2891 3893 4423
EBIDTA % 12.5% 12.0% 11.6% 11.1% 10.9%
PAT % 6.0% 6.6% 6.3% 6.2% 6.2%
EPS 16.1 28.0 40.2 54.1 61.4
PE 8.8 19.2 18.4 13.6 12.0
ROCE % 16% 18% 22% 25% 24%
ROE % 20% 29% 31% 31% 27%
WAY2WEALTH Securities Pvt. Ltd.,

15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900
email: research@way2wealth.com website: www.way2wealth.com
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Initiating Coverage
India Power Scene: The Laggard power sector can derail India’s growth story
Around 57% of rural households and 12% of urban households have no access to
electricity. India’s per capita power consumption of around 700 units a year is way below
the world average of 2,600 units and developed countries’ average of 8,000 units.
India has historically failed to meet its power sector targets by a significant margin and
with tremendous opportunities ahead, the power sector continues to be affected by the
shortfall both on generation as well as transmission side. It is also battling a chronic
shortage of fuel such as coal and gas to fire power plants. Projects are faltering because
of reasons as varied as a shortage of power generation equipment, delayed investment
decisions, contractual problems, resistance to land acquisition, delays in environmental
and forest clearances, and geological issues and natural calamities.
120 Plan wise capacity Addition vs Targets 140%

120%
100 96% 126% 90%
82% 80% 100%
72%
80 59% 80%
54% 51%
47% 60%
60 68%
40%
50%
40 39% 20%
16% 13% 0%
20 11%
‐20%
0 ‐23% ‐40%
5th 6th 7th 8th 9th 10th 11th 12th 13th
Plan Plan Plan Plan Plan Plan Plan Plan Plan
Target (GW) Actual (GW) Achmnt. Growth
India’s track record in adding power generating capacity is unenviable. In the five years
to 2007, the country added 20950 MW of capacity, against a target of 41110 MW. The
country has an installed power generation capacity of 164508 MW; its power plants have
an average efficiency rate of 73.63% of installed capacity. An original target of adding
78700 MW by 2012 has been revised down to 62374MW.
Demand Summary of ALL India forecast
2500 350
Projected Power Demand GW As per 17th EPS Report 298
300
1400 1207 2000
1200 218 250
1000 785 1500 200
800 153
600 510 150
331 1000 100 1915
400 215
132 1392 100
200
500 969
0 690 50
Installed 2012 2017 2022 2027 2032
Capacity 0 0
2007 10th plan 11th plan 12th plan 13th plan
Installed Capacity GW Energy Req (BU) Peak Load (GW)
Source: CEA

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Initiating Coverage
The low per capita consumption of electric power in India compared to the world
average presents a significant potential for sustainable growth in the demand for electric
power in India. According to the 17th Electric Power Survey, May 2007, India‘s peak
demand is expected to grow at a CAGR of 7.6% over a period of 10 years (FY2007 to
FY2017) and would require a generating capacity of more than 300,000 MW by 2017 to
cater to this demand compared to an installed capacity of 132,329 MW as on March 31,
2007.
The deficit in power availability in India is a significant impediment to the smooth
development of the economy. Incremental demand expected to be added in every five
year plan is above 50%, to reduce the current peak deficit at 10.7%.
A Power Plant structure
Equipment Shortage
Equipment shortages have been a significant reason for India missing its capacity
addition targets for the 10th five year plan. While the shortage has been primarily in
the core components of Boilers, Turbines and Generators, there has been lack of
adequate supply of Balance of Plant (BOP) equipment as well. These include coal-
handling, ash handling plants, etc.
Capacity for the 12th Plan (MW)
Thermal 76500 MW
Hydro 20000 MW
Nuclear 3400 MW
Total 99900 MW (Appr. 100000)


Initiating Coverage
The Supercritical Technology Wave…

Power plants with Super critical technology result in savings of about 4% of fuel and
correspondingly less emission. The Government has recently launched supercritical
power programme on the lines of the US, Japan, Germany, Korea and Russia.
With crude oil prices moving northwards, India, which is a signatory to the Kyoto
Protocol, in order to support the technology in the thermal power projects, has decided
the favorable methodology for the award of 7 units of 660 mw and 6 units of 800 mw.
This would pave the way for progressive indigenisation of supercritical technology. The
government is already striving to meet the capacity addition target of 78,700 MW in the
11th Plan.
Upcoming capacities in the domestic power equipment space

