4QFY2013 Result Update | Capital Goods

June 3, 2013

BGR Energy Systems

Performance Highlights
Quarterly Highlights (Standalone)
(` cr) Revenue EBITDA EBITDA margin (%) Reported PAT 4QFY13 1,063 139 13.0 54 4QFY12 1,138 136 11.9 67 % chg (yoy) (6.5) 2.3 113bp (19.8) 3QFY13 805 111 13.7 41 % chg (qoq) 32.1 25.4 (70)bp 29.9

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Capital Goods 1,223 1,220 1.2 320/162 77,547 10 19,610 5,939 BGRE.BO BGRL@IN

`170 -

Source: 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 Krishnapatam contributed 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 the past 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, we maintain our Neutral view on the stock. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 81.1 2.1 1.9 14.8

Abs. (%) Sensex BGR

3m

1yr

3yr 15.2 (74.0)

3.7 22.8 (18.5) (38.7)

FY2012 3,451 (27.4) 224 (30.6) 13.5 31.1 5.5 1.1 31.9 16.9 0.8 5.7

FY2013E 3,113 (9.8) 162 (27.7) 13.7 22.5 7.5 1.0 28.4 13.3 1.0 7.0

FY2014E 3,756 20.7 157 (3.3) 11.3 21.7 7.8 0.9 22.3 12.0 0.8 6.9

FY2015E 4,569 21.6 205 30.6 10.7 28.3 6.0 0.8 23.4 13.7 0.7 6.3

Amit Patil 022-39357800 Ext: 6839 amit.patil@angelbroking.com

Please refer to important disclosures at the end of this report

BGR Energy | 4QFY2013 Result Update

Exhibit 1: Quarterly performance (Standalone)

(` cr) Net Sales Other operating income Total income Stock adjustments Raw Material (% of total income) Employee Cost (% of total income) Other Expenses (% of total income) Total Expenditure EBITDA (EBITDA %) Interest Depreciation Other Income PBT (% of total income) Total Tax (% of PBT) PAT (% of total income) EPS (`)
Source: Company, Angel Research

4QFY13 1,063 1 1,063 (0.8) 833 78.2 54 5.1 39 3.7 925 139 13.0 50 6 0 83 7.8 29 35.1 54 5.1 7.5

4QFY12 1,138 0 1,138 0.1 937 82.3 47 4.1 18 1.6 1,002 136 11.9 41 4 5 95 8.4 28 29.6 67 5.9 9.3

% chg (yoy) (6.6) (6.5) (11.1) (4.1) 14.4 112.5 (7.7) 2.3 22.0 34.1 (13.1) 3.0 (19.8)

3QFY13 805 0 805 2.6 605 75.5 56 6.9 31 3.9 694 111 13.7 50 4.4 5.5 61 7.6 20 32.5 41 5.1 5.7

% chg (qoq) 32.0 32.1 37.6 (3.5) 25.8 33.2 25.4 (0.3) 28.7 35.2 46.1 29.9 29.9

FY2013 3,105 1 3,107 1 2,349 75.6 196 6.3 128 4.1 2,674 433 13.9 175 19 6 246 7.9 82 33.3 164 5.3 22.7

FY2012 3,442 3 3,445 0 2,682 77.9 171 5.0 120 3.5 2,974 471 13.7 135 16 8 327 9.5 103 31.6 224 6.5 31.0

% chg (yoy) (9.8) (9.8) (12.4) 14.8 6.1 (10.1) (8.0) 29.0 15.3 (24.9) (20.8) (26.8)

Exhibit 2: Segment-wise performance (Standalone)

Y/E March (` cr) Revenue Capital goods Const. and EPC contracts Total revenue EBIT (excl. net unallocable inc.) Capital goods Const. and EPC contracts Total EBIT Revenue mix (%) Capital goods Const. and EPC contracts EBIT margin (%) Capital goods Const. and EPC contracts
Source: Company, Angel Research

4QFY13 79 985 1,063 7 126 133 7.4 92.6 8.3 12.8

4QFY12 87 1,051 1,138 11 121 131 7.6 92.4 12.5 11.5

% chg (yoy) (8.9) (6.3) (6.5) (39.6) 4.9 1.3

3QFY13 59 746 805 7 99 106 7.3 92.7 11.7 13.3

% chg (qoq) 34.4 31.9 32.1

FY2013 239 2,867 3,107 17 397 414 7.7 92.3 7.1 13.9

FY2012 312 3,133 3,445 38 417 454 9.0 91.0 12.1 13.3

% chg (yoy) (23.3) (8.5) (9.8) (55.4) (4.7) (8.9)

June 3, 2013

BGR Energy | 4QFY2013 Result Update

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: Revenue Trend

1,600 1,400 1,200 (11.9) 0.2 (6.5) 5

0 (5) (10)
(15) (20) (25) (30) (35) (40)

