BGR Energy IC, 26 March

Initiating Coverage | Capital GoodsInitiating Coverage | Capital GoodsInitiating Coverage | Capital GoodsInitiating Coverage | Capital GoodsInitiating Coverage | Capital Goods

Please refer to important disclosures at the end of this report

BGR Energy (BGR) has taken several 'bigger' leaps over the years, from being amere manufacturer of a few BoP (Balance of Plant) components to executing TurnkeyBoP projects, and now gradually executing full-fledged EPC contracts. The companyhas a healthy order book of Rs11,609cr (4.2x FY2010E sales), providing goodrevenue visibility. During FY2009-12E, we expect the company to register atop-line and bottom-line CAGR of 41.8% each. At the current price of Rs505, thestock is quoting at 14.9x and at 11.0x its FY2011E and FY2012E EPS, respectively,which we believe is attractive. W W W W We Initiate Coverage on the stock, with a Buye Initiate Coverage on the stock, with a Buye Initiate Coverage on the stock, with a Buye Initiate Coverage on the stock, with a Buye Initiate Coverage on the stock, with a Buyrecommendation and a Trecommendation and a Trecommendation and a Trecommendation and a Trecommendation and a Target Parget Parget Parget Parget Price of Rs641.rice of Rs641.rice of Rs641.rice of Rs641.rice of Rs641.

PPPPPower Sector - A Structural Growth Driver:ower Sector - A Structural Growth Driver:ower Sector - A Structural Growth Driver:ower Sector - A Structural Growth Driver:ower Sector - A Structural Growth Driver: The high power deficit in the country,coupled with the low per capita consumption of electricity, has led to the powergeneration targets being bigger than ever, translating into a huge opportunity forthe BoP players. The 75,200MW of thermal capacity planned during the TwelfthPlan period alone throws up a potential BoP opportunity of Rs1,35,360cr(i.e. ~Rs27,072cr of an average annual opportunity).

TTTTTurnkey BoP - BGR's Furnkey BoP - BGR's Furnkey BoP - BGR's Furnkey BoP - BGR's Furnkey BoP - BGR's Forte: orte: orte: orte: orte: BGR is one of the very few established players to offercomplete turnkey BoP services. Besides, the company has its own set of competitiveadvantages, including diverse design and engineering capabilities, in-housemanufacturing of ~50% of its product portfolio, cost competitiveness, proven trackrecord etc., to differentiate its offering in the turnkey BoP space.

EPC Contracts - TEPC Contracts - TEPC Contracts - TEPC Contracts - TEPC Contracts - Transforming to the next level: ransforming to the next level: ransforming to the next level: ransforming to the next level: ransforming to the next level: The company has furtherscaled-up to the next level, having won two major EPC orders with a combinedworth of Rs8,000cr. For both these orders, BGR would be handling the BoP packageat its own end, while the BTG (Boiler Turbine Generator) would be sourced fromDongfang, China. Additionally, the company's own BTG foray is also on the anvil,which could very well prove to be the next milestone in its metamorphosis.

Source: Company, Angel Research

Puneet BambhaPuneet BambhaPuneet BambhaPuneet BambhaPuneet BambhaTel: 022 - 4040 3800 Ext: 347

E-mail: [email protected]

March 26, 2010

BGR Energy SystemsBGR Energy SystemsBGR Energy SystemsBGR Energy SystemsBGR Energy Systems BUYBUYBUYBUYBUY

Taking 'BGR' Leaps CMP Rs505Target Price Rs641

Stock Info

Shareholding Pattern (%)

Sector Capital Goods

Market Cap (Rs cr) 3,637

Beta 1.0

52 Week High / Low 593/135

Avg. Daily Volume 100027

Face Value (Rs) 10

BSE Sensex 17,645

Nifty 5,282

Reuters Code BGRE.BO

Bloomberg Code BGRL@IN

Promoters 81.3

MF / Banks / Indian FIs 8.1

FII / NRIs / OCBs 5.7

Indian Public / Others 4.9

Abs. (%) 3m 1yr 3yr*

Sensex 1.6 76.4 (13.3)

BGR Energy 4.6 262.1 (44.0)

Investment Period 12 Months

Key Financials (Consolidated)Y/E March (Rs cr)Y/E March (Rs cr)Y/E March (Rs cr)Y/E March (Rs cr)Y/E March (Rs cr) FY2009FY2009FY2009FY2009FY2009 FY2010EFY2010EFY2010EFY2010EFY2010E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E

Net SalesNet SalesNet SalesNet SalesNet Sales 1,930 1,930 1,930 1,930 1,930 2,743 2,743 2,743 2,743 2,743 4,067 4,067 4,067 4,067 4,067 5,508 5,508 5,508 5,508 5,508

% chg 27.0 42.1 48.3 35.4

Net PNet PNet PNet PNet Profitrofitrofitrofitrofit 115 115 115 115 115 172 172 172 172 172 244 244 244 244 244 329 329 329 329 329

% chg 32.2 49.0 41.9 34.9

EBITDA (%) 10.8 11.8 11.4 11.4

EPS (Rs)EPS (Rs)EPS (Rs)EPS (Rs)EPS (Rs) 16.016.016.016.016.0 23.923.923.923.923.9 33.933.933.933.933.9 45.845.845.845.845.8

P/E (x) 31.5 21.1 14.9 11.0

P/BV (x) 6.4 5.1 3.9 3.0

RoE (%) 22.2 27.0 29.9 30.9

RoCE (%) 17.0 19.8 21.3 22.7

EV/Sales (x) 1.9 1.4 1.1 0.8

EV/EBITDA (x) 17.9 12.2 9.2 7.2

*Since its listing on Jan 3, 2008

March 26, 2010 2

BGR Energy | Initiating Coverage

Investment Arguments

Power Sector - A Structural Growth Driver

The Indian Power Sector has been bogged down by several chronic problems forlong, such as lower-than-targeted capacity addition in various five-year plans, a lowPlant Load Factor (PLF), high AT&C losses, woes over the financial viability of StateElectricity Boards (SEBs), a high base and peak load deficits. Notably, the base powerdeficit has inched upwards over the years, to around 9.9% in FY2010 (Until February),with the peak load deficit also hovering at around 12.6% levels.

This, coupled with the fact that the country has a very low per capita consumption ofelectricity (~704 KWh) compared to the world average (~2,750 KWh), presents asignificant potential for sustainable growth in the demand for electric power in India.

Source: Ministry of Power, Angel Research, * Till Feb 2010

Exhibit 1: India - A Power Deficit Country...

Base Deficit Peak Deficit

8.1

5.9 6.27.8 7.5

8.8

7.1 7.38.4

9.6 9.811.1

9.9

11.3

13.912.4

13.011.8 12.2

11.2 11.7 12.313.8

16.6

11.912.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.01997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10*

(%)

Source: IEA, Key World Energy Statistics 2008, Angel Research

Exhibit 2: ...Coupled with low Per Capita Electricity Consumption

0 2000 4000 6000 8000 10000 12000 14000 16000 18000

Canada

United States

Australia

Japan

France

Germany

United Kingdom

Russia

Brazil

China

India

(KWh)

High base and peak load deficits - partHigh base and peak load deficits - partHigh base and peak load deficits - partHigh base and peak load deficits - partHigh base and peak load deficits - partand parcel of the Indian power sectorand parcel of the Indian power sectorand parcel of the Indian power sectorand parcel of the Indian power sectorand parcel of the Indian power sector

PPPPPer capita electricity consumption wayer capita electricity consumption wayer capita electricity consumption wayer capita electricity consumption wayer capita electricity consumption waybelow the world averagebelow the world averagebelow the world averagebelow the world averagebelow the world average

March 26, 2010 3


The government, after taking cognisance of the fact that the acute power shortage inIndia could turn out to be one of the biggest obstacles in our growth story, has beentaking several initiatives to turn around the fortunes of this core sector. The ElectricityAct 2003 and subsequent reforms have been undertaken to accelerate the growth ofpower in the country. The scale of expansion planned across the entire value-chain isunprecedented, opening up a plethora of opportunities for the players in the sector toparticipate in the ongoing Power boom.

