BGR Energy Systems reported strong results for the first quarter of fiscal year 2011. Revenue grew 191% year-over-year to Rs. 905 crore, driven by execution of EPC projects. Net profit increased 205.6% to Rs. 61 crore. Margins were compressed due to higher raw material costs but execution of large EPC contracts provides good revenue visibility. The company maintains its neutral rating on BGR Energy Systems due to its order backlog, transformation into a full EPC provider through potential JV with Hitachi, and growth opportunities in the power sector.

1. 1QFY2011 Result Update | Capital Goods
August 3, 2010
BGR Energy Systems NEUTRAL
CMP Rs769
Performance Highlights Target Price -
Y/E March (Rs cr) 1QFY11 1QFY10 %chg (yoy) 4QFY10 %chg (qoq) Investment Period -
Net Sales 905 311 191 1,657 (45)
Stock Info
EBITDA 103 43 140 172 (40)
EBITDA (%) 11.3 13.7 (240bp) 10.4 90bp Sector Capital Goods
PAT 61 20 205.6 108 (45) Market Cap (Rs cr) 5,541
Source: Company, Angel Research Beta 0.8
As in the past few quarters, BGR Energy Systems continued to positively surprise 52 Week High / Low 783/341
us posting 1QFY2011 numbers well ahead of our estimates. The company Avg. Daily Volume 75,975
reported a robust 191% and 205.6% yoy growth in top- and bottom-line Face Value (Rs) 10
respectively, for the quarter. During 1QFY2011, BGR expressed its intention to
BSE Sensex 18,114
form a joint venture with Hitachi for the manufacture of supercritical boilers and
Nifty 5,440
turbines, which would enable it to meet the pre-qualifying criteria for NTPC’s bulk
order of supercritical boilers. We maintain Neutral on the stock. Reuters Code BGRE.BO
Bloomberg Code BGRL@IN
Strong revenue and profitability growth: BGR reported a steep 191% yoy growth
in sales to Rs905cr (Rs311cr) on better-than-expected execution of EPC projects in
1QFY2011. On the operating front, EBIDTA surged 140% yoy to Rs103cr Shareholding Pattern (%)
(Rs43cr), however margins were compressed by 240bp to 11.3% (13.7%) on the
Promoters 81.3
back of higher raw material costs. As a proportion of sales, raw material costs
increased sharply by 630bp to 81.3%, which resulted due to the higher MF / Banks / Indian Fls 7.4
proportion of EPC projects executed during the quarter. The robust top-line FII / NRIs / OCBs 7.1
growth spiraled to a handsome 205.6% yoy growth in net profit to Rs61cr Indian Public / Others 4.2
(Rs20cr) for 1QFY2011.
Outlook and Valuation: BGR Energy has taken several 'bigger' leaps over the
Abs. (%) 3m 1yr 3yr*
years and transformed from being a mere manufacturer of few BoP components
to executing turnkey BoP projects, and now gradually is executing full-fledged EPC Sensex 4.2 13.8 (11.5)
contracts. Order backlog, as on June 30, 2010, stood at Rs9,397cr (2.1x BGR 26.8 120.4 (14.7)
FY2011E revenues) providing good revenue visibility. In addition, we believe that Note: * Since listed as on Jan 3, 2008
the potential JV with Hitachi would augur well for the company in the long run. At
the CMP, the stock is quoting at 19.9x and at 16.0x FY2011E and FY2012E EPS,
respectively. We maintain Neutral on the stock.
Key Financials
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 1,930 3,073 4,444 5,746
% chg 27.0 59.2 44.6 29.3
Net Profit 115 201 279 346
% chg 32.2 74.4 38.5 24.2
EBITDA (%) 10.8 11.2 11.0 10.9
EPS (Rs) 16.0 28.0 38.7 48.1
P/E (x) 48.2 27.6 19.9 16.0
P/BV (x) 9.9 7.9 6.2 4.8
RoE (%) 22.2 31.7 34.7 33.6
RoCE (%) 14.6 16.9 18.2 17.7
EV/Sales (x) 2.9 1.8 1.1 0.9 Hemang Thaker
022 - 4040 3800; Ext: 342
EV/EBITDA (x) 27.1 15.9 9.9 8.0 hemang.thaker@angeltrade.com
Source: Company, Angel Research
Please refer to important disclosures at the end of this report 1

