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Indian IPOs
>> BGR Energy Systems
BGR Energy Systems Ltd. IPO Analysis 10 December 2007 Source: www.keynoteindia.net
BGR Energy Systems Ltd. IPO details: Price Band: Rs. 425 - 480 per share Issue open between: December 5 - 12, 2007 Book Running Lead Managers: SBI Capital, Kotak, UBS, CLSA To List on: NSE and BSE Market Cap post-listing: Rs. 34.5 billion or $876 million (based on the cap price) Highlights: BGR Energy Systems Ltd. (BESL) is an engineering construction major which executes Balance of Plant (BOP) and EPC contracts in the power sector. It manufactures air fin coolers for oil and gas industry and deaerators, desalination plants, water treatment plants and effluent treatment plants, which have applications in power and process plants and other industrial plants. India is witnessing a great boom in the power sector due to demand and supply mismatch. Though power generating capacities are being ramped up aggressively, we believe that they will still fall far short of the demand over next few years. In our view, engineering and infrastructure companies with strong project management capabilities would be ideally placed to capture the opportunities. India requires power generation capacity of 1210 BU to meet the demand. Since equipment costs constitute 75-80% of the total cost of a thermal plant, this coupled with India's requirement of power, opens up huge opportunities for engineering companies. In our view, BESL is one of the few players which can tap the opportunities in the power sector. BESL has already executed BOP as well as EPC projects for power sector ranging from 95 MW to 330 MW and is in the process of executing 3 power projects of 500 MW each. Though risk of timely execution remains, we believe if BESL is able to deliver on these projects, it will be able to get more such projects. Healthy order book of Rs33Bn, of which 81% constitutes power projects (incl. captive power projects), expected to be executed over the next 3 years. The company has a strong visibility of earnings growth, since a major chunk of the order book will likely be executes over the next 2 years. We expect revenues and earnings to grow at CAGR of 96.2% and 136.7% respectively, over FY07-09. While the company has been in operation since 1993 and has been into air fin coolers and environmental engineering since 1994 and 1996 respectively, it entered the more exciting power projects business only in FY01 by securing its first contract for BOP from BHEL. The relatively short track record in key business segments of power projects and captive power projects is in our view a major concern. The other concerns would be execution of large-sized projects and managing the proposed manufacturing facilities in Bahrain and China. Recent (pre-IPO) placements comprise of (i) issue of 2.88mn shares to CVC @ Rs450 per share or final IPO price, whichever is lower and (ii) transfer of 1.44mn shares from promoters to Reliance Capital @ Rs450 per share. The IPO pricing (31.2x FY08E and 22.7x FY09E earnings) is attractive vis-?-vis peers. However, in view of its rather short track record in key businesses and smaller-than-peers size, we feel the valuation is reasonable. Accordingly we recommend subscribing with a medium term view. |
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