Generation - Scale bigger than ever…

The government has embarked on an ambitious plan of promoting "Power for all by2012", and increasing the per capita consumption of electricity to over 1,000 KWh byFY2012E. To this effect, the government has planned capacity addition of 78,700MWduring the Eleventh Plan period. Assuming around a 60% achievement rate, it wouldresult in capacity addition of about 45-50GW - implying a phenomenal 123% growthover the 21,180MW capacity added during the Tenth Plan period. Pertinently, thescale gets even bigger for the Twelfth Five-Year plan, with a planned capacity additionof over 100GW.

Source: CEA, Angel Research

Exhibit 3: Huge Capacity Addition Plans

…translating into a huge opportunity for the BoP Players

The Balance of Plants (BoP) system includes all major plants and equipment otherthan those included in the main plant system (BTG). The major components of the BoPsystem include a coal handling plant, ash handling plant, fuel oil handling andunloading system, water treatment system, circulating water system and fire protection,and a detection and alarm system etc.

Although the overall BoP cost could vary widely depending on the plant configurationand scope of work, typically the average BoP work constitutes about 40% of the projectcost. With the planned thermal capacity at 75,200MW during the Twelfth Plan periodalone, it translates into a potential BoP opportunity of Rs1,35,360cr ( i.e. ~Rs27,072crof an average annual opportunity).

(MW

)

86,015

34,654

3,9007,761

59,693

15,627

3,380

75,200

20,000

4,800

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Thermal Hydro Nuclear RES

Upto 10th Plan (Actual) 11th Plan (Planned) 12th Plan (Planned)

Planned capacity addition over the nextPlanned capacity addition over the nextPlanned capacity addition over the nextPlanned capacity addition over the nextPlanned capacity addition over the nexttwo Plans higher than the actual capacitytwo Plans higher than the actual capacitytwo Plans higher than the actual capacitytwo Plans higher than the actual capacitytwo Plans higher than the actual capacityadded over the last ten plansadded over the last ten plansadded over the last ten plansadded over the last ten plansadded over the last ten plans

PPPPPotential BoP opportunity ofotential BoP opportunity ofotential BoP opportunity ofotential BoP opportunity ofotential BoP opportunity ofRs1,35,360cr during the TRs1,35,360cr during the TRs1,35,360cr during the TRs1,35,360cr during the TRs1,35,360cr during the Twelfth Planwelfth Planwelfth Planwelfth Planwelfth Planperiod aloneperiod aloneperiod aloneperiod aloneperiod alone

March 26, 2010 4



BoP ComponentBoP ComponentBoP ComponentBoP ComponentBoP Component No. of BoPNo. of BoPNo. of BoPNo. of BoPNo. of BoPsssss No. of BoPNo. of BoPNo. of BoPNo. of BoPNo. of BoPsssss TTTTTentativeentativeentativeentativeentative

used duringused duringused duringused duringused during required duringrequired duringrequired duringrequired duringrequired during requirement ofrequirement ofrequirement ofrequirement ofrequirement of

10th Plan 10th Plan 10th Plan 10th Plan 10th Plan 11th Plan 11th Plan 11th Plan 11th Plan 11th Plan BoPBoPBoPBoPBoPs in 12th Plans in 12th Plans in 12th Plans in 12th Plans in 12th Plan

Coal Handling Plant (CHP) 23 68 70

Ash Handling Plant (AHP) 23 69 70

Demineralized (DM) Water Plant 32 69 70

Cooling Tower 41 145 148

Chimney 36 117 148

Fuel Oil (FO) System 22 71 70

Water Treatment Plant 36 76 70

TTTTTotalotalotalotalotal 213213213213213 615615615615615 646646646646646

Exhibit 5: Summary requirement of BoPs


11th Plan11th Plan11th Plan11th Plan11th Plan 12th Plan12th Plan12th Plan12th Plan12th Plan

Thermal Capacity (MW) 59,693 75,200

Cost / MW (Rs cr) 4.5 4.5

Total Thermal Capex (Rs cr) 268,619 338,400

BoP Share (%) 40 40

PPPPPotential BoP Opportunity (Rs cr)otential BoP Opportunity (Rs cr)otential BoP Opportunity (Rs cr)otential BoP Opportunity (Rs cr)otential BoP Opportunity (Rs cr) 107,447107,447107,447107,447107,447 135,360135,360135,360135,360135,360

Exhibit 4: Potential BoP Opportunity

Turnkey BoP - BGR's Forte

Different business models co-exist in the industry, with various power generation

companies generally opting for one out of the following three:

1. Few utilities prefer to award the entire EPC order for the complete plant (including

BoP and BTG) to one party only.

2. Several utilities, especially SEBs, opt to break the contract into two parts, i.e. the

BTG package and the turnkey BoP package.

3. NTPC generally breaks the BoP further into several individual packages.

Although there are several small players catering to individual BoP packages, only a

few players (including BGR, Larsen & Toubro, Punj Lloyd, Tata Projects and Reliance

Infrastructure) have the capabilities to offer complete turnkey BoP services. A shortage

of vendors in the BoP space is often cited as one of the primary reasons for delays in

the commissioning of power plants. We believe that this, coupled with the sheer size of

the opportunity available, provides ample space for several players to co-exist and

grow.

Shortage of BoP vendors is often citedShortage of BoP vendors is often citedShortage of BoP vendors is often citedShortage of BoP vendors is often citedShortage of BoP vendors is often citedas one of the primary reasons for delaysas one of the primary reasons for delaysas one of the primary reasons for delaysas one of the primary reasons for delaysas one of the primary reasons for delaysin the commissioning of power plantsin the commissioning of power plantsin the commissioning of power plantsin the commissioning of power plantsin the commissioning of power plants

March 26, 2010 5


BoP ComponentBoP ComponentBoP ComponentBoP ComponentBoP Component KKKKKey Playersey Playersey Playersey Playersey Players No. of VNo. of VNo. of VNo. of VNo. of Vendorsendorsendorsendorsendors

Coal Handling Plant (CHP) Techpro, L&T, Elecon, TRF 8

Ash Handling Plant (AHP) Indure, Mecawber Beekay, Mcnally Bharat 9

Demineralized (DM) Water Plant Driplex Water Engg, Ion Exchange, Thermax 5

Cooling Tower Paharpur Cooling Towers, Gammon India, BGR 5

Chimney Gammon India, NBCC, Simplex 4

Fuel Oil (FO) System BHEL, Techno Electric 4

Water Treatment Plant Driplex Water Engg, Ion Exchange 5

CW System Kirloskar, Punj Lloyd, BHEL 3

Switchyards / Switchgear ABB, Areva, Siemens, BHEL 5

Exhibit 6: Major BoP Vendors


1. Design & Engineering of Civil, Electrical and Mechanical Systems

2. Civil Works including

a. Chimney

b. Natural and Induced Draft Cooling Tower

3. Substation and Switchyard

4. Plant Piping System

5. Air Fin Cooler

6. Air Cooled Condenser

7. Deaerator

8. Desalination Plant including RO System

9. Condensate Polishing Plant

10. Effluent Treatment Plant

11. Demineralization Plant

12. Ash Handling System

13. Coal Handling System

14. Gas Conditioning & Metering Skid

15. Fabrication of Columns & Structures

16. Welded Finned Tubes

17. Heat Recovery Steam Generator

18. On-line Condenser Tube Cleaning System

19. Debris Filter

20. Rubber Cleaning Balls for Condenser

Exhibit 7: BoP Package - In-House Systems


Besides, BGR has its own set of competitive advantages to differentiate its offering in

the turnkey BoP space. The company has a lot of in-house expertise, particularly with

a strong in-house design and engineering team (~53% of the total employees), which

gives control over cost, design and scheduling of projects. Besides, over the years, the

company has augmented its product portfolio through a combination of in house

developments and strategic technological tie-ups with several international players.

