1QFY2012 Result Update | Capital Goods

July 29, 2011

BGR Energy Systems

Performance Highlights
(` cr) Revenue EBITDA EBITDA margin (%) Reported PAT 1QFY12 734 96 13.1 50 1QFY11 907 104 11.4 61 % chg (yoy) (19.0) (7.4) 170bp (17.0) 4QFY11 1,462 167 11.5 98 % chg (qoq) (49.8) (42.6) 164bp (48.9)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Capital Goods 3,481 1.2 871/395 482,980 10 18,197 5,482 BGRE.BO BGRL@IN

`397 -

Source: Company, Angel Research

After a strong performance in the past several quarters, BGR Energy Systems (BGR) stablalised in 1QFY2012. The companys revenue for the quarter declined by 19% yoy to `734cr on a high base, 4.7% lower than our estimates of `771cr. In tandem with lower sales, the bottom line decreased by 17% yoy to `50cr, but exceeded our estimates of `40cr, largely aided by margin expansion. Order backlog at the end of the quarter stood at `7,500cr. The stock has substantially declined due to lull order inflows. We recommend Neutral on the stock. Margins intact; High interest dents the bottom line: For 1QFY2012, revenue and PAT fell by 19% and 17%, respectively, due to high base effect. EBITDA margin improved by 170bp yoy to 13.1% due to increased execution of high-margin BOP orders. Interest and depreciation costs rose by 55% and 20% yoy, respectively, which led to the 17% yoy decline in the bottom line to `50cr. Outlook and valuation: In a scenario of nil order inflows (base case scenario) for the current year, the existing backlog is expected to deplete by ~70% if the desired target of 15% (management guidance) is to be achieved. Hence, future growth visibility diminishes to a large extent. The current issues outlined in the power sector, viz. coal linkages and environmental clearances, have led to delays in the ordering process, which is evident from the intake scale of the companys competitors. Key triggers to the stock would be order wins from Rajasthan SEB and the NTPC bulk tender. The stock continues to de-rate on account order intake concerns and has fully factored the pessimistic growth trajectory of the company, thus providing a limited upside to the stock. We recommend Neutral on the stock. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 81.1 5.0 6.9 7.0

Abs. (%) Sensex BGR

3m (4.9)

1yr 1.1

3yr 31.9 23.9

(27.7) (44.0)

FY2010 3,073 59.2 201 74.4 11.2 28.0 17.3 4.9 31.7 21.2 1.1 9.8

FY2011 4,763 55.0 323 60.5 11.5 44.8 10.8 3.7 39.0 23.9 0.8 7.0

FY2012E 5,122 7.5 328 1.7 11.9 45.5 8.7 2.4 30.6 19.7 0.7 5.9

FY2013E 4,714 (8.0) 299 (8.8) 12.5 41.5 9.6 2.1 23.4 16.1 0.6 5.1

Hemang Thaker
+91 22 3935 7800 Ext: 6817 hemang.thaker@angelbroking.com

Please refer to important disclosures at the end of this report

BGR Energy | 1QFY2012 Result Update

Exhibit 1: Quarterly performance (Standalone)

(` cr) Net Sales Other operating income Total income Stock adjustments Raw Material (% of total income) Employee Cost (% of total income) Other Expenses (% of total income) Total Expenditure EBITDA (EBITDA %) Interest Depreciation Other Income PBT (% of total income) Total Tax (% of PBT) PAT (Reported) (% of total income) EPS (`)
Source: Company, Angel Research

1QFY12 731 3 734 (0) 576 78.4 34 4.6 28 3.8 638 96 13.1 18 4 0 74 10.1 24 31.6 50 6.8 7.0

1QFY11 905 1 907 (1.86) 738 81.2 33 3.6 34 3.8 803 104 11.4 12 3 3 92 10.1 31 34.0 61 6.7 8.4

% chg (yoy) (19.2) (19.0) (21.9) 4.5 (18.1) (20.5) (7.4) 55.3 20.7 (100.0) (18.9) (22.7) (17.0) (17.1)

4QFY11 1,457 4 1,462 2 1,237 84.8 35 2.4 20 1.4 1,294 167 11.5 18 7 2 144 9.8 45 31.6 98 7.0 13.7

% chg (qoq) (49.8) (49.8) (53.4) (3.7) 39.7 (50.7) (42.6) (1.6) (46.8) (100.0) (48.3) (47.0) (48.9) (49)

