Stock Review: BGR Energy Systems

IN difficult times such as these, where companies are struggling to hang on to profitability and growth, analysts are looking at rewarding companies for their long-term growth potential and sensible valuations. BGR Energy Systems, an engineering and EPC company in the power sector, is one such company that analysts are betting on. The company operates in two segments — supply of equipment & turnkey engineering projects. In recent times, the stock price of power equipment companies have been hammered due to lack of order visibility and delay in execution. However, the sector's potential is enormous, according to Crisil. The market opportunity in the balance of plant equipment alone is `1.6 lakh crore over the next five years.

 

Ahead of the new financial year, analysts are excited that since this will be the last financial year of the 11th Five year Plan, the government and other related companies in the sector will be clearing the backlog, resulting in higher order inflow for power engineering companies. According to Nirmal Bang Securities, BGR has a healthy order book of `9,317 crore (1.91x FY11E revenues), providing reasonable revenue visibility. BGR has bid for orders worth `36,000 crore, apart from other large orders which it is eyeing. In recent times, BGR has emerged as a full fledged engineering procurement construction player. And to boost its capabilities in the growing boiler and turbine market, BGR has formed a joint venture with Japan's Hitachi group to set up a 4,000 Mw of manufacturing facility each for boiler & turbine sets. Land acquisition for the facility has already happened and over two years, the company aims to achieve high indigenisation levels. Notably, BGR is the third player (after BHEL and L&T) to set up domestic facility for the entire BTG package.