The company can currently manufacture about 50% of the BoP package requirements

in-house, giving it an edge both in terms of cost and lesser sub-vendor management.

Additionally, its proven track record in managing equipment and turnkey projects

helps the company to further strengthen its position against new entrants.

Strong design and engineering team,Strong design and engineering team,Strong design and engineering team,Strong design and engineering team,Strong design and engineering team,~50% in-house manufacturing and an~50% in-house manufacturing and an~50% in-house manufacturing and an~50% in-house manufacturing and an~50% in-house manufacturing and anestablished track record etc.established track record etc.established track record etc.established track record etc.established track record etc.

March 26, 2010 6


YYYYYearearearearear PPPPPartnerartnerartnerartnerartner PPPPProductroductroductroductroduct RemarkRemarkRemarkRemarkRemark

1985 GEA Energietechnik, Germany Tube Cleaning & Debris Filter Partner divested in 1993

1994 GEA Btt, France Air fin coolers Agreement expired in 2003

1994 GEA Spirogills, UK Welded finned tubes Agreement expired in 2003

1996 GEA Energietechnik, Germany Dry and wet cooling systems Tie-up with GEA Cooling Tower Tech

2000 Crane Environmental Inc., USA Deaerators, Reverese Osmosis & Agreement expired in 2006

Demineralisation plant

2003 American Engineering Services, USA Waste Water treatment and Reclamation Technical know-how

2007 INIMA and Aqualia, Spain Desalination plant ont EPC/BOOT basis Strategic alliance

2008 Termomeccanica TME, Italy Condensate polishing plants Technical collaboration and licensing agreement

2010 Nooter/Eriksen Inc., USA Heat Recovery Steam Generator (HRSG) License and Technology transfer agreement

Exhibit 8: Technological Tie-ups


The company has already completed four turnkey BoP projects, including a large

500MW Vijayawada (in Andhra Pradesh) project. Besides, another five large turnkey

BoP projects (totaling Rs5,751cr) are currently under execution. Among the recent

major orders won by the company in the turnkey BoP space are: the 2*500MW

Chandrapur, Maharashtra order, worth Rs1,632cr, and the 2*500MW Marwa,

Chhattisgarh order worth Rs1,633cr, both of which were won in 2QFY2010.


PPPPProjectrojectrojectrojectroject SpecificationSpecificationSpecificationSpecificationSpecification FFFFFuelueluelueluel ContractContractContractContractContract StatusStatusStatusStatusStatus

(MW)(MW)(MW)(MW)(MW) VVVVValue (Rs cr)alue (Rs cr)alue (Rs cr)alue (Rs cr)alue (Rs cr)

CSPGCL, Marwa TPS Chhattisgarh 2 X 500 Coal 1,633 Under Execution

MAHAGENCO, Chandrapur TPS, Maharashtra 2 X 500 Coal 1,632 Under Execution

APGENCO, Kothagudam TPS, Khammam, AP 1 X 500 Coal 793 Under Execution

MAHAGENCO, Kaperkheda TPS, Maharashtra 1 X 500 Coal 998 Under Execution

APGENCO, Kakatiya TPS, Khammam, AP 1 X 500 Coal 695 Under Execution

Grasim Industries-CPP, Chittorgarh, Rajasthan 23 Coal 44.4 Completed

TNEB-CCPP Valathur (Phase I), Tamil Nadu 95 Gas 59.4 Completed

RRVUNL-CCPP, Dholpur, Rajasthan 330 Gas 210 Completed

APGENCO-Vijayawada TPS, Andhra Pradesh 1 X 500 Coal 579 Completed

Exhibit 9: BoP Project Portfolio

EPC Contracts - Transforming to the next level

BGR has transformed itself over the years from being a mere manufacturer of a few

BoP components to executing Turnkey BoP projects, and now gradually executing

full-fledged EPC contracts. FY2009 proved to be a landmark year for the company,

when it won two major orders for the EPC of power plants. One of the contracts is for

the 1*600MW EPC of a power plant at Mettur, Tamil Nadu, worth Rs3,100cr, and the

second for the 2*600MW EPC of a power plant at Jhalawar, Rajasthan, worth Rs4,900cr.

For both these orders, BGR would be handling the BoP package at its own level, while

the BTG would be sourced from Dongfang, China. Both the projects are progressing

well, with the company already having booked ~19% of the revenues from these EPC

projects. In fact, the company has recently completed the lifting and erection of the

boiler drum for the Mettur project as well.

Has transformed itself over the yearsHas transformed itself over the yearsHas transformed itself over the yearsHas transformed itself over the yearsHas transformed itself over the yearsfrom being a mere manufacturer of afrom being a mere manufacturer of afrom being a mere manufacturer of afrom being a mere manufacturer of afrom being a mere manufacturer of afew BoP components to executingfew BoP components to executingfew BoP components to executingfew BoP components to executingfew BoP components to executingTTTTTurnkey BoP projects, and now graduallyurnkey BoP projects, and now graduallyurnkey BoP projects, and now graduallyurnkey BoP projects, and now graduallyurnkey BoP projects, and now graduallyexecuting full-fledged EPC contractsexecuting full-fledged EPC contractsexecuting full-fledged EPC contractsexecuting full-fledged EPC contractsexecuting full-fledged EPC contracts

March 26, 2010 7



PPPPProjectrojectrojectrojectroject SpecificationSpecificationSpecificationSpecificationSpecification FFFFFuelueluelueluel ContractContractContractContractContract StatusStatusStatusStatusStatus

(MW)(MW)(MW)(MW)(MW) VVVVValue (Rs cr)alue (Rs cr)alue (Rs cr)alue (Rs cr)alue (Rs cr)

RRUVNL, Kalisindh TPS, Jhalawar, Rajasthan 2 X 600 Coal 4,900 Under Execution

TNEB, Mettur Thermal Power plant 1 X 600 Coal 3,100 Under Execution

Aban Power- CCPP, Karuppur, Tamil Nadu 120 Gas 270 Completed

TNEB-CCPP Valathur (Phase II), Tamil Nadu 92.2 Gas 355 Completed

Exhibit 10: EPC Project Portfolio

BTG manufacturing on the anvil

The company is further scaling-up its capabilities, with a BTG manufacturing foray on

the anvil. To this effect, in April 2009, BGR entered into a 20-year license agreement

with Foster Wheeler to manufacture both sub-critical and super-critical boilers

(100 - 1,000MW) for Indian market. BGR plans to set up 4,000-5,000MW capacity at

a projected capex of around Rs500cr for this foray. Notably, this is only a licensing

agreement and not a JV, so it does not involve an investment component from Foster

Wheeler. However, BGR is trying to negotiate with the partner to convert the same into

a JV.

Additionally, BGR is also in talks with several global players for a joint venture into the

Turbine Generator (TG) space as well. We believe that the successful scaling-up of the

company into the BTG space would augur well in the long run. However, we have not

factored for the same into our estimates, and will await further clarity.

Mitigating Concerns

All the necessary approvals for both the EPC projects are in place, with working

capital needs having been tied-up and supplies of equipment having already started.

Besides, BGR has set up a team in China to co-ordinate the quality aspect of the

equipment and to manage the timely schedule of projects.

Although the overall responsibility of the EPC contract lies with BGR, the company

has covered itself with a back-to-back guarantee from Dongfang. The court of law for

any dispute is also Singapore, and not China.

BGR has been scaling up its management bandwidth, with several senior

ex-employees from reputed organisations joining the company. Notably, Mr. T.

Sankaralingam, the former Chairman and Managing Director of NTPC, joined as a

Managing Director of BGR from September, 2009. He has over 34 years of experience

in different capacities at NTPC, along with his experience at BHEL and the Tamil Nadu

Electricity Board (TNEB).