2. BGR Energy |1QFY2011 Result Update
Exhibit 1: 1QFY2011 performance (Standalone)
Y/E March (Rs cr) 1QFY2011 1QFY2010 yoy (%) 4QFY2010 qoq (%) FY2010 FY2009 yoy (%)
Net Sales 905 311 191.0 1,657 (45.4) 3,069 1,922 59.7
Raw Material 736 234 215 1,382 (46.8) 2,487 1,579 57.5
(% of Net Sales) 81.3 75.1 83.4 81.0 82.2
Employee Cost 33 22 50.5 48 (32.3) 125 73 71.2
(% of Net Sales) 3.6 6.9 2.9% 4.1 3.8
Other Expenses 34 13 157.9 55 (37.6) 114 62 83.9
(% of Net Sales) 3.8 4.3 3.3 3.7 3.2
Total Expenditure 803 269 199 1,485 (45.9) 2,726 1,714 59.0
EBITDA 103 43 140 172 (40.1) 343 208 64.9
EBITDA (%) 11.3 13.7 10.4 11.2 10.8
Interest 12 16 (29.0) 12 - 54 58 (6.9)
Depreciation 3 2 50.0 3 3.0 10 7 42.9
Other Income 3 6 (55.2) 7 25 32 (21.9)
Profit before Tax 91 30 201.4 164 (44.7) 304 175 73.7
(% of Net Sales) 10.0 9.7 9.9 9.9 9.1
Total Tax 31 10 199.0 56 (44.5) 104 60 73.3
(% of PBT) 34.3 34.6 34.1 34.2 34.3
Reported PAT 61 20 205.6 108 (44.4) 200 115 73.9
(% of Net Sales) 6.6 6.3 6.5 (45.4) 6.5 6.0 8.9
Source: Company, Angel Research
EPC segment strongly aided top-line: BGR has transformed itself over the years
from being a mere manufacturer of a few BoP components to executing turnkey
BoP projects, and is now gradually executing full-fledged EPC contracts. The
company is riding on the back of two big EPC contracts namely 1*600MW EPC of
a power plant at Mettur, Tamil Nadu worth Rs3,100cr, and second the 2*600MW
EPC of a power plant at Kalisind TPS, Rajasthan, worth Rs4,900cr. For both these
projects, BGR would be handling the BoP package at its level, while the BTG would
be sourced from Dongfang, China. Both the projects have gathered pace in
execution and have single-handedly contributed Rs644cr to the company’s
1QFY2011 revenues.
August 3, 2010 2

3. BGR Energy |1QFY2011 Result Update
Exhibit 2: Segment-wise performance (Standalone)
Y/E March (Rs cr) 1QFY11 1QFY10 yoy % FY10 FY09 yoy %
Revenues
Capital Goods 27 17 58.6 168 191 (12.0)
Construction and EPC
879 294 198.9 2,901 1,731 67.6
contracts
Total Revenues 905 311 191.2 3,069 1,922 59.7
EBIT
Capital Goods 0.2 1.83 (88.5) 21 16 31.3
Construction and EPC
100 39.21 156.1 318 190 67.4
contracts
Total EBIT 101 41.04 145.2 339 206 64.6
Revenue Mix (%)
Capital Goods 3.0 5 5.5 9.9
Construction and EPC
97.0 95 94.5 90.1
contracts
EBIT Margin (%)
Capital Goods 0.8 10.8 12.5 8.4
Construction and EPC
11.4 13.3 11.0 11.0
contracts
Source: Company, Angel Research
Segment-wise performance: During the quarter, the construction and EPC
contracts division was the key driver, registering robust 198.9% yoy growth in
top-line to Rs879cr (Rs279cr). Margins (EBIT) of the division however declined
190bp to 11.4% (13.3%) during 1QFY2011. On the other hand, the capital goods
segment reported dismal margins of 0.8% (10.8%) despite the decent revenue
growth of 58.6% yoy.
Order book: The company’s order backlog for the quarter declined 13.6% yoy to
Rs9,397cr. The power projects division orders constituted 93%, while the oil & gas
division contributed 5% of the backlog. The company continues to see a strong
bidding pipeline and expects strong growth opportunities.
Exhibit 3: Quarterly order backlog
14,000
12,179
11,609
12,000 10,881
10,230
10,000 9,523 9,397
8,000
(Rs cr)
6,000
4,000
2,000
0
4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Source: Company, Angel Research
August 3, 2010 3