No. Indian Company Foreign Partner Boiler (GW) TG (GW)
1 BHEL Alstom (Boiler), Siemens(TG) 20 20
2 L&T Mitsubishi Heavy (49%) 4 4
3 Bharat Forge Alstom 0 5
4 JSW Energy Toshiba 0 3
5 GB Engineering Ansaldo Caldaie Boilers 2 0
6 Thermax Babcock & Wilcox 3 0
7 BGR Energy Hitachi 4 4
8 Cethar Vessels Power Machines for turbines & Riley
Power for boiler 8 8
Subcritical & Supercritical Eqpt Requirement

Total 660 MW 800 MW Total Total MW
Subcritical (Nos) (Nos) Supercritical
MW MW
10th Plan 9620 0 0 0 9620
11th Plan 45470 7 1 5420 50890
12th Plan 18270 25 33 42900 61170
13th Plan 4000 36 36 52560 56560
14th Plan 0 45 52 71300 71300
While most of the 11th plan equipment orders have already been placed, more than 50%
of the equipment for the 12th plan is yet to be ordered. We expect orders for about 13-
15 GW of power equipment to be placed every year for the next 2-3 years. Post that, the
ordering schedule for the 13th FYP, which proposes to add another 100GW would ensure
a steady inflow of orders.
The 3-yr period over FY11E-13E is expected to represent a peak in power capacity
construction addition in India with 30% growth in capacities under construction. This
creates substantial opportunities for incumbents like BGR Energy to grab a bigger share
of the market.


Initiating Coverage
BOP Industry
BoP refers to all major plants and equipment other than those included in the main plant
equipment (BTG). Some of the key components of the typical BoP package include a coal
handling plant, ash handling plant, demineralized water plant, cooling tower, chimney,
fuel oil handling and unloading system, fire protection, and a detection and alarm
system etc.
BoP work constitutes an average 40% of the total project cost. With planned thermal
capacity at over 76 GW for the 12th Five Year Plan alone, this would translate into a
potential BoP opportunity of ~Rs1454 bn (~Rs291bn of an average annual opportunity),
assuming the average cost of a thermal power plant ranges between 4.5-5 cr per MW.
BOP Market Size

11th Plan 12th Plan Total
Thermal Capacity 50757 76500 127257
Average Cost/MW (Rs Mn) 47.5 47.5 47.5
Total thermal capex 2411 3634 6045
BOP share (40%) 964 1454 2418
Requirement of BOPs During 10th, 11th & 12th Plan

No Name of BOP Nos
10th Plan 11th Plan 12th Plan
1 Coal Handling Plant (CHP) 23 68 70
2 Ash Handling Plant (AHP) 23 69 70
3 Demineralised water Plant 32 69 70
4 Cooling Tower 41 79(145) 70(148)
5 Chimney 36 79(117) 77(148)
6 Fuel Oil System 22 71 70
7 Water Treatment Plant 36 76 70
BOP Vendors
BOP Package Key Players
Coal Handling Plant Techpro, L&T, Elecon, TRF, BGR
Ash Handling Plant Indure Mecawber Beekay, Mcnally Bharat
Demineralised water plant Driplex water Engg, Ion Exchange, Thermax, BGR
Cooling tower Paharpur Cooling Towers, Gammon India, BGR
Chimney Gammon India, NBCC, Simplex, BGR
Fuel Oil system BHEL, Techno Electric
Water Treatment plant Driplex water Engg, Ion Exchange, BGR
CW system Kirloskar, Punj Lloyd, BHEL

Switchyards/switchgear ABB, Areva, Siemens, BHEL


Initiating Coverage
The BoP package for a thermal plant consists of several individual components such as
the Coal handling Plant, Ash Handling plant, Cooling tower. With 5-9 vendors catering to
each of these component markets individually, it is relatively more attractive for a
utility to place a turnkey BoP order both in terms of cost effectiveness and also in terms
of ease of liaising with a single equipment supplier relative to many smaller ones.
However, most of the individual component makers are currently too small to ramp up to
the scale necessary to provide turnkey services. Companies providing turnkey services
are mostly much larger companies than BGR such as L&T, Punj Lloyd, Reliance
Infrastructure, Tata Power etc – that operate across various infrastructure segments and
have a limited focus on BoP power contracts.
However, given strong demand from the power sector, there is a shortage of vendors in
the BoP space. Such shortage is also often cited as a key reason for delays in
commissioning of plants. This gives sufficient room for a limited few reputed players to
co-exist and grow in the industry.
Major BOP vendors available in country