To ensure smooth payment from SEBs, the company does not participate in all

state utilities tenders, and is generally active only with a few state utilities, including

Andhra Pradesh, Tamil Nadu, Rajasthan and Maharashtra.

FFFFFurther integration through a plannedurther integration through a plannedurther integration through a plannedurther integration through a plannedurther integration through a plannedforay into BTG manufacturingforay into BTG manufacturingforay into BTG manufacturingforay into BTG manufacturingforay into BTG manufacturing

Scaling up its management bandwidth,Scaling up its management bandwidth,Scaling up its management bandwidth,Scaling up its management bandwidth,Scaling up its management bandwidth,with several senior exwith several senior exwith several senior exwith several senior exwith several senior ex-----employees fromemployees fromemployees fromemployees fromemployees fromreputed organisations joining thereputed organisations joining thereputed organisations joining thereputed organisations joining thereputed organisations joining thecompanycompanycompanycompanycompany

March 26, 2010 8


Healthy Order Book provides good revenue visibility

BGR has a healthy order book of Rs11,609cr (4.2x FY2010E sales) which providesgood revenue visibility to the company. Power constitutes ~95% of the order book,thanks to the two large-sized EPC projects (Mettur and Jhalawar), while the capitalgoods segment contributes ~5% of the order backlog. International contracts comprisea mere 4% of the order book, majorly due to the contracts being executed by the oiland gas equipment division in Iraq.


DivisionDivisionDivisionDivisionDivision DomesticDomesticDomesticDomesticDomestic InternationalInternationalInternationalInternationalInternational TTTTTotalotalotalotalotal

Power Projects 10,974 0 10,974

Electrical Projects 33 0 33

Oil & Gas Equipment 4 452 456

Air Fin cooler 107 4 111

Environmental Engineering 34 0 34

TTTTTotalotalotalotalotal 11,15311,15311,15311,15311,153 456456456456456 11,60911,60911,60911,60911,609

Exhibit 11: Order Backlog (as on Dec 31, 2009) (Rs cr)

The management expects tender opportunities worth Rs20,000cr to be in the marketover the coming year. A few of the projects in the immediate pipeline include a2*660MW EPC order from the Rajasthan Rajya Vidyut Utpadan Nigam Ltd (RRVUNL)at Chhabra, and another 2*660MW EPC order from the same board at Suratgarh.However, our discussion with the management suggests that the Cuddalore andKonaseema gas power project orders continue to be in limbo, as of now.

DivisionDivisionDivisionDivisionDivision Client / PClient / PClient / PClient / PClient / Projectrojectrojectrojectroject SpecificationSpecificationSpecificationSpecificationSpecification ContractContractContractContractContract Nature of WNature of WNature of WNature of WNature of Workorkorkorkork

VVVVValue (Rs cr)alue (Rs cr)alue (Rs cr)alue (Rs cr)alue (Rs cr)

Oil & Gas Equipment SCOP, Iraq Gas Gathering station 386 Design, Engineering and Supply

Oil & Gas Equipment SCOP, Iraq Oil Products Storage Tank 45 Design, Engineering, Manufacture & Supply

Oil & Gas Equipment SCOP, Iraq Oil Storage Tank 98 Design, Engineering and Supply

Oil & Gas Equipment SCOP, Iraq Oil Storage Tank 41 Engineering and Supply

Electrical Projects VA Tech Hydro India Hydro Electric Project 35 Design, Manufacture, Supply , Erection

Electrical Projects NPCIL, Kalpakkam Power Distribution System 27 Design, Manufacture, Supply , Erection

Electrical Projects NPCIL, Kalpakkam Power Distribution System 26 Design, Manufacture, Supply , Erection

Electrical Projects Karnataka Power Substation and Associated 21 Supply & Erection on partial Turnkey Basis

Transmission Corporation Transmission Lines

Exhibit 12: Key Orders under Execution (Excluding Power Projects)

PPPPPower constitutes ~95% of the orderower constitutes ~95% of the orderower constitutes ~95% of the orderower constitutes ~95% of the orderower constitutes ~95% of the orderbook, while the capital goods segmentbook, while the capital goods segmentbook, while the capital goods segmentbook, while the capital goods segmentbook, while the capital goods segmentcontributes ~5%contributes ~5%contributes ~5%contributes ~5%contributes ~5%


March 26, 2010 9


Financial Overview

Strong Top-line growth

During FY2005-09, BGR posted a strong top-line CAGR of 72.0%, primarily driven by

the surge in the order Book of the company, on the back of its scaling-up into turnkey

BoP and EPC projects. Currently, BGR has a healthy order book of Rs11,609cr, with

an average execution period of 36 months, providing the company with a strong

revenue visibility over the next couple of years. Going ahead, we estimate the company

to post a strong revenue CAGR of 41.8% over FY2009-12E.

Source: Company, Angel Research, Note: *18 months period

Exhibit 13: Strong Revenue Growth

172.3

93.3

27.042.1

48.335.4

0

20

40

60

80

100

120

140

160

180

200

0

1,000

2,000

3,000

4,000

5,000

6,000

FY2007* FY2008 FY2009 FY2010E FY2011E FY2012E

Net Sales (LHS) Growth (RHS)

(Rs

cr)

(%)

The Power Projects segment would continue to be a key revenue driver, contributing

around 93-94% of the total revenues (as against ~85% in FY2009). We estimate

power projects to post a revenue CAGR of 46.3% over FY2009-12E, primarily led by

the significant revenue booking on account of four major projects (Mettur and Jhalawar

EPC, along with Chandrapur and Marwa BoP).


Exhibit 14: Power Projects - Key Revenue Driver

244.1

135.6

77.752.1 50.8

36.4

0

50

100

150

200

250

300

0

1,000

2,000

3,000

4,000

5,000

6,000


Net Sales (LHS) Growth (RHS)

(Rs

cr)

(%)

WWWWWe estimate the company to post ae estimate the company to post ae estimate the company to post ae estimate the company to post ae estimate the company to post astrong revenue CAstrong revenue CAstrong revenue CAstrong revenue CAstrong revenue CAGR of 41.8% overGR of 41.8% overGR of 41.8% overGR of 41.8% overGR of 41.8% overFY2009-12EFY2009-12EFY2009-12EFY2009-12EFY2009-12E

PPPPPower Power Power Power Power Projects segment to be a keyrojects segment to be a keyrojects segment to be a keyrojects segment to be a keyrojects segment to be a keyrevenue driverrevenue driverrevenue driverrevenue driverrevenue driver, contributing around, contributing around, contributing around, contributing around, contributing around93-94% of the total revenues93-94% of the total revenues93-94% of the total revenues93-94% of the total revenues93-94% of the total revenues

March 26, 2010 10


Operating Margins to improve

BGR witnessed a compression in its operating margins in the last few years, owing tohigher commodity prices (historically most of the company's contracts have been wonon a fixed price basis), coupled with the ramp-up in the projects' business of thecompany.

However, going ahead, we expect operating margins to improve from 10.8% in FY2009to 11.8% in FY2010E, on account of input price benefits, especially in the Mettur andJhalawar EPC projects. Notably, both these large-sized orders (fixed price contracts)were won by the company when commodity prices were at a high, and with thesubsequent cooling off of commodities, the company tends to gain, having alreadylocked ~70% of the raw material supply. The net profit margins are expected to stabiliseat around 6.0%, consequently leading to a net profit CAGR of 41.8% duringFY2009-12E.