(22.2)
(32.1) (36.1) (16.8)

1,000
800 600
1,462

(18.7)

(19.0)

400
200 0

1138

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

3QFY13

2QFY13

Sales (` cr, LHS)

Source: Company, Angel Research

Growth (yoy %, RHS)

Operating margin expands yoy

BOP projects at Chandrapur, Marwa and Krishnapatam contributed 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) 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

180 11.5 14.3

Exhibit 5: PAT impacted by high interest cost

20

125
100 75

4QFY13

1063

734

772

804

611

805

627

10 6.7
6.8 6.7

160
140 120

16.3

13.1

11.9

14.4

15.2

13.7

13.0

16
12 8

6.8
5.9 5.5 5.5 5.1 5.1

8 6

100
80 60

50
25
98 50 51 55 67 34 35 41

4
2
54

167

110

136

20 0

139

131

111

40

4
0

96

88

95

0
4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

4QFY11

1QFY12

2QFY12

4QFY12

1QFY13

2QFY13

EBITDA (` cr, LHS)

EBITDAM (%, RHS)

4QFY13

3QFY12

3QFY13

PAT (` cr, LHS)

PATM (%, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

June 3, 2013

BGR Energy | 4QFY2013 Result Update

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 of 3.5x, 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

16,000
14,000 12,000 10,000
(` cr)

8,000

6,000
10,230 15,100
10,532

13979

2,000
-

4QFY10

1QFY11

3QFY11

4QFY11

2QFY12

3QFY12

1QFY13

2QFY13

Source: Company, Angel Research

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, we maintain our Neutral view on the stock.

June 3, 2013

4QFY13

2QFY11

1QFY12

4QFY12

3QFY13

11000

13578

9,397

9,317

8,000

7,270

8,215

7,516

7,516

4,000

BGR Energy | 4QFY2013 Result Update

Exhibit 7: PE Band
980

840
700

560
420

280
140 0

Apr-08

Apr-10

Apr-11

Aug-08

Aug-10

Aug-11

Aug-12

Aug-09

Dec-09

Dec-10

Share Price (`)

Source: Company, Angel Research

6x

9x

12x

15x

Exhibit 8: Peer comparison

Company ABB* BHEL BGR Energy Crompton Greaves Jyoti Structures KEC International Thermax Reco. Sell Neutral Neutral Buy Buy Buy Neutral CMP (`) 644 197 170 92 27 39 577 Tgt. price (`) 461 117 33 63 Upside (%) (28.4) 27.2 20.8 61.8 P/BV(x) FY14E 5.1 2.1 0.9 1.5 0.3 0.8 3.3 FY15E 4.9 1.9 0.8 1.4 0.3 0.7 2.9 P/E(x) FY14E 55.9 9.6 7.8 13.9 3.1 6.4 19.4 FY15E 38.0 12.3 6.0 10.3 2.6 4.6 17.5 FY2013-15E EPS CAGR 61.6 (23.3) 12.3 15.2 83.5 10.7 RoE (%) FY14E 9.3 23.5 22.3 11.4 9.9 20.2 17.9 FY15E 13.1 16.1 23.4 14.0 10.5 23.0 17.4

Source: Company, Angel Research

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 EPC contracts. 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).

June 3, 2013

Dec-12

Dec-08

Dec-11

Apr-13

Apr-09

Apr-12

BGR Energy | 4QFY2013 Result Update

Profit & loss account (Consolidated)

Y/E March (` cr) Operating income % chg Total Expenditure Raw Materials Mfg costs Personnel Costs Other Costs EBITDA % chg (% of Net Sales) Depreciation & Amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E
3,073 59.2 2,729 2,187 236 126 180 344 64.8 11.2 10 334 65.8 10.9 54 25 8.2 305 74.2 0 305 104 34.0 201 0 0 0 201 201 74.4 6.6 28.0 28.0 74.4 4,750 54.5 4,214 3,446 406 145 217 536 55.8 11.3 17 519 55.4 10.9 60 22 4.6 481 57.6 0 481 158 32.8 323 0 0 0 323 323 60.5 6.8 44.8 44.8 60.1 3,451 (27.4) 2,984 2,173 449 176 185 467 (12.9) 13.5 17 450 (13.4) 13.0 135 14 4.4 328 (31.7) 0 328 104 31.7 224 0 0 0 224 224 (30.6) 6.5 31.1 31.1 (30.6) 3,113 (9.8) 2,686 1,946 397 212 131 427 (8.6) 13.7 20 407 (9.6) 13.1 175 12 4.9 244 (25.9) 0 244 82 33.8 161 0 (1) 0 162 162 (27.7) 5.2 22.5 22.5 (27.7) 3,756 20.7 3,330 2,496 470 192 173 426 (0.2) 11.3 28 397 (2.2) 10.6 179 15 6.4 234 (4.0) 0 234 77 33.0 157 0 0 0 157 157 (3.3) 4.2 21.7 21.7 (3.3) 4,569 21.6 4,080 3,061 576 233 210 489 14.8 10.7 33 455 14.6 10.0 166 16 5.1 305 30.6 0 305 101 33.0 205 0 0 0 205 205 30.6 4.5 28.3 28.3 30.6