No. Name of BOP No. of Vendors
1 Coal Handling Plant 8
2 Ash Handling Plant 9
3 Demineralised water plant 5
4 Cooling tower 5
5 Chimney 4
6 Fuel Oil system 4
7 Water Treatment plant 5
8 CW system 3
9 Control & Instrumentation 4
10 Switchyards/switchgear 5
11 Structural steel erection 3
12 Fire protection system 6


Initiating Coverage
Company Background
BGR was Promoted by Mr. B.G. Raghupathy (BGR) as a joint venture with GEA
Energietechnik GmbH, Germany in 1985
It has businesses in two segments for Power, Oil & Gas sector
• Turnkey project engineering and contracting; and
• Supply of systems and equipment for Power, Oil & Gas industries
Globally it has executed more than 150 contracts in 45 countries.
It has proven track record in Design, Engineering and has Turnkey Project Management
capabilities across business divisions:
• Power Projects Division
• Oil & Gas Equipment Division
• Air Fin Cooler Division
• Electrical Projects Division
• Environmental Engineering Division
• Captive Power Division
Group Companies
GEA BGR Energy System India Limited
• Established in 1985 as joint venture with M/s. GEA Energietechnik GmbH,
Germany
• Leading supplier of Tube Cleaning System and Debris Filter on turnkey basis for
Power and Desalination Plants worldwide
• Market Leader in India catering to 80,000 MW installed Power Plant Capacity
• Over 1000 systems operational Worldwide
• Quality System to ISO 9001:2000
• Wholly owned Subsidiary for manufacturing complete range of Sponge Rubber
Cleaning Balls
• Installations in 33 Countries across 5 Continents
Subsidiary Companies
Progen Systems & Technologies Limited
• Subsidiary of BGR Energy with 69.67% holding, has been incorporated in 1994 as a
public limited company
• Designs and manufactures Process equipments like Heat Exchangers, Pressure
vessels, Reactors, Columns, Surface condensers, HP/LP Heaters and Boiler
components
Joint Ventures
GEA Cooling Tower Technolgies (India) Pvt Ltd.
It was established in 1996 as a joint venture between M/s. GEA Energietechnik GmbH,
Germany and BGR Group. GEA Energietechnik GmbH, Germany provides:
• Technical and engineering license
• Full fledged Design, Engineering and Project Management facilities in Chennai
• Complete access to the design, engineering and rating facilities of GEA
Energietechnik GmbH, Germany


Initiating Coverage
• Over 700 installations of natural, mechanical draught, hybrid cooling towers,

indirect dry cooling towers and air cooled condensers worldwide
Recently formed JVs with Hitachi

On 6th August, 2010, BGR finalized its JV with Hitachi for supercritical boilers &
turbines. The Boiler JV (BGR Boilers Pvt Ltd) was signed with Hitachi Ltd. (Japan)
with Hitachi holding 30% stake in the JV while the turbine JV (BGR Turbines Company
Ltd) was signed with Hitachi Power Europe Gmbh (Germany) with Hitachi having 26%
stake in the JV. The JVs are expected to commence production in 2012 with a
manufacturing capacity of about 4000 MW (5 units of 660MW, 800MW or 1000 MW
pa).
Investment in JVs Rs. Crs

JV with Hitachi Japan (Supercritical BGR plans to set up the
Steam turbines) 3000 equipment manufacturing
facility in Tamil Nadu with
JV with Hitachi Europe (Supercritical an initial capacity of 4000
steam generators) 1400 MW with a total investment
Total 4,400 of Rs. 4400 cr. BGRs share in
the investment would be a
total of Rs. 3200 cr.
BGR share in Equity investment
Assuming a Debt/Equity of
JV with Hitachi Japan (74:26) 2220 70:30, equity investment
JV with Hitachi Europe (70:30) 980 would be close to Rs. 960 cr
Total 3,200.0 which would be spread over
BGR: Debt/Equity (70:30) 960.0 a timeframe of 3 yrs.
(spread over 3 years)
Per year Cash outflow in JV 320
Manufacturing facility expected to be completed in about 3 years