Exhibit 15: Profitability Trend

11.2

10.210.8

11.8 11.4 11.4

5.35.7 6.0 6.3 6.0 6.0

0

2

4

6

8

10

12

14

0

100

200

300

400

500

600

700


EBITDA (LHS) Net Profit (LHS) EBITDA% (RHS) PAT% (RHS)

(Rs

cr)

(%)

Capex Plans

The company has a very high fixed asset turnover ratio, hovering ~20x (due to the

business model, which focuses on project management); hence, it does not require a

large amount of capex. The company plans to incur ~Rs50cr capex for the current

financial year, which would majorly be used towards the acquisition of construction

equipment. For FY2011E, the management expects to incur capex of around Rs50cr

(normal capex), along with Rs30-40cr towards investment in heat recovery steam

generators, taking the total capex to Rs80-100cr. Notably, we have not factored the

capex for the planned BTG foray into our estimates.

The major funding requirement for the company, however, stems from the working

capital requirement, as the industry it operates in is highly working capital intensive,

with ~33-34% of the sales being tied-up in the net working capital requirement.

Going ahead, we expect the debt/equity ratio to hover at ~1.5x.

Operating margins to improve onOperating margins to improve onOperating margins to improve onOperating margins to improve onOperating margins to improve onaccount of input price benefits in theaccount of input price benefits in theaccount of input price benefits in theaccount of input price benefits in theaccount of input price benefits in theMettur and Jhalawar EPC projectsMettur and Jhalawar EPC projectsMettur and Jhalawar EPC projectsMettur and Jhalawar EPC projectsMettur and Jhalawar EPC projects

March 26, 2010 11



Exhibit 16: Debt / Equity Ratio

Healthy Return Ratios

The company raised ~Rs337cr through a combination of private placement and an

initial public offering during 2007-08, leading to the depressed return ratios in the

past few years. However, going ahead, we expect the return ratios to bounce back to

healthy levels, primarily owing to the higher asset turnover ratio, on the back of strong

sales growth for the company.


Exhibit 17: Return Ratios

Exhibit 18: Du Pont Analysis

3.0

1.11.3

1.41.5

1.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


63.1

31.4

22.227.0

29.9 30.9

34.0

22.3

17.019.8 21.3 22.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0


(%)

ROE ROCE

FY07*FY07*FY07*FY07*FY07* FY08FY08FY08FY08FY08 FY09FY09FY09FY09FY09 FY10EFY10EFY10EFY10EFY10E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E

Net Profit / Sales (%) 5.3 5.7 6.0 6.3 6.0 6.0

Sales / Avg. Assets 3.4 2.3 1.6 1.7 1.9 2.1

Avg. Assets / Avg. Equity 3.6 2.4 2.3 2.5 2.6 2.5

RoE (%)RoE (%)RoE (%)RoE (%)RoE (%) 63.163.163.163.163.1 31.431.431.431.431.4 22.222.222.222.222.2 27.027.027.027.027.0 29.929.929.929.929.9 30.930.930.930.930.9Source: Company, Angel Research, Note: *18 months period

RoE to bounce back to ~29-30% levelsRoE to bounce back to ~29-30% levelsRoE to bounce back to ~29-30% levelsRoE to bounce back to ~29-30% levelsRoE to bounce back to ~29-30% levels

March 26, 2010 12


Key Downside Risks

Execution Delays

The biggest challenge for BGR is the timely and effective management of projects inhand. The scale of projects being undertaken by company is bigger than ever, with thetwo EPC contracts (Mettur and Jhalawar) alone contributing a major chunk of theorder book. Although the company has reasonably managed the execution so far,any major hiccups or delays in the execution timeline could adversely impact ourestimates.

High Working Capital requirement

BGR operates in a highly working capital intensive industry, involving long paymentcycles and retention money by clients. Hence, a sharp spike in the interest rates,resulting in a higher cost of borrowing for the company, could adversely impact theoverall profitability and would pose a downside risk to our estimates.

Other risks

Besides, the company is exposed to other broader risks, including a sharp spike inraw material prices, manpower constraints and increasing competition.

March 26, 2010 13


Outlook and Valuation

The government's thrust to the core power sector of the economy has led to power

generation targets being bigger than ever, translating into a huge opportunity for BoP

players. We believe that BGR Energy, being one of the very few established players to

offer complete turnkey BoP services, would tend to be a key beneficiary of the same.

Besides, the company's entry into executing full-fledged EPC contracts (bagging the

Mettur and Jhalawar projects, with a combined worth of Rs8,000cr), has provided a

fillip to its growth plans. Additionally, its successful foray into the BTG space could very

well prove to be the next milestone in the metamorphosis of the company.

Source: C-line, Angel Research

Exhibit 19: One-year Forward Rolling P/E Band

BGR has a healthy order book at Rs11,609cr (4.2x FY2010E sales), which provides

good revenue visibility to the company. During FY2009-12E, we expect the company

to register a top-line and bottom-line CAGR of 41.8% each. Since its listing in January

2008, the company has traded in a wide forward P/E-band range, with its average

P/E hovering at ~14x (excluding the initial, post-issue exuberance). At the current

price of Rs505, the stock is quoting at 14.9x and at 11.0x its FY2011E and FY2012E

EPS, respectively, which we believe is attractive. WWWWWe Initiate Coverage on the stock,e Initiate Coverage on the stock,e Initiate Coverage on the stock,e Initiate Coverage on the stock,e Initiate Coverage on the stock,

with a Buy recommendation and a Twith a Buy recommendation and a Twith a Buy recommendation and a Twith a Buy recommendation and a Twith a Buy recommendation and a Target Parget Parget Parget Parget Price of Rs641.rice of Rs641.rice of Rs641.rice of Rs641.rice of Rs641.


Exhibit 20: BGR Forward Rolling P/E v/s Others

0

10

20

30

40

50

60

70

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10

BGR P/E Sensex P/E BHEL P/E

0

100

200

300

400

500

600

700

800

900

1,000

Jan

-08

Apr-

08

Jul-

08

Oct

-08

Jan

-09

Apr-

09

Jul-

09

Oct

-09

Jan

-10

Share

Pric

e(R

s) 20x

5x

15x

10x

25x

March 26, 2010 14



Exhibit 21: One-year Forward Rolling EV/EBITDA


Exhibit 22: One-year Forward Rolling P/BV

9x

3x

15x

6x

12x

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Jan

-08

Apr-

08

Jul-

08

Oct

-08

Jan

-09

Apr-

09

Jul-

09

Oct

-09

Jan

-10

EV

(Rs

cr)

0

100

200

300

400

500

600

700

800

900

1,000

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10

Share

Pri

ce(R

s)

5x

2x

4x

3x

6x


March 26, 2010 15


Company Background

BGR Energy Systems, originally incorporated in 1985 as a joint venture between GEAEnergietechnik GmbH, Germany and the promoter, Mr. B.G. Raghupathy, is one ofthe leading players in the Balance of Plant (BoP) and Engineering, Procurement andConstruction (EPC) spaces of the Power sector. The company has taken several bigleaps over the year - from being a mere manufacturer of a few BoP components, toexecuting Turnkey BoP projects and now gradually executing full-fledged EPC contracts.


Exhibit 23: Key Milestones

Incorporated asa JV with GEAEnergietechnikGmbH, Germany

GEAEnergietechnikdivested its staketo promoters

Secured first EPCcontract for 120 MWpower plantin Tamil Nadu

Technicalcollaborationagreement withGEA Btt, France

Collaborationagreement withCrane EnvironmentInc, USA

1987

1993

1994

2001

2003

2006

1998

2000

First BOPorder for a95 MW CCPP

2007

Receivedpower tradinglicense

Received first 500 MWBOP contract fromAPGENCO forVijayawada TPP

Won a contractfor large gasprocessingcomplex fromSCOP, Iraq

2008

Received 2x600 MWEPC contract fromRRVUNL for KalisindhTPP

Received 1x600 MWEPC contract fromTNEB for MetturTPP

PowerProjectsDivision

established

CompanyListed

2009Technicalcollaborationagreement withTME, Italyfor CPP

Business Segments

BGR offers its solution through six primary business divisions; Power Projects, CaptivePower Projects, Oil and Gas Equipment, Air Fin Coolers, Electrical projects, andEnvironmental Engineering. The Power projects division continues to be the majorrevenue driver for the company, accounting for around 86% of its FY2009 revenues,with the balance being contributed by the remaining segments. Going forward aswell, the Power Segment is expected to continue its dominance, with around 93-94%share in the total revenue pie of the company.


