BGR ENERGY

 

Diversification Boosts Business, Higher Revenues Seen From Ongoing Projects

 

BGR ENERGY'S stock price has risen sharply in three weeks following its impressive performance in the March quarter. The stock has gained nearly 30% since its results. The benchmark Sensex has earned 10% return during the period.

   The company has gradually transformed itself from being a balance of plant (BoP) contractor to an engineering, procurement and commissioning (EPC) contractor over the years. This implies a much wider product portfolio and, therefore, a significantly greater size of business.

   BGR Energy recorded an exceptional sales growth of 130% in the March quarter on account of the revenue booking for a part of the two EPC projects with a total value of Rs 8,000 crore. The company has achieved around 35% completion of these two projects, and is expected to complete another 35-40% of the project in FY11. This together with the ongoing BoP projects provides sufficient revenue visibility for the company for FY11. Though raw material costs also rose at a pace similar to sales growth, lesser increase in other costs, interest and depreciation added to the growth in the bottom line. Staff cost has also risen by 150%, a sign of greater operational activity of the company.

   The company also recorded order intake to the tune of Rs 3,500 crore during FY10, more than its annual sales. This helped the company record an order backlog of more than Rs 10,000 crore. This exceeds its FY10 sales by more than three times.

   Apart from the growth in its core business, the company is further diversifying into manufacturing of turbine and boiler through a tie-up with Hitachi. The project will require a total investment of Rs 3,200 crore, with BGR's share of equity contribution working to be in the range of about Rs 600 crore. While it will take at least another three years for the project to be commissioned, this will help sustain the company's longer-term growth. While there may not be much shortterm gain with the company already trading at a price-earnings ratio of around 26 times, it offers a good investment opportunity for long-term investors.