The boiler unit is expected to get completed in 2-3 years time. The turbine facility is
expected to take 3 years with additional 2 years to achieve indigenization. The boiler
facility would be close to 100% indigenized in 5 years but certain turbine components
such as rotors & blades would still have to be imported. Total indigenization would take
about 8-9 years. The management has said it would take about 5-7 years for breakeven
of its capital.
Technical Collaborations
PRODUCTS COLLABORATOR/TECHNICAL KNOW HOW
Desalination Plants INIMA & Aqualia, Spain
Water/Waste Water treatment Termomeccanica, Italy
Condensate Polishing Units Termomeccanica, Italy
Reverse Osmosis based Effluent American Engineering Services, (AES) Arabia
Treatment Plant
Heat Recovery Steam Generator Nooter/Eriksen, Inc., USA
Hitachi Power Europe Gmbh, Germany Supercritical Steam Generators upto 1100 MW &
Subcritical Boilers
Hitachi Ltd., Japan Supercritical Steam Turbines & Generators upto 1000
MW


Initiating Coverage
Scaling up the Value Chain

BGR has scaled up the value chain from being merely a manufacturer of few BoP
(balance of plant) packages to executing turnkey BoP projects, followed by
implementation of full-fledged EPC contracts. It has now forayed into the supercritical
BTG (boiler, turbine and generator) manufacturing space via a JV with Hitachi.
BTG
EPC
Contracts
Turnkey
BOP
BOP
Packages
Most BOP component suppliers in India lack the skill sets and balance sheet to provide
integrated BOP solutions, and larger turnkey suppliers (L&T, Punj Lloyd, Tata Projects
and R-Infra) are diversified with limited focus on BOP. BGRL’s BOP focus and sourcing of
~40% of any BOP order in-house provides it with a competitive advantage over the
medium term. Leveraging the gains of BOP business, the company has now transformed
itself into being capable of taking on US$1bn+ EPC orders, which is set to transform the
scale of the company’s operations.
While the company could target only 40% of an overall power equipment contract
earlier, with its foray into EPC contracts, it is now in a position to target the entire
spectrum of works in any given project.
Strategic Growth: Change in CEA guidelines for bidding

• The CEA guidelines for BOP contractors have been significantly revised to
encourage more players in the market. The new guidelines have enabled major
construction companies and BOP package vendors to come together to form a
consortium and bid for a project.
• The EPC space is limited to few players as its prequalification requirements are
barrier to many companies. The private sector has become more aggressive in
putting up power plants due to easy availability of funds from financial


Initiating Coverage
institutions and the government policy to welcome investments from the private
sector. This has increased the number of tenders being floated.
• Most private companies are shying away from the package route and are now
more open towards the twin package or the total EPC route which provides
opportunities for the Company.
This provides ample growth impetus for BGR which has an added advantage due to its
dedicated focus on BOP segment.
40-50% inhouse manufacturing gives BGR an edge: Over the past few decades, the
company has ramped up its product portfolio significantly and can now manufacture 40-
50% of the components inhouse, offering it a cost advantage versus peers.
BOP Package – 40-50% inhouse systems

Complete design & engineering Effluent treatment plant
• Chimney Demineralization plant
• Natural and induced draft cooling Ash handling system
tower
Substation and switchyard Coal handling system
Plant piping system Gas conditioning & metering skid
Air fin cooler Fabrication of columns & structures
Air cooled condenser Welded finned tubes
Deaerator Heat recovery steam generator
Desalination plant including RO system Online condenser tube cleaning system
Condensate polishing plant Debris filter
Management Guidance growth of order inflows worth 100-120 bn for FY11

• BGRL is aiming to bid for orders to the tune of ~ Rs350-400 bn in FY11E and
expects to win orders of ~Rs150-200 bn. The company has already bid for orders
totaling ~Rs160bn including
(1) 2X660MW EPC Suratgarh and
(2) 2X660MW EPC Chhabra,
(3) 350MW EPC gas project in Gujarat where the orders would be given over
2Q/3Q FY11E.
Suratgarh has only two bidders (BHEL and BGRL) and Chhabra has three bidders (BHEL,
BGR Energy and Power Machines).
Project State Client Configuration Type of Contract
Bids placed
Suratgarh Rajasthan RRVUNL 2x660 MW EPC
Chhabra Rajasthan RRVUNL 2x660 MW EPC
Dhuvaran Gujarat GSECL 350 MW EPC
Upcoming Tenders
Bulk tender NTPC 9x800 MW BTG
Bulk tender Jindal Power 10x660/8x800 MW BTG
Wanakbori Gujarat GSECL 1x800 MW BTG
Salboni West Bengal JSW Energy 2x800 MW BTG