Exhibit 24: FY2009 Segmental Revenue Share (%)

Offers its solutions through six primaryOffers its solutions through six primaryOffers its solutions through six primaryOffers its solutions through six primaryOffers its solutions through six primarybusiness segments, with Pbusiness segments, with Pbusiness segments, with Pbusiness segments, with Pbusiness segments, with Power projectsower projectsower projectsower projectsower projectsbeing the major contributorbeing the major contributorbeing the major contributorbeing the major contributorbeing the major contributor

March 26, 2010 16


Power Projects

The Power Projects division provides turnkey EPC and BOP services, for coal-basedthermal power plants and gas-based combined cycle power plants (typically over100MW).

Captive Power Projects

The captive Power division has been carved out of the power project division to provideturnkey EPC and BOP services for power plants typically under 150MW. It caters to thecaptive power need of various industries and can build coal based power plants,combined cycle power plants, biomass power plants etc.

Oil and Gas Equipment

The Oil and Gas Equipment division designs and manufactures gas conditioning andmetering skids, storage tanks, pipeline pig launching and receiving systems, gasprocessing complexes, and gas compressor packages, related to the oil and gasindustry, for companies in India and abroad.

Air Fin Coolers

The Air Fin Coolers division supplies air-cooled heat exchangers for oil and gasprocesses, and power sector industries. The company has turnkey capabilities in thedesign, manufacture, supply, erection and commissioning of air fin coolers / tubebundles / finned tubes.

Electrical Projects

The Electrical Projects business designs and supplies electrical systems and equipmentsuch as gas-insulated switchgear substations, optical fiber power ground wires, extrahigh voltage substations, and transmission lines to power stations, refineries andpetrochemical plants.

Environmental Engineering

The Environmental Engineering division manufactures and provides deaerators, effluenttreatment and recycling plants, desalination plants, water treatment plants, whichhave applications in power and in other industrial purposes.

March 26, 2010 17


Profit & Loss Statement (Consolidated) Rs crore

Note: *18 months period

Y/E MarchY/E MarchY/E MarchY/E MarchY/E March FY2007* FY2007* FY2007* FY2007* FY2007* FY2008 FY2008 FY2008 FY2008 FY2008 FY2009 FY2009 FY2009 FY2009 FY2009 FY2010E FY2010E FY2010E FY2010E FY2010E FY2011E FY2011E FY2011E FY2011E FY2011E FY2012E FY2012E FY2012E FY2012E FY2012E

Net Sales 786.8 1,520.5 1,930.3 2,742.8 4,066.5 5,507.6

Other operating income - - - - - -

TTTTTotal operating incomeotal operating incomeotal operating incomeotal operating incomeotal operating income 786.8 786.8 786.8 786.8 786.8 1,520.5 1,520.5 1,520.5 1,520.5 1,520.5 1,930.3 1,930.3 1,930.3 1,930.3 1,930.3 2,742.8 2,742.8 2,742.8 2,742.8 2,742.8 4,066.5 4,066.5 4,066.5 4,066.5 4,066.5 5,507.6 5,507.6 5,507.6 5,507.6 5,507.6

% chg 172.3 93.3 27.0 42.1 48.3 35.4

Total Expenditure 698.4 1,365.2 1,721.4 2,420.4 3,601.7 4,877.5

Net Raw Materials 628.3 1,279.2 1,583.8 2,173.7 3,232.9 4,392.3

Other Mfg costs 37.3 41.0 63.3 137.0 210.2 275.9

Personnel 32.8 45.0 74.4 109.7 158.6 209.3

Other - - - - - -

EBITDEBITDEBITDEBITDEBITDAAAAA 88.4 88.4 88.4 88.4 88.4 155.3 155.3 155.3 155.3 155.3 208.9 208.9 208.9 208.9 208.9 322.4 322.4 322.4 322.4 322.4 464.8 464.8 464.8 464.8 464.8 630.1 630.1 630.1 630.1 630.1

% chg 227.9 75.7 34.5 54.4 44.2 35.6

(% of Net Sales) 11.2 10.2 10.8 11.8 11.4 11.4

Depreciation & Amortisation 8.9 5.5 7.5 11.3 16.3 22.9

EBITEBITEBITEBITEBIT 79.5 79.5 79.5 79.5 79.5 149.8 149.8 149.8 149.8 149.8 201.4 201.4 201.4 201.4 201.4 311.1 311.1 311.1 311.1 311.1 448.6 448.6 448.6 448.6 448.6 607.2 607.2 607.2 607.2 607.2

% chg 228.6 88.3 34.4 54.5 44.2 35.4

(% of Net Sales) 10.1 9.9 10.4 11.3 11.0 11.0

Interest & other Charges 18.0 26.8 57.9 79.5 117.9 149.6

Other Income 0.3 6.6 31.7 30.6 38.5 40.4

(% of PBT) 0.5 5.1 18.1 11.7 10.4 8.1

Others - - - - - -

Recurring PBTRecurring PBTRecurring PBTRecurring PBTRecurring PBT 61.9 61.9 61.9 61.9 61.9 129.6 129.6 129.6 129.6 129.6 175.2 175.2 175.2 175.2 175.2 262.3 262.3 262.3 262.3 262.3 369.2 369.2 369.2 369.2 369.2 498.0 498.0 498.0 498.0 498.0

% chg 231.0 109.4 35.2 49.7 40.8 34.9

Extraordinary Expense/(Inc.) - - - - - -

PBT (reported)PBT (reported)PBT (reported)PBT (reported)PBT (reported) 61.9 61.9 61.9 61.9 61.9 129.6 129.6 129.6 129.6 129.6 175.2 175.2 175.2 175.2 175.2 262.3 262.3 262.3 262.3 262.3 369.2 369.2 369.2 369.2 369.2 498.0 498.0 498.0 498.0 498.0

Tax 21.1 41.1 59.6 89.2 123.7 166.8

(% of PBT) 34.0 31.7 34.0 34.0 33.5 33.5

PPPPPAAAAAT (reported)T (reported)T (reported)T (reported)T (reported) 40.8 40.8 40.8 40.8 40.8 88.5 88.5 88.5 88.5 88.5 115.6 115.6 115.6 115.6 115.6 173.1 173.1 173.1 173.1 173.1 245.5 245.5 245.5 245.5 245.5 331.2 331.2 331.2 331.2 331.2

Add: Share of earnings of assoc. - - - - - -

Less: Minority interest (MI) (0.6) 1.1 0.1 1.1 1.4 1.8

Prior period items - - - - - -

PPPPPAAAAAT after MI (reported)T after MI (reported)T after MI (reported)T after MI (reported)T after MI (reported) 41.4 41.4 41.4 41.4 41.4 87.3 87.3 87.3 87.3 87.3 115.4 115.4 115.4 115.4 115.4 172.0 172.0 172.0 172.0 172.0 244.1 244.1 244.1 244.1 244.1 329.4 329.4 329.4 329.4 329.4

Adj. PAdj. PAdj. PAdj. PAdj. PAAAAATTTTT 41.4 41.4 41.4 41.4 41.4 87.3 87.3 87.3 87.3 87.3 115.4 115.4 115.4 115.4 115.4 172.0 172.0 172.0 172.0 172.0 244.1 244.1 244.1 244.1 244.1 329.4 329.4 329.4 329.4 329.4

