We maintain a ‘hold’ rating with a revised target price of R225 (R113 earlier) valuing the company at 9x FY16e P/E (against 5.3x earlier) given a more focused approach to BoP business and selective bidding for EPC orders incrementally. With ramp up in NTPC orders over the next 12-24 months, we estimate BGR’s margin to remain low compared with the historical average. Sharpening focus on the BoP business should augur well for the company over the medium to long term given the higher margin profile of the business.
BGR’s revenue fell 24% in Q4FY14 to R810 crore driven by execution of low-margin NTPC orders. Ebitda fell 38% as ebitda margin plummeted 250 bps to 10.5% due to higher revenue share of NTPC orders in the quarter. PAT at R19.1 crore dipped 65% on weak operating performance. Further, there is no progress on its proposed BTG plant.
Order backlog at R1,150 crore provides visibility for over two years with NTPC forming ~56% of the total order book; balance are from BoP (30%) and EPC (4%) projects. BGR has broadly completed Jhalawar and TRN’s EPC projects with Iraq’s Nazeria making up for a large part of the EPC backlog. Also, Krishnapatnam and Odisha projects make up a larger part of the BoP backlog. Order intake was sedate during the quarter due to few low-value orders in the product business. Incrementally, BGR is planning to sharpen focus on BoP project orders and remain selective in accepting EPC orders.