4. BGR Energy |1QFY2011 Result Update
Investment Arguments
Power sector - A structural growth driver: The government has embarked on an
ambitious plan of promoting "Power for all by 2012", and increasing the country’s
per capita consumption of electricity to over 1,000 KWh by FY2012E. To this effect,
the government has planned capacity addition of 78,700MW during the Eleventh
Plan period. Assuming around 60% achievement rate, it would result in capacity
addition of about 45-50GW. Pertinently, the scale gets even bigger for the Twelfth
Plan, with a planned capacity addition of over 100GW.
The share of thermal capacity, including both the Eleventh and Twelfth Plans, totals
134,893MW thereby necessitating BOP along with boiler turbine generator (BTG)
needs. Typically, an average BoP work constitutes about 40% of the project cost. In
this way, the 75,200MW of thermal capacity planned during the Twelfth Plan
period alone throws up a potential BoP opportunity of Rs1,35,360cr (ie.
~Rs27,072cr of an average annual opportunity).
Turnkey BoP - BGR's forte: BGR has its own set of competitive advantages to
differentiate its offerings in the turnkey BoP space and hence it is one of the very
few established players to offer complete turnkey BoP services. 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 it to further strengthen its position vis-à-vis new entrants.
EPC contracts - Transforming to the next level: The company has scaled up to the
next level, having won two major EPC orders combined worth of Rs8,000cr. For
both these orders, BGR would be handling the BoP package at its end, while the
BTG would be sourced from Dongfang, China. Post operationalising of the
potential JV with Hitachi, BGR would be able to fulfill the pre-qualifying criteria for
NTPC’s bulk order of supercritical boilers, thereby transforming itself into a fully
integrated EPC major with complete access to BTG equipment.
Outlook and Valuation: BGR Energy has taken several 'bigger' leaps over the years
and has transformed itself from being a mere manufacturer of few BoP
components to executing turnkey BoP projects, and now executing full-fledged EPC
contracts. The company’s order backlog, as on June 30, 2010, stood at Rs9,397cr
(2.1x FY2011E revenues) providing good revenue visibility. In addition, we believe
that the potential JV with Hitachi would augur well for the company in the long
run. At the CMP of Rs769, the stock is quoting at 19.9x and at 16.0x FY2011E and
FY2012E EPS, respectively. We maintain Neutral on the stock.
August 3, 2010 4

5. BGR Energy |1QFY2011 Result Update
Exhibit 4: Strong revenue growth
7,000 165.8 180
6,000 160
140
5,000
120
93.3
4,000 100
(Rs cr)
(%)
3,000 80
59.2 44.6 60
2,000 27.0
29.3
40
1,000 20
- 0
FY2007* FY2008 FY2009 FY2010 FY2011E FY2012E
Revenues (LHS) Growth (RHS)
Source: Company, Angel Research; Note: *For 18 months
Exhibit 5: Profitability trend
700 11.2 10.8 11.2 11.0 10.9 12.0
10.2
600 10.0
500
6.6 6.3 8.0
5.7 6.0 6.0
400 5.3
(Rs cr)
6.0
(%)
300
4.0
200
100 2.0
0 0.0
FY2007* FY2008 FY2009 FY2010 FY2011E FY2012E
EBITDA (LHS) PAT (LHS) EBITDA% (RHS) PAT% (RHS)
Source: Company, Angel Research; Note: *For 18 months
Exhibit 6: One year forward P/E band
1,600
1,400
1,200
1,000
800
600
400
200
0
Dec-08
Dec-09
Apr-08
Aug-08
Apr-09
Aug-09
Apr-10
Aug-10
Oct-08
Oct-09
Feb-09
Feb-10
Jun-08
Jun-09
Jun-10
Share Price (Rs) 8x 16x 24x 32x
Source: Company, Angel Research
Exhibit 7: Angel EPS Forecast v/s consensus
Year (%) Angel forecast Bloomberg consensus var. (%)
FY2011E 38.7 38.1 1.6
FY2012E 48.1 48.9 (1.6)
Source: Company, Bloomberg, Angel Research
August 3, 2010 5