Initiating Coverage
• BGR has also taken advantage of the opportunity arising from NTPC’s 11*660MW
boiler bulk re-tender and has placed its bid for the same. Additionally,
management has indicated that it is currently in talks with several IPPs for new
orders as well.
• Upcoming tenders: Other major opportunities likely to come up over the next
few quarters include 9*800MW NTPC second bulk tender and several tenders from
various SEBs and private players, respectively. BGR is expected to bid for all of
them.
BGR Order Book, Inflows & Growth

300.0 50%
45% 242.7 45%
250.0
40%
192.0 35%
200.0
29% 30%
148.4
150.0 26% 25%
95.2 102.3 20%
100.0 82.1 16% 15%
10%
50.0 7%
26 83 37 92 106 122 5%
0.0 0% 0%
2007‐08 2008‐09 2009‐10 2010‐11E 2011‐12E 2012‐13E
Order backlog Order Inflow % Growth Order backlog
Source: Company, Way2Wealth Research
Order book to sales growth
300 5.4 6.0

4.9 243
250 5.0
192
200 3.3 3.4 4.0
3.2 3.1
148
150 3.0
95 102
100 82 2.0
50 1.0
62 71
15 19 31 46
0 0.0
2007‐08 2008‐09 2009‐10 2010‐11E 2011‐12E 2012‐13E
Revenues Order backlog Order Book/Sales Ratio


Initiating Coverage
Revenue Break Up Segment wise
Revenue Break Up (FY10 Rs. 306.93 Bn) Revenue Break Up (June 2010, Rs. 94 Bn)
Air Fin Electrical Air Fin Electrical
Projects, 1% Environmental Projects, 2% Environmental
Cooler, 2% Cooler, 2%
Eng., 1% Eng., 0.4%
Oil & Gas Oil & Gas
Eqpt, 2% Eqpt, 5%
Power Power
Projects, 94% Projects, 92%
BGR has a healthy order book of ~Rs94bn providing strong revenue visibility of over 3 yrs
FY11 estimated sales to the company. Though, the company operates through six
business divisions, power projects forms its core business contributing 91.5% of the total
backlog. On a geographical basis, domestic orders constitute 95.2% of the backlog.
Order Pipeline:
BOP Project Pipeline

Project Fuel Size (MW) Value (Rs Mn) Status
CSPGCL, Marwa TPS Chattisgarh Coal 2 x 500 16330 Under Execution
MAHAGENCO, Chandrapur TPS, Maharashtra Coal 2 x 500 16320 Under Execution
APGENCO, Kothagudam TPS, Khammam, AP Coal 1 x 500 7930 Under Execution
MAHAGENCO, Kaperkheda TPS, Maharashtra Coal 1 x 500 9980 Under Execution
APGENCO, Kakatiya TPS, Khammam, AP Coal 1 x 500 6949 Completed
Grasim Industries-CPP, Chittorgarh, Rajasthan Coal 23 444 Completed
TNEB-CCPP Valathur (phase I), Tamil Nadu Gas 95 594 Completed
RRVUNL-CCPP, Dholpur, Rajasthan Gas 330 2095 Completed
APGENCO-Vijayawada TPS, Andhra Pradesh Coal 1 x 500 5788 Completed
Of the ongoing projects, Marwa and Chandrapur are still in the early stages of
implementation while the Kothagudam (~75% complete) and Kaperkheda (~90%
complete) projects are expected to be completed in the current financial year.


Initiating Coverage
EPC Projects
BGR has bagged two major orders for full fledged EPC contracts (total value: Rs80bn),
which includes
• 1*600MW EPC for a power plant at Mettur, Tamil Nadu, and the second,
• 2*600MW EPC for a power plant at Jhalawar, Rajasthan.
The BoP implementation for both these projects is being handled by BGR at its own end
whereas the BTG package (boiler, turbine and generator) is being sourced from
Dongfang, China. The company has covered its risk with a back-to-back guarantee from
Dongfang. It has set up a team in China to co-ordinate the supply and quality aspect of
the equipment.
Project Fuel Size (MW) Value (Rs Mn) Status

