BGR ENERGY: Powering Ahead

BGR Energy has high growth potential. Investors with a 12-month horizon can continue to hold the scrip

COMPANY: BGR ENERGY
OFFER PRICE: Rs 480
LISTING PRICE: Rs 801
CURRENT PRICE: Rs 903.95
CURRENT P/E: 93.1

BGR Energy, which raised Rs 207 crore through its IPO in December ’07, made its debut on the bourses with a 67% premium over the offer price on January 3, ’08. The current market price of Rs 904 is 93.1 times its annualised EPS for the quarter ended June ’07. According to the latest figures, during the June ’07 quarter, the company had logged a net profit of Rs 17.5 crore on a turnover of Rs 239.6 crore.

BGR Energy, which earlier used to undertake small-value balance of plant (BOP) contracts, is a relatively new player in the turnkey engineering, procurement and construction (EPC) contracts segment for power plants. The successful completion of a couple of EPC contracts in the past few years has enabled the company to change its business model. At a time when India is planning to add huge power generation capacities, BGR suddenly finds itself in the company of giants like Bharat Heavy Electrical (Bhel) and Larsen & Toubro (L&T). BGR, which recorded a turnover of Rs 786.8 crore during the 18-month period ended March ’07 claims to have an order book of Rs 3,000 crore.

GROWTH DRIVERS:
Says BGR CMD BG Raghupathy, “If we just consider the government’s targets for power generation capacities for the 11th Plan period, contracts worth Rs 80,000 crore will come up for bidding over the next six months or so. We are confident of winning a significant chunk of this.” He, however, adds, “We are very choosy about the contracts that we bid for. We have had a very high success rate in the earlier bidding processes, so getting new orders is not a concern today. We have to be very sure regarding the timely completion of the contract.”
The company’s future growth is not dependent only on the power sector. “We are also targeting the oil and gas industry. Today, nearly Rs 490 crore of our outstanding orders are from that industry. Natural gas processing complexes and gas compressor packages make up the bulk of these orders. Going forward, the share of petroleum industry in our revenues will go up,” Mr Raghupati told ETIG.

BGR’s plans to set up manufacturing units in the Middle East, China and Mundra SEZ in Gujarat will take another 12 months to fructify. These units will help it to manufacture and supply equipment to its overseas customers. VALUATIONS: Looking at BGR’s historical performance, the current valuations appear stretched. However, considering the high growth potential, we advise investors with a 12-month investment horizon to remain invested in the scrip.