% chg 212.5 110.8 32.2 49.0 41.9 34.9

(% of Net Sales) 5.3 5.7 6.0 6.3 6.0 6.0

Basic EPS (Rs)Basic EPS (Rs)Basic EPS (Rs)Basic EPS (Rs)Basic EPS (Rs) 38.4 38.4 38.4 38.4 38.4 12.1 12.1 12.1 12.1 12.1 16.0 16.0 16.0 16.0 16.0 23.9 23.9 23.9 23.9 23.9 33.9 33.9 33.9 33.9 33.9 45.8 45.8 45.8 45.8 45.8

FFFFFully Diluted EPS (Rs)ully Diluted EPS (Rs)ully Diluted EPS (Rs)ully Diluted EPS (Rs)ully Diluted EPS (Rs) 5.8 5.8 5.8 5.8 5.8 12.1 12.1 12.1 12.1 12.1 16.0 16.0 16.0 16.0 16.0 23.9 23.9 23.9 23.9 23.9 33.9 33.9 33.9 33.9 33.9 45.8 45.8 45.8 45.8 45.8

% chg 212.5 110.8 32.2 49.0 41.9 34.9

March 26, 2010 18


Balance Sheet (Consolidated) Rs crore



SOURCES OF FUNDSSOURCES OF FUNDSSOURCES OF FUNDSSOURCES OF FUNDSSOURCES OF FUNDS

Equity Share Capital 10.8 72.0 72.0 72.0 72.0 72.0

Preference Capital - - - - - -

Reserves & Surplus 72.1 401.7 491.9 638.6 849.0 1,136.3

Shareholders FShareholders FShareholders FShareholders FShareholders Fundsundsundsundsunds 82.9 82.9 82.9 82.9 82.9 473.7 473.7 473.7 473.7 473.7 563.9 563.9 563.9 563.9 563.9 710.6 710.6 710.6 710.6 710.6 921.0 921.0 921.0 921.0 921.0 1,208.3 1,208.3 1,208.3 1,208.3 1,208.3

Minority Interest 1.5 2.7 2.8 3.9 5.3 7.1

Total Loans 246.4 502.7 709.0 1,009.0 1,409.0 1,659.0

Deferred Tax Liability - 35.6 74.7 74.7 74.7 74.7

TTTTTotal Liabilitiesotal Liabilitiesotal Liabilitiesotal Liabilitiesotal Liabilities 330.9 330.9 330.9 330.9 330.9 1,014.7 1,014.7 1,014.7 1,014.7 1,014.7 1,350.4 1,350.4 1,350.4 1,350.4 1,350.4 1,798.2 1,798.2 1,798.2 1,798.2 1,798.2 2,410.1 2,410.1 2,410.1 2,410.1 2,410.1 2,949.1 2,949.1 2,949.1 2,949.1 2,949.1

APPLICAAPPLICAAPPLICAAPPLICAAPPLICATION OF FUNDSTION OF FUNDSTION OF FUNDSTION OF FUNDSTION OF FUNDS

Gross Block 63.3 73.4 124.5 177.4 255.9 354.9

Less: Acc. Depreciation 24.9 20.6 26.8 38.1 54.4 77.3

Net BlockNet BlockNet BlockNet BlockNet Block 38.4 38.4 38.4 38.4 38.4 52.7 52.7 52.7 52.7 52.7 97.7 97.7 97.7 97.7 97.7 139.3 139.3 139.3 139.3 139.3 201.6 201.6 201.6 201.6 201.6 277.6 277.6 277.6 277.6 277.6

Capital Work-in-Progress 3.0 1.1 5.4 2.5 4.0 5.0

Goodwill 0.5 0.6 0.6 0.6 0.6 0.6

InvestmentsInvestmentsInvestmentsInvestmentsInvestments 0.3 0.3 0.3 0.3 0.3 151.4 151.4 151.4 151.4 151.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Current Assets 583.2 1,332.9 2,569.0 3,240.2 4,389.7 5,374.5

Cash 92.9 307.0 615.2 709.7 763.5 756.9

Loans & Advances 87.9 266.3 643.2 822.8 1,016.6 1,376.9

Other 4.0 8.6 17.8 24.7 36.6 49.6

Current liabilities 294.5 524.0 1,322.9 1,584.9 2,186.3 2,709.2

Net Current Assets 288.7 808.9 1,246.2 1,655.3 2,203.4 2,665.4

Mis. Exp. not written off - - - - - -

TTTTTotal Assetsotal Assetsotal Assetsotal Assetsotal Assets 330.9 330.9 330.9 330.9 330.9 1,014.7 1,014.7 1,014.7 1,014.7 1,014.7 1,350.4 1,350.4 1,350.4 1,350.4 1,350.4 1,798.2 1,798.2 1,798.2 1,798.2 1,798.2 2,410.1 2,410.1 2,410.1 2,410.1 2,410.1 2,949.1 2,949.1 2,949.1 2,949.1 2,949.1

March 26, 2010 19


Cash Flow Statement (Consolidated) Rs crore



Profit before tax 61.9 129.6 175.2 262.3 369.2 498.0

Depreciation 8.9 5.5 7.5 11.3 16.3 22.9

(Inc)/Dec in Working Capital (107.3) (306.1) (129.2) (314.6) (494.3) (468.6)

Less: Other income 0.3 6.6 31.7 30.6 38.5 40.4

Direct taxes paid 22.2 14.8 20.5 89.2 123.7 166.8

Cash Flow from OperationsCash Flow from OperationsCash Flow from OperationsCash Flow from OperationsCash Flow from Operations (59.1) (59.1) (59.1) (59.1) (59.1) (192.3) (192.3) (192.3) (192.3) (192.3) 1.3 1.3 1.3 1.3 1.3 (160.8) (160.8) (160.8) (160.8) (160.8) (271.0) (271.0) (271.0) (271.0) (271.0) (154.9) (154.9) (154.9) (154.9) (154.9)

(Inc.)/Dec.in Fixed Assets (28.4) (8.1) (55.5) (50.0) (80.0) (100.0)

(Inc.)/Dec. in Investments 4.6 (151.1) 150.9 - - -

Other income 0.3 6.6 31.7 30.6 38.5 40.4

Cash Flow from InvestingCash Flow from InvestingCash Flow from InvestingCash Flow from InvestingCash Flow from Investing (23.4) (23.4) (23.4) (23.4) (23.4) (152.7) (152.7) (152.7) (152.7) (152.7) 127.1 127.1 127.1 127.1 127.1 (19.4) (19.4) (19.4) (19.4) (19.4) (41.5) (41.5) (41.5) (41.5) (41.5) (59.6) (59.6) (59.6) (59.6) (59.6)

Issue of Equity - 319.7 - - - -

Inc./(Dec.) in loans 160.1 256.3 206.3 300.0 400.0 250.0

Dividend Paid (Incl. Tax) 3.8 16.8 25.3 25.3 33.7 42.1

Others 1.1 (0.0) (1.3) (0.0) - -

Cash Flow from FCash Flow from FCash Flow from FCash Flow from FCash Flow from Financinginancinginancinginancinginancing 156.3 156.3 156.3 156.3 156.3 559.2 559.2 559.2 559.2 559.2 181.0 181.0 181.0 181.0 181.0 274.7 274.7 274.7 274.7 274.7 366.3 366.3 366.3 366.3 366.3 207.9 207.9 207.9 207.9 207.9

Inc./(Dec.) in Cash 74.8 214.1 308.1 94.6 53.8 (6.6)

Opening Cash balancesOpening Cash balancesOpening Cash balancesOpening Cash balancesOpening Cash balances 18.1 18.1 18.1 18.1 18.1 92.9 92.9 92.9 92.9 92.9 307.0 307.0 307.0 307.0 307.0 615.2 615.2 615.2 615.2 615.2 709.7 709.7 709.7 709.7 709.7 763.5 763.5 763.5 763.5 763.5