6. BGR Energy |1QFY2011 Result Update
Exhibit 8: Peer valuation
CMP Tgt Price Upside FY2012E FY2012E FY2010-12E FY2012E FY2012E
Company Reco EPS CAGR
(Rs) (Rs) (%) P/BV (x) P/E(x) RoCE (%) RoE (%)
(%)
ABB* Neutral 799 - - 5.0 23.8 35.3 22.3 20.8
Areva T&D* Sell 288 - - 5.9 20.3 11.3 17.6 22.2
BHEL Neutral 2,464 - - 4.9 19.0 21.5 30.4 28.6
BGR Energy Neutral 769 4.8 16.0 31 17.7 33.6
Accumulat
Crompton Greaves 275 307 11.6 4.4 17.9 7.2 27.1 27.3
e
Jyoti Structures Buy 154 215 39.6 1.8 9.3 21.4 19.3 20.6
KEC International Buy 490 648 32.2 2.3 9.8 22.3 18.9 26.2
Thermax Neutral 746 - - 5.3 19.9 30.9 31 29.5
Source: Company, Angel Research; Note: * December year ending
August 3, 2010 6

7. BGR Energy |1QFY2011 Result Update
Profit & Loss Statement
Y/E March (Rs cr) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Net Sales 787 1,521 1,930 3,073 4,444 5,746
Other operating
- - - - - -
income
Total operating income 787 1,521 1,930 3,073 4,444 5,746
% chg 172.3 93.3 27.0 59.2 44.6 29.3
Total Expenditure 698 1,365 1,721 2,729 3,953 5,121
Net Raw Materials 628 1,279 1,584 2,489 3,610 4,682
Other Mfg costs 37 41 63 114 166 210
Personnel 33 45 74 126 178 230
Other - - - - - -
EBITDA 88 155 209 344 491 625
% chg 227.9 75.7 34.5 64.8 42.6 27.3
(% of Net Sales) 11.2 10.2 10.8 11.2 11.0 10.9
Depreciation&
9 6 8 10 15 21
Amortisation
EBIT 80 150 201 334 476 604
% chg 228.6 88.3 34.4 65.8 42.5 26.9
(% of Net Sales) 10.1 9.9 10.4 10.9 10.7 10.5
Interest & other
18 27 58 54 91 126
Charges
Other Income 0 7 32 25 38 47
(% of PBT) 0.5 5.1 18.1 8.2 8.9 9.0
Others - - - - - -
Recurring PBT 62 130 175 305 423 525
% chg 231.0 109.4 35.2 74.2 38.6 24.2
Extraordinary
- - - - - -
Expense/(Inc.)
PBT (reported) 62 130 175 305 423 525
Tax 21 41 60 104 144 179
(% of PBT) 34.0 31.7 34.0 34.0 34.0 34.0
PAT (reported) 41 88 116 201 279 347
Add: Share of earnings
- - - - - -
of associate
Less: Minority interest
(1) 1 0 0 0 0
(MI)
Prior period items - - - - - -
PAT after MI (reported) 41 87 115 201 279 346
ADJ. PAT 41 87 115 201 279 346
% chg 212.5 110.8 32.2 74.4 38.5 24.2
(% of Net Sales) 5.3 5.7 6.0 6.6 6.3 6.0
Basic EPS (Rs) 38 12 16 28 39 48
Fully Diluted EPS (Rs) 6 12 16 28 39 48
% chg 212.5 110.8 32.2 74.4 38.5 24.2
August 3, 2010 7

8. BGR Energy |1QFY2011 Result Update
Balance Sheet
Y/E March (Rs cr) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
SOURCES OF FUNDS
Equity Share Capital 11 72 72 72 72 72
Preference Capital - - - - - -
Reserves& Surplus 72 402 492 634 829 1,091
Shareholders Funds 83 474 564 706 901 1,163
Minority Interest 2 3 3 3 3 3
Total Loans 246 503 709 934 1,334 1,634
Deferred Tax Liability - 36 75 155 155 155
Total Liabilities 331 1,015 1,350 1,798 2,393 2,955
APPLICATION OF FUNDS
Gross Block 63 73 125 190 269 368
Less: Acc. Depreciation 25 21 27 37 52 73
Net Block 38 53 98 153 217 295
Capital Work-in-Progress 3 1 5 3 4 5
Goodwill 0 1 1 1 1 1
Investments 0 151 1 1 1 1
Current Assets 583 1,333 2,569 3,770 4,534 5,695
Cash 93 307 615 1,028 1,061 1,212
Loans & Advances 88 266 643 727 889 1,149
Other 4 9 18 18 27 34
Current liabilities 295 524 1,323 2,129 2,363 3,041
Net Current Assets 289 809 1,246 1,641 2,171 2,654
Mis. Exp. not written off - - - - - -
Total Assets 331 1,015 1,350 1,798 2,393 2,955
August 3, 2010 8