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

June 3, 2013

BGR Energy | 4QFY2013 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Long term liablities
Long term provisions

FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E 72 0 634 706 3 807 155 72 0 880 952 52 1,327 308 784 170 1,672 182 37 145 10 1 1 3,644 902 727 16 1,980 18 2,129 1,515 0 1,672 3,593 251 53 198 86 1 1 175 4,788 1,041 573 41 3,103 30 1,714 3,074 59 3,593 72 0 1,045 1,117 91 1,747 397 653 205 4,210 379 69 310 103 1 1 273 4,656 854 523 31 2,616 632 1,735 2,921 602 4,210 72 0 1,151 1,223 91 2,204 420 842 222 5,002 529 89 440 136 1 1 266 5,138 983 452 43 2,861 799 1,573 3,564 596 5,002 72 0 1,249 1,321 91 2,001 420 842 222 4,897 629 117 511 120 1 1 327 5,280 832 483 70 3,396 499 1,887 3,393 546 4,897 72 0 1,394 1,466 91 1,899 420 842 227 4,945 709 151 558 120 1 1 387 5,500 612 561 73 4,005 249 2,117 3,384 496 4,945

Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Deferred Tax Asset Current Assets Cash Loans & Advances Inventories Debtors Others Current liabilities Net Current Assets Mis. Exp. not written off Total Assets

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

June 3, 2013

BGR Energy | 4QFY2013 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in WC Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E 305 10 18 (25) (104) 205 (65) 0 25 (40) 98 59 83 39 287 615 902 481 17 (641) (22) (158) (323) (147) 0 22 (125) 0.2 519 84 151 435 139 902 1041 328 17 (479) (14) (104) (252) (150) 0 14 (136) 420 59 (160) 361 (186) 1041 854 244 20 (300) (12) (82) (130) (182) 0 12 (171) 457 59 32 398 129 854 983 234 28 (40) (15) (77) 130 (85) 0 15 (70) (203) 59 50 (262) (151) 983 832 305 33 (266) (16) (101) (43) (80) (1) 16 (65) 72.16 (103) 59 (22) (89) (219) 832 612

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

June 3, 2013

BGR Energy | 4QFY2013 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets OB/Sales Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis(%) EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Pre-tax) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to Equity Net debt to EBITDA Interest Coverage (0.1) (0.3) 6.2 0.3 0.5 8.6 1.7 1.9 3.3 1.9 2.9 2.3 1.5 2.7 2.2 1.3 2.6 2.7 20.1 2 194 209 74 22.0 2 195 152 72 11.0 4 302 201 166 6.9 4 321 215 191 6.5 5 304 182 175 6.8 6 296 173 156 22.1 44.9 31.7 24.4 47.0 40.4 16.9 27.7 31.9 13.3 20.2 28.4 12.0 17.4 22.3 13.7 18.3 23.4 10.9 66.0 4.1 44.4 29.3 4.7 0.0 29.3 10.9 67.2 4.1 45.0 30.2 3.8 0.1 33.4 13.0 68.3 2.0 26.2 17.9 6.0 0.8 27.8 13.1 66.2 1.5 19.1 12.7 5.9 1.9 25.2 10.6 67.0 1.6 16.5 11.1 5.7 1.7 20.2 10.0 67.0 1.8 17.4 11.7 5.7 1.4 20.1 28.0 28.0 29.4 7.0 98.1 44.8 44.8 47.2 10.0 131.9 31.1 31.1 33.5 7.0 154.8 22.5 22.5 25.3 7.0 169.5 21.7 21.7 25.6 7.0 183.0 28.3 28.3 33.0 7.0 203.2 6.1 5.8 1.7 4.1 0.5 4.6 1.0 3.3 3.8 3.6 1.3 5.9 0.4 3.8 0.8 1.7 5.5 5.1 1.1 4.1 0.8 5.7 1.0 2.2 7.5 6.7 1.0 4.1 1.0 7.0 0.9 2.3 7.8 6.6 0.9 4.1 0.8 6.9 0.9 1.8 6.0 5.1 0.8 4.1 0.7 6.3 0.9 1.5 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

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

June 3, 2013

BGR Energy | 4QFY2013 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

BGR Energy Systems No No No No

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

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

June 3, 2013

10