Closing Cash balancesClosing Cash balancesClosing Cash balancesClosing Cash balancesClosing Cash balances 92.9 92.9 92.9 92.9 92.9 307.0 307.0 307.0 307.0 307.0 615.2 615.2 615.2 615.2 615.2 709.7 709.7 709.7 709.7 709.7 763.5 763.5 763.5 763.5 763.5 756.9 756.9 756.9 756.9 756.9

March 26, 2010 20


Key Ratios



VVVVValuation Ratios (x)aluation Ratios (x)aluation Ratios (x)aluation Ratios (x)aluation Ratios (x)

P/E (on FDEPS) 87.8 41.6 31.5 21.1 14.9 11.0

P/CEPS 72.3 39.2 29.6 19.8 14.0 10.3

P/BV 43.9 7.7 6.4 5.1 3.9 3.0

Dividend yield (%) 0.6 0.4 0.6 0.6 0.8 1.0

EV/Sales 4.8 2.4 1.9 1.4 1.1 0.8

EV/EBITDA 42.9 23.7 17.9 12.2 9.2 7.2

EV/Total Assets 11.5 3.6 2.8 2.2 1.8 1.5

PPPPPer Share Data (Rs)er Share Data (Rs)er Share Data (Rs)er Share Data (Rs)er Share Data (Rs)

EPS (Basic) 38.4 12.1 16.0 23.9 33.9 45.8

EPS (fully diluted) 5.8 12.1 16.0 23.9 33.9 45.8

Cash EPS 7.0 12.9 17.1 25.5 36.2 48.9

DPS 3.0 2.0 3.0 3.0 4.0 5.0

Book Value 11.5 65.8 78.3 98.7 127.9 167.8

Du PDu PDu PDu PDu Pont Analysisont Analysisont Analysisont Analysisont Analysis

EBIT margin (%) 10.1 9.9 10.4 11.3 11.0 11.0

Tax retention ratio 0.7 0.7 0.7 0.7 0.7 0.7

Asset turnover (x) 4.5 3.8 3.0 3.0 3.0 2.9

RoIC (Post-tax) (%) 29.8 25.8 20.6 22.5 21.8 21.0

Cost of Debt (Post-tax) (%) 7.1 4.9 6.3 6.1 6.5 6.5

Leverage (x) 1.8 0.1 0.2 0.4 0.7 0.7

Operating RoE (%) 71.7 27.7 22.9 29.4 32.6 31.9

Returns (%)Returns (%)Returns (%)Returns (%)Returns (%)

RoCE (Pre-tax) 34.0 22.3 17.0 19.8 21.3 22.7

Angel RoIC (Pre-tax) 45.7 38.0 31.4 34.3 32.9 31.7

RoE 63.1 31.4 22.2 27.0 29.9 30.9

TTTTTurnover ratios (x)urnover ratios (x)urnover ratios (x)urnover ratios (x)urnover ratios (x)

Asset Turnover (Gross Block) 15.6 22.2 19.5 18.2 18.8 18.0

Inventory / Sales (days) 10.5 5.3 2.7 3.0 3.0 3.0

Receivables (days) 112.6 132.6 190.5 195.0 188.0 188.0

Payables (days) 28.5 46.5 70.7 75.0 71.0 70.0

Working capital cycle (ex-cash) (days) 90.8 120.5 119.3 125.8 129.2 126.5

Solvency ratios (x)Solvency ratios (x)Solvency ratios (x)Solvency ratios (x)Solvency ratios (x)

Net debt to equity 1.8 0.1 0.2 0.4 0.7 0.7

Net debt to EBITDA 1.7 0.3 0.4 0.9 1.4 1.4

Interest Coverage (EBIT / Interest) 4.4 5.6 3.5 3.9 3.8 4.1

BGR Energy

Disclaimer

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Opinion expressed is our current opinion as of the date appearing on this material only. While we endeavor to update on a reasonablebasis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so.Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to changewithout notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with therecommendations expressed herein.

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Recipients of this material should rely on their own investigations and take their own professional advice. Each recipient of this documentshould make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companiesreferred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits andrisks of such an investment. Price and value of the investments referred to in this material may go up or down. Past performance is not aguide for future performance. Certain transactions - futures, options and other derivatives as well as non-investment grade securities -involve substantial risks and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock'sprice movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report ona company's fundamentals.

We do not undertake to advise you as to any change of our views expressed in this document. While we would endeavor to update theinformation herein on a reasonable basis, Angel Securities, its subsidiaries and associated companies, their directors and employees areunder no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons that mayprevent Angel Securities and affiliates from doing so. Prospective investors and others are cautioned that any forward-looking statementsare not predictions and may be subject to change without notice. Angel Securities Limited and affiliates, including the analyst who hasissued this report, may, on the date of this report, and from time to time, have long or short positions in, and buy or sell the securities of thecompanies mentioned herein or engage in any other transaction involving such securities and earn brokerage or compensation or act asadvisor or have other potential conflict of interest with respect to company/ies mentioned herein or inconsistent with any recommendationand related information and opinions.

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Note: Please refer important `Stock Holding Disclosure' report on Angel web-site (Research Section).

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Ratings (Returns) :

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1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note:Note:Note:Note:Note: We have not considered any Exposure below Rs 5 lakh for Angel, its Group companies and Directors.

BGR Energy

Research Team

Fundamental:

Sarabjit Kour Nangra VP-Research, Pharmaceutical [email protected]

Vaibhav Agrawal VP-Research, Banking [email protected]

Vaishali Jajoo Automobile [email protected]

Shailesh Kanani Infrastructure, Real Estate [email protected]

Anand Shah FMCG , Media [email protected]

Deepak Pareek Oil & Gas [email protected]

Puneet Bambha Capital Goods, Engineering [email protected]

Sushant Dalmia Pharmaceutical [email protected]

Rupesh Sankhe Cement, Power [email protected]

Param Desai Real Estate, Logistics, Shipping [email protected]

Sageraj Bariya Fertiliser, Mid-cap [email protected]

Viraj Nadkarni Retail, Hotels, Mid-cap [email protected]

Paresh Jain Metals & Mining [email protected]

Amit Rane Banking [email protected]

Rahul Jain IT [email protected]

Jai Sharda Mid-cap [email protected]

Sharan Lillaney Mid-cap [email protected]

Amit Vora Research Associate (Oil & Gas) [email protected]

V Srinivasan Research Associate (Cement, Power) [email protected]

Aniruddha Mate Research Associate (Infra, Real Estate) [email protected]

Shreya Gaunekar Research Associate (Automobile) [email protected]

Mihir Salot Research Associate (Logistics, Shipping) [email protected]

Chitrangda Kapur Research Associate (FMCG, Media) [email protected]

Vibha Salvi Research Associate (IT, Telecom) [email protected]

Pooja Jain Research Associate (Metals & Mining) [email protected]

Technicals:

Shardul Kulkarni Sr. Technical Analyst [email protected]

Mileen Vasudeo Technical Analyst [email protected]

Derivatives:

Siddarth Bhamre Head - Derivatives [email protected]

Jaya Agarwal Derivative Analyst [email protected]

Sandeep Patil Jr. Derivative Analyst [email protected]

Institutional Sales Team:

Mayuresh Joshi VP - Institutional Sales [email protected]

Abhimanyu Sofat AVP - Institutional Sales [email protected]

Nitesh Jalan Sr. Manager [email protected]

Pranav Modi Sr. Manager [email protected]

Sandeep Jangir Sr. Manager [email protected]

Ganesh Iyer Sr. Manager [email protected]

Jay Harsora Sr. Dealer [email protected]

Meenakshi Chavan Dealer [email protected]

Gaurang Tisani Dealer [email protected]

Production Team:

Bharathi Shetty Research Editor [email protected]

Dharmil Adhyaru Assistant Research Editor [email protected]

Bharat Patil Production [email protected]

Dilip Patel Production [email protected]

Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.Tel : (022) 3952 4568 / 4040 3800

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

Economy & Finance

BGR Energy IC, 26 March