FY11 4,747 13 4,761 (3) 3,916 82.2 143 3.0 154 3.2 4,210 551 11.6 60 17 9 482 10.1 158 32.7 324 6.8 45.0

FY10 3,069 5 3,074 2 2,485 80.9 125 4.1 114 3.7 2,726 348 11.3 54 10 20 305 9.9 104 34.0 201 6.5 27.9

% chg (yoy) 54.7 54.9 57.6 14.7 34.6 54.5 58.2 12.5 71.9 (57.3) 58.2 52.2 61.3 61.2

Exhibit 2: Actual vs. estimates

(` cr) Revenue EBITDA PAT EPS (`)
Source: Company, Angel Research

Actual 734 96 50 7.0

Estimates 771 85 40 5.6

Var. (%) (4.7) 13.3 24.6 24.4

July 29, 2011

BGR Energy | 1QFY2012 Result Update

Exhibit 3: Segment-wise performance

Y/E March (` cr) Revenue Capital goods Const. and EPC contracts Total revenue EBIT (excl. net unallocable inc.) Capital goods Const. and EPC contracts Total EBIT Revenue mix (%) Capital goods Const. and EPC contracts EBIT margin (%) Capital goods Const. and EPC contracts Total
Source: Company, Angel Research

1QFY12 58 673 731 2 90 92 8.0 92.0 4.1 13.4 12.6

1QFY11 27 879 905 2 100 103 3.0 97.0 8.2 11.4 11.3

% chg (yoy) 116.6 (23.4) (19.2) 7.7 (10.4) (10.0)

4QFY11 121 1,336 1,457 14 146 160 8.3 91.7 11.7 10.9 11.0

% chg (yoy) (52.1) (49.6) (49.8) (83.3) (38.4) (42.4)

FY2011 266 4,481 4,747 30 510 540 5.6 94.4 11.1 11.4 11.4

FY2010 168 2901 3,069 21 158 179 5.5 94.5 12.3 5.5 5.8

% chg (yoy) 58.2 54.5 54.7 43.6 222.3 201.7

Segmental performance: The EPC segment declined by 23.4% yoy but fared better on the OPM front by a 200bp expansion mainly due to change in mix between EPC and BOP. The capital goods segment showed increased proportion of 8% to the top line compared to 3% in 1QFY2011. However, the segments margin compressed by ~410bp yoy. Order intake disappoints: Order inflows for the quarter stood dismal at mere `40cr. This resulted in a 20.2% yoy drop in the order backlog to `7,500cr (`9,397cr). The order backlog mainly consists of the power projects division (~90%). The company desperately requires high-value orders to regain momentum. The two high-value EPC projects (Mettur TPS and Kalisindh TPS) are nearing completion, which implies that the order book has to be fast replenished with such big orders to provide growth visibility for the coming years. Management reiterated its optimistic stance on securing orders towards the estimated order pipeline worth `37,000cr, including the NTPC bulk tender.

Exhibit 4: Order backlog

14,000 11,200 10,881 12,197

11,609 10,230 9,397

10,532

9,317 8,000 7,500

(` cr)

8,400 5,600 2,800 -

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

Source: Company, Angel Research

July 29, 2011

1QFY12

BGR Energy | 1QFY2012 Result Update

Key highlights of the management call

Current order backlog is sufficient to achieve15% growth for FY2012E. Optimistic on securing orders in response to the bids for projects worth `37,000cr, including the supply of BTG, EPC and BoP projects, representing a capacity of 19,700MW. This is constituted by NTPC tenders (~12,000 MW) and IPPs (~8,000MW). The EPC order backlog is expected to be over by the end of the current year. The Mettur and Kalisindh projects are nearing completion. The BTG JV with Hitachi is on track to start production in the next 1418 months with land acquisition in process. Capex for FY2012 is estimated at `45cr.