RRUVNL, Kalisindh TPS, Jhalawar, Rajasthan Coal 2 x 600 49000 Under Execution
TNEB, Mettur Thermal Power plant Coal 1 x 600 31000 Under Execution
Aban Power- CCPP, Karuppur, Tamil Nadu Gas 120 2697 Completed
TNEB-CCPP Valathur (phase II), Tamil Nadu Gas 92.2 3553 Completed
Historically most of BGR's contracts have been on a fixed price basis and of the current
backlog, only the Marwa and Chandrapur BoPs (~32% of order book) have a price
variation clause.
Going ahead, management sees the change in trend with most incremental orders having
price variations and has guided for stable EBIDTA margin at between 11-11.5% and PAT
margin of 6-6.5%.
Peer Comparison: Player profile
Peer Analysis
Peer Analysis Net Sales Op Margins NP Margins EPS Pex
FY09 FY10 FY11E FY09 FY10 FY11E FY09 FY10 FY11E FY09 FY10 FY11E FY10
BGR 19303 30734 46035 12.5% 12.0% 11.6% 6.0% 6.6% 6.3% 16.1 28.0 40.2 19.6
L&T 336466 366752 442028 13.7% 15.6% 14.9% 8.1% 8.6% 8.3% 46.3 52.5 61.1 33.4
BHEL 262123 328803 393929 19.6% 21.5% 21.5% 12.0% 13.1% 13.5% 64.1 87.6 108.6 24.0
Thermax 34041 32766 44256 13.6% 13.6% 13.3% 12.5% 12.2% 12.1% 29.3 12.0 30.0 27.4
Concerns
• Execution Delays: The biggest challenge for BGRL is the timely and effective
management of projects in hand. The scale of projects being undertaken by company
is bigger than ever, with the two EPC contracts contributing a major chunk of the
order backlog. Any major delays in execution could adversely impact its
performance.
• Raw materials and cost fluctuations in bought-out items: Of the current order
book, nearly ~70% of the projects are on a fixed-price basis which implies that any
adverse fluctuation of raw materials prices and bought-out items could negatively
affect margins.


Initiating Coverage
• High working-capital requirement: BGRL operates in a highly working-capital

intensive industry, involving long payment cycles and retention money held by
clients. Hence, a sharp spike in interest rates, resulting in a higher cost of borrowing
for the company, could adversely impact overall profitability.
• SEB concentration risks: The majority of BGRL’s orders are from SEBs. SEB losses
increased from Rs46bn in FY93 to Rs319bn in FY08 and are expected to be ~Rs500bn
in FY10. At FY08 tariff levels the 13th Finance Commission believes this could be as
high as Rs686bn in FY11E and move up to Rs1,161bn by FY15E. Top 12 SEBs
contribute almost all of the losses and 30 out of 90 SEB entities had negative net
worth at the end of FY08
Valuations:
We believe BGR is all set to fly with its new formed wings in the air, with larger players
like BHEL & L&T, but with its niche focus on the BOP segment, will give it an edge in this
competition against the new entrants and the existing ones. At the CMP of Rs 737, the
stock quotes a PE of 17x and 13x its FY11E and FY12E cons. earnings of Rs 43 and 59
respectively. We initiate with a BUY Rating on the stock, with a target price of Rs. 972
based on an average PE of 18x consolidated FY12E EPS of Rs. 54 per share.


Initiating Coverage
Financial Summary
Profit & Loss Statement Balance Sheet
Particulars (Rs. Mln) 2008-09 2009-10 2010-11E 2011-12E 2012-13E Particulars (Rs. Mln) 2008-09 2009-10 2010-11E 2011-12E 2012-13E
SOURCES OF FUNDS :
Net Sales 19303 30734 46035 62313 71028
Equity capital 720 720 720 720 720
Other Income 317 250 374 507 578
Total Reserves 4919 6343 8644 11947 15779
Total Income 19620 30984 46409 62820 71605 Total Networth 5639 7063 9364 12667 16499
% Growth 28.5% 57.9% 49.8% 35.4% 14.0% Debt Capital 7090 9336 10311 10856 10930
EXPENDITURE : Minority Interest 28 29 29 29 29
Raw Materials 13533 21844 33145 45177 51637 Deferred Tax liability 747 1551 1551 1551 1551
Total Liabilities 13504 17979 21255 25103 29009
Manufacturing Expenses 3681 5448 7927 10730 12231
APPLICATION OF FUNDS :
Total Expenditure 17214 27292 41072 55907 63868
Gross Block 1245 1819 2569 3169 3669
% of Sales 89.2% 88.8% 89.2% 89.7% 89.9% Less : Accumulated Depreciation 268 365 511 690 897
Operating Profit 2406 3692 5337 6913 7737 Net Block 977 1454 2058 2479 2772
EBIDTA Margins % 12% 12% 12% 11% 11% Capital Work in Progress 54 104 104 104 104
Depreciation 75 103 145 179 207 Goodwill on Consolidation 6 6 6 6 6

