India is a power hungry nation and huge investments are going into the power sector. The beneficiaries for the time being are turnkey solution providers and equipment providers.
Business
BGR Energy Systems (BGR) is a company engaged in the business of turnkey contracts to supply the balance of plant (BOP) equipments, services and civil works for power generation projects, except supplying boiler, turbine and generator.
The company also designs, engineers, manufactures, sells and services a range of systems and equipment for the power, oil & gas, refinery, petrochemicals and process industries. The company has an order book in excess of Rs 3,300 crore. More than 75% of the order book comes from power projects.
Financials
BGR reported a topline of Rs 790.27 crore for the 18 months ended March 31, 2007. The bottomline for the same period stood at Rs 39.96 crore.
On the other hand, for the three months ended June 30, 2007, the topline and bottomline stood at Rs 24.52 crore and Rs 17.48 crore, respectively. It enjoyed net profit margin of 7%.
Objectives
The issue is aimed at financing the long-term working capital requirements to the extent of Rs 125 crore. It also intends to finance its investments in the establishment of manufacturing and assembly facilities to the tune of Rs 82.5 crore.
Outlook
The company has been doing extremely well. Though the operations are smaller compared to its industry peers, its ability to execute project on time without cost over-runs is proved earlier.
The company enjoys one of the best return on networth despite having low net profit margin, primarily due to low fixed capital intensity of the business. The company has been banned by BHEL for three years. The company has got an IPO rating of 3 out of 5 from Icra, denoting average fundamentals.
Reliance Diversified Power Sector Fund, one of the best sector funds for the year, has agreed to buy 14,40,000 shares of BGR at Rs 450.
The stock on offer is valued at 116 and 131 times fully diluted annualised earnings for FY2006-2007 on its fully diluted equity. Though this appears like a case of stretched valuation, the strong order book makes it a worthy proposition for long-term investors.