Recommendation rationale
Key movers for the company yet to trigger: The Rajasthan SEB order, the NTPC bulk tender and revival in the power sector space (which is currently marred with delays) are the key triggers for the company to position itself for the coming years. The company is currently placed at L2 in two EPC contracts of Rajasthan SEB (2X660MW of `6,100cr each). The tender conditions permit Rajasthan SEB to award one of the EPC contracts to the L2 bidder, provided the company matches the L1 price. We would like to highlight that further delays in the awarding of the Rajasthan SEB EPC contracts and NTPC's bulk tender are likely to negatively affect BGRs FY2013 revenue and profitability. Outlook and valuation: : In a scenario of nil order inflows (base case scenario) for the current year, the existing backlog is expected to deplete by ~70% if the desired target of 15% (management guidance) is to be achieved. Hence, future growth visibility diminishes to a large extent. The current issues outlined in the power sector, viz. coal linkages and environmental clearances, have led to delays in the ordering process, which is evident from the intake scale of the companys competitors. Key triggers to the stock would be order wins from Rajasthan SEB and the NTPC bulk tender. The stock continues to de-rate on account order intake concerns and has fully factored the pessimistic growth trajectory of the company, thus providing a limited upside to the stock. We recommend Neutral on the stock. Change in estimates: We revise our estimates on the back of the companys pessimistic growth trajectory. The concerns are magnified on the order inflow front, which subsequently support FY2013 outlook. Despite securing some orders in the coming year (base case scenario), a decline is imminent in the long term. Accordingly, we lower our growth estimates for FY2012E and FY2013E.

July 29, 2011

BGR Energy | 1QFY2012 Result Update

Exhibit 5: Actual vs. Estimates

FY2012E Earlier estimates Revenue EBITDA PAT
Source: Company, Angel Research

FY2013E Var. (%) (2.5) 5.9 2.3 Earlier estimates 5,719 630 526 Revised estimates 4714 588 299 Var. (%) (17.6) (6.6) (43.1) 5,122 610 328

Revised estimates

5,252 576 321

Exhibit 6: Key assumptions

Particulars Order inflow (` cr)
Source: Company, Angel Research

FY2012E 5,000

FY2013E 5,000

Exhibit 7: Angel EPS forecast vs. consensus

Y/E March FY2012E FY2013E
Source: Company, Angel Research

Angel forecast 45.5 41.5

Bloomberg consensus 46.3 48.1

Var. (%) (1.7) (13.7)

Exhibit 8: One-year forward P/E band

1,300 1,040 780 520 260 0

May-10

May-11

May-09

Jul-08

Jul-09

Jul-10

Jan-09

Jan-10

Mar-09

Mar-10

Jan-11

Nov-08

Nov-09

Share Price (`)

Source: Company, Angel Research

5x

10x

15x

Nov-10

July 29, 2011

Mar-11

Sep-08

Sep-09

Sep-10

20x

Jul-11

BGR Energy | 1QFY2012 Result Update

Exhibit 9: Peer comparison

Company ABB* Areva T&D* BHEL BGR Energy Crompton Greaves Jyoti Structures KEC International Thermax Reco. Sell Neutral Neutral Accum Buy Buy Neutral CMP Tgt. price (`) 868 246 397 169 84 79 570 637 183 100 115 Upside/ (26.6) 8.2 18.9 44.8 P/BV(x) 6.6 5.1 3.7 2.4 2.9 0.9 1.8 4.2 5.8 4.2 3.0 2.1 2.4 0.8 1.4 3.4 P/E(x) 42.7 27.6 13.5 8.7 17.2 6.9 8.3 16.3 36.8 20.7 11.6 9.6 11.1 5.7 6.2 13.9 FY2011-13E 180.2 23.3 19.5 (3.7) 2.8 22.7 24.1 13.1 RoCE (%) 23.9 24.0 40.0 19.7 19.6 23.7 24.9 33.6 24.7 26.9 37.3 16.1 26.7 22.9 28.7 32.7 RoE (%) 16.6 19.7 29.4 30.6 18.1 16.6 23.9 28.3 16.8 22.1 27.3 23.4 23.7 15.0 26.3 26.7 (`) (Downside) (%) FY12E FY13E FY12E FY13E EPS CAGR FY12E FY13E FY12E FY13E

Neutral 1,839

Source: Company, Angel Research; Note:*December year ending

July 29, 2011

BGR Energy | 1QFY2012 Result Update

Profit & loss account (Consolidated)