9. BGR Energy |1QFY2011 Result Update
Cash Flow Statement
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Profit before tax 62 130 175 305 423 525
Depreciation 9 6 8 10 15 21
(Inc)/Dec in Working Capital (107) (306) (129) 18 (497) (332)
Less: Other income 0 7 32 25 38 47
Direct taxes paid 22 15 20 104 144 179
Cash Flow from Operations (59) (192) 1 205 (241) (12)
(Inc.)/Dec.in Fixed Assets (28) (8) (55) (63) (80) (100)
(Inc.)/Dec. in Investments 5 (151) 151 - - -
Other income 0 7 32 25 38 47
Cash Flow from Investing (23) (153) 127 (38) (42) (53)
Issue of Equity - 320 - - - -
Inc./(Dec.) in loans 160 256 206 225 400 300
Dividend Paid (Incl. Tax) 4 17 25 59 84 84
Others 1 (0) (1) 80 - -
Cash Flow from Financing 156 559 181 166 316 216
Inc./(Dec.) in Cash 75 214 308 413 33 151
Opening Cash balances 18 93 307 615 1,028 1,061
Closing Cash balances 93 307 615 1,028 1,061 1,212
August 3, 2010 9

10. BGR Energy |1QFY2011 Result Update
Key Ratios
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Valuation Ratio (x)
P/E (on FDEPS) 134.2 63.7 48.2 27.6 19.9 16.0
P/CEPS 110.5 59.9 45.2 26.3 18.9 15.1
P/BV 67.1 11.7 9.9 7.9 6.2 4.8
Dividend yield (%) 0.4 0.3 0.4 0.9 1.3 1.3
EV/Sales 7.3 3.7 2.9 1.8 1.1 0.9
EV/EBITDA 64.6 36.1 27.1 15.9 9.9 8.0
EV/Total Assets 17.3 5.5 4.2 3.0 2.0 1.7
Per Share Data (Rs)
EPS (Basic) 38.4 12.1 16.0 28.0 38.7 48.1
EPS (fully diluted) 5.8 12.1 16.0 28.0 38.7 48.1
Cash EPS 7.0 12.9 17.1 29.4 40.8 51.0
DPS 3.0 2.0 3.0 7.0 10.0 10.0
Book Value 11.5 65.8 78.3 98.1 125.1 161.5
Dupont Analysis
EBIT margin (%) 10.1 9.9 10.4 10.9 10.7 10.5
Tax retention ratio 0.7 0.7 0.7 0.7 0.7 0.7
Asset turnover (x) 4.5 3.8 3.0 4.1 4.2 3.7
ROIC (Post-tax) (%) 29.8 25.8 20.6 29.3 29.9 25.9
Cost of Debt (Post
7.1 4.9 6.3 4.3 5.3 5.6
Tax) (%)
Leverage (x) 1.8 0.1 0.2 (0.1) 0.3 0.4
Operating RoE (%) 71.7 27.7 22.9 26.0 37.3 33.3
Returns (%)
RoCE (Pre-tax) 34.0 22.3 17.0 21.2 22.7 22.6
Angel RoIC (Pre-tax) 45.7 38.0 31.4 44.7 45.5 39.4
RoE 63.1 31.4 22.2 31.7 34.7 33.6
Turnover ratios (x)
Asset Turnover (Gross
15.6 22.2 19.5 19.6 19.4 18.1
Block)
Inventory / Sales
11 5 3 2 2 2
(days)
Receivables (days) 113 133 190 194 185 184
Payables (days) 29 46 71 92 90 88
Working capital cycle
91 120 119 73 91 92
(ex-cash) (days)
Solvency ratios (x)
Net debt to equity 1.8 0.1 0.2 (0.1) 0.3 0.4
Net debt to EBITDA 1.7 0.3 0.4 (0.3) 0.6 0.7
Interest Coverage
4.4 5.6 3.5 6.2 5.2 4.8
(EBIT / Interest)
August 3, 2010 10

11. BGR Energy |1QFY2011 Result Update
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement BGR Energy
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: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
August 3, 2010 11