Investments 5 5 3205 6405 9605
EBIT 2331 3589 5192 6734 7530
Current Assets 25690 37699 46300 56147 61836
EBIT Margins % 12.1% 11.7% 11.3% 10.8% 10.6%
Inventories 140 162 242 312 355
Interest 579 538 876 923 929 Sundry Debtors 12789 19803 29002 38634 43327
PBT & Extraord. Items 1752 3051 4315 5811 6601 Cash and Bank 6152 10280 7563 4352 3508
EBT Margins % 9.1% 9.9% 9.4% 9.3% 9.3% Other current assets 178 181 285 386 440
PBT but after Ext. Items 1752 3051 4315 5811 6601 Loans and Advances 6432 7273 9207 12463 14206
Current Liabilities 13229 21289 30418 40039 45314
Total Tax 596 1037 1424 1918 2178
Sundry Creditors 8138 7928 11693 15703 17899
Profit After Tax 1156 2015 2891 3893 4423
Other Creditors 4413 11028 16388 21997 25073
PAT Margins % 6.0% 6.6% 6.3% 6.2% 6.2%
Provisions 677 2334 2336 2339 2342
Adjusted PAT after exceptional items 1156 2015 2891 3893 4423 Net Current Assets 12462 16410 15882 16109 16522
Adjusted PAT Margins % 6.0% 6.6% 6.3% 6.2% 6.2% Total Assets 13504 17979 21255 25103 29009
Cash Flow Ratios

Particulars 2008-09 2009-10 2010-11E 2011-12E 2012-13E
Particulars 2008-09 2009-10 2010-11E 2011-12E 2012-13E
Cash Flow from Operating Act.
Valuation Ratios
Op. Profit before Working Capital 2338 3692 5337 6913 7737
Mkt.Price - Rs. 142.00 537.00 737.00
Changes in -
EPS - Rs. 16.1 28.0 40.2 54.1 61.4
Trade & other Receivables -5428 -7014 -9199 -9632 -4693
Inventories 10 -22 -81 -69 -44 EBIDTA % 12.5% 12.0% 11.6% 11.1% 10.9%
Trade Payables 7754 7208 9126 9618 5272 PBT % 9.1% 9.9% 9.4% 9.3% 9.3%
Other Current assets -92 -3 -104 -101 -54 PAT % 6.0% 6.6% 6.3% 6.2% 6.2%
Loans & Advances -3771 -841 -1934 -3256 -1743 EV - Rs. Mln. 11162 37720 41412 45167 60485
Cash Generated from operations 810 3019 3146 3473 6476 EV/EBIDTA 4.6 10.2 7.8 6.5 7.8
Direct Taxes Paid 37 -249 1424 1918 2178 EV/Sales 7.8 32.0 23.7 19.1 22.4
Net Cash flow from Operating Act. 773 3268 1722 1555 4298
Book Value in Rs.per share 78.3 98.1 130.1 175.9 229.2
Cash Flow from Investing Act.
P/E ratio 8.8 19.2 18.4 13.6 12.0
Capex 0 0 -750 -600 -500
ROCE - % 16.4% 17.7% 22.0% 24.5% 24.0%
Purch/Sale of Fixed Assets -523 -581 0 0 0
Purch/Sale of Invsts 1509 0 -3200 -3200 -3200
ROE - % 20.5% 28.5% 30.9% 30.7% 26.8%
Income from Investments -43 -49 0 0 0 Dividend Yield 2.1% 1.3% 1.3% 1.3% 0.9%
Interest/Div recd. 24 0 0 0 0 Balance Sheet Ratios
Net Cash used in Investing act 967 -630 -3950 -3800 -3700 Debt-Equity Ratio 1.26 1.32 1.10 0.86 0.66
Cash Flow from Financing act. Current Ratio 1.9 1.8 1.5 1.4 1.4
Issue of Equity shares 0 0 0 0 0 Debtor Days 239 232 227 223 220
Proceed/Repmt of Borrowings 756 3522 975 544 74
Creditor Days 152 93 91 91 91
W.Cap Loans availed 1307 -1276 0 0 0
Depreciation / GFA 6.0% 5.7% 5.7% 5.7% 5.7%
Dividend Paid -144 -216 -588 -588 -588
Interest Cover Ratio 4.0 6.7 5.9 7.3 8.1
Interest paid -577 -539 -876 -923 -929
Turnover Ratios
Net Cash from Financing act 1342 1491 -489 -966 -1443
Total ( a+b+c) 3081 4129 -2717 -3211 -844 Fixed Assets 1.1 0.6 0.7 0.7 0.7
Opening balance for cash & cash eq. 3070 6152 10280 7563 4352 Inventory 10.2 7.3 7.2 7.6 7.6
Closing balance for cash & cash eq. 6152 10280 7563 4352 3508 Debtors 0.1 0.1 0.1 0.1 0.1


Initiating Coverage
RESEARCH TEAM
K.N.Rahaman Deputy Research Head Equities & Commodities rahaman@way2wealth.com
Jigisha Jaini Sr. Research Analyst Capital Goods & Engineering jigishajaini@way2wealth.com
Transportation (Auto, Shipping,
Sejal Jhunjhunwala Sr. Research Analyst sejal@way2wealth.com
Aviation, Port etc), Metals
Nisha Harchekar Sr. Research Analyst Banking, FMCG, Entertainment nishaharchekar@way2wealth.com

Infrastructure, Real Estate, Cement,
Pinkesh Jain Sr. Research Analyst pinkesh@way2wealth.com
Metals & mining
Vishwa Doshi Research Analyst IT, Telecom vishwadoshi@way2wealth.com
Krishna Reddy Research Analyst Commodities, Economic Update krishnareddy@way2wealth.com
Prateek Jain Sr. Research Analyst Mutual Funds & Economic update prateek@way2wealth.com
Ritu Gupta Research Analyst Mutual Funds ritugupta@way2wealth.com
Aditya Agarwal Sr. Derivative Analyst Derivative Strategist & Technicals aditya@way2wealth.com
Amrut Deshmukh Sr. Technical Analyst Technical Analysis amrut@way2wealth.com
Parag Joshi Technical Analyst Technical Analysis - Commodities paragjoshi@way2wealth.com
,
Rupali Prabhu Assistant to Research Database Management rupali@way2wealth.com
Contact 022-40192900


Initiating Coverage
DISCLAIMER
Analyst Certification: I, Jigisha Jaini, the research analyst and author of this report, hereby certify that the views expressed in this research report accurately reflect our
personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly
or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s), principally responsible for the preparation of this research report, receives
compensation based on overall revenues of the company (Way2Wealth Brokers Private Limited, hereinafter referred to as Way2Wealth) and has taken reasonable care to achieve
and maintain independence and objectivity in making any recommendations.
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action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any such
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Disclosure of Interest Statement in BGR Energy Ltd as on 19th October 2010

1. Name of the analyst : Jigisha Jaini
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3. Way2Wealth ownership of any stock related to the information contained : NIL
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Initiating Coverage BGR Energy Ltd.

October 19, 2010 Binging big on BTG…

Net Sales 1429 1178 1749 2368 2699

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120 Plan wise capacity Addition vs Targets 140%

Target (GW) Actual (GW) Achmnt. Growth

Demand Summary of ALL India forecast

Installed Capacity GW Energy Req (BU) Peak Load (GW)

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A Power Plant structure

Capacity for the 12th Plan (MW)

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The Supercritical Technology Wave…

Upcoming capacities in the domestic power equipment space

Subcritical & Supercritical Eqpt Requirement

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BOP Market Size

Requirement of BOPs During 10th, 11th & 12th Plan

CW system Kirloskar, Punj Lloyd, BHEL

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Major BOP vendors available in country

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• Over 700 installations of natural, mechanical draught, hybrid cooling towers,

Recently formed JVs with Hitachi

Investment in JVs Rs. Crs

Manufacturing facility expected to be completed in about 3 years

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Scaling up the Value Chain

Strategic Growth: Change in CEA guidelines for bidding

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BOP Package – 40-50% inhouse systems

Management Guidance growth of order inflows worth 100-120 bn for FY11

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BGR Order Book, Inflows & Growth

Order backlog Order Inflow % Growth Order backlog

Source: Company, Way2Wealth Research

Order book to sales growth

300 5.4 6.0

Revenues Order backlog Order Book/Sales Ratio

Source: Company, Way2Wealth Research

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Revenue Break Up Segment wise

Source: Company, Way2Wealth Research

BOP Project Pipeline

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