Y/E March (` cr) Operating income % chg Total Expenditure Raw Materials Mfg costs Personnel Costs Other Costs EBITDA % chg (% of Net Sales) Depreciation & Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 1,521 93.3 1,365 1,108 142 45 70 155 75.7 10.2 6 150 88.3 9.9 27 7 5.1 130 109.4 0 130 41 31.7 88 0 1 0 87 87 110.8 5.7 12.1 12.1 (68.4) 1,930 27.0 1,721 1,352 172 74 123 209 34.5 10.8 8 201 34.4 10.4 58 32 18.1 175 35.2 0 175 60 34.0 116 0 0 0 115 115 32.2 6.0 16.0 16.0 32.2 3,073 59.2 2,729 2,187 236 126 180 344 64.8 11.2 10 334 65.8 10.9 54 25 8.2 305 74.2 0 305 104 34.0 201 0 0 0 201 201 74.4 6.6 28.0 28.0 74.4 4,763 55.0 4,214 3,677 238 145 154 550 59.7 11.5 17 532 59.4 11.2 60 9 1.8 481 57.6 0 481 158 32.8 323 0 0 0 323 323 60.5 6.8 44.8 44.8 60.1 5,122 7.5 4,512 3,766 246 179 320 610 11.0 11.9 21 589 10.7 11.5 102 10 2.0 498 3.5 0 498 169 32.5 328 0 0 0 328 328 1.7 6.4 45.5 45.5 1.7 4,714 (8.0) 4,125 3,442 224 165 295 588 (3.6) 12.5 26 563 (4.5) 11.9 121 12 2.6 454 (8.8) 0 454 154 32.5 299 0 0 0 299 299 (8.8) 6.4 41.5 41.5 (8.8)

July 29, 2011

BGR Energy | 1QFY2012 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Deferred Tax Asset Current Assets Cash Loans & Advances Inventories Debtors Others Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 73 21 53 1 1 151 0 1,333 307 266 15 736 9 484 809 1,015 125 27 98 5 1 1 0 2,569 615 643 14 1,279 18 1,233 1,246 1,350 182 37 145 10 1 1 0 3,770 1,028 727 16 1,980 18 1,896 1,641 1,798 307 54 253 10 1 1 0 5,115 1,045 840 41 3,158 32 2,397 2,364 2,649 352 75 277 10 1 350 0 5,374 782 1,163 39 3,368 23 2,167 2,705 3,343 427 101 326 10 1 700 0 5,386 1,155 1,071 36 3,100 25 2,229 2,628 3,666 72 0 402 474 3 503 36 1,015 72 0 492 564 3 709 75 1,350 72 0 634 706 3 934 155 1,798 72 0 880 952 52 1,337 308 2,649 72 0 1,124 1,196 52 1,787 308 3,343 72 0 1,297 1,369 52 1,937 308 3,666 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

July 29, 2011

BGR Energy | 1QFY2012 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) PAT Adjustments Opr Profits Before WC Chng. Changes in Working Capital Taxes Paid during the year Cash Flow from Operations (Inc.)/Dec in Fixed Assets (Inc.)/Dec in Investments (Inc.)/Dec in Loans/advances Other Income Cash Flow from Investing Issue of Equity Inc/(Dec) in Loans Dividend Paid (incl.Tax) Others Cash Flow from Financing Cash generated/(utilised) Cash at start of the year Cash at end of the year FY2008 FY2009 FY2010 87 72 159 (323) (6) (170) (16) (151) 0 4 (163) 320 256 (3) (26) 547 214 93 307 115 118 234 (153) (4) 77 (57) 151 0 2 97 0 206 (14) (58) 134 308 307 615 201 168 369 (67) 25 327 (63) 0 0 0 (63) 0 225 (22) (54) 149 413 615 1,028 FY2011 FY2012E FY2013E 323 236 559 (1,017) (158) (616) (128) 0 0 0 (128) 0 404 (84) (31) 289 (455) 1,028 1,045 328 292 620 (141) (168) 312 (45) (350) 0 0 (395) 0 450 (84) (74) 292 209 573 782 299 301 600 411 (158) 854 (75) (350) 0 0 (425) 0 150 (84) (121) (55) 373 782 1,155

July 29, 2011

BGR Energy | 1QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis(%) EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Pre-tax) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to Equity Net debt to EBITDA Interest Coverage 0.4 1.3 5.6 0.2 0.4 3.5 (0.1) (0.3) 6.2 0.3 0.5 8.8 0.8 1.6 5.8 0.6 1.3 4.6 22.4 5 133 100 95 19.6 3 190 182 107 20.1 2 194 209 74 19.5 2 197 186 74 15.6 3 233 185 116 12.1 3 250 194 132 22.3 38.0 31.4 17.0 31.4 22.3 21.2 44.9 31.7 23.9 45.3 39.0 19.7 31.1 30.6 16.1 28.1 23.4 9.9 68.3 3.8 37.8 25.8 4.9 0.6 38.9 10.4 66.0 3.0 31.2 20.6 6.3 0.3 24.6 10.9 66.0 4.1 44.4 29.3 4.3 0.0 29.3 11.2 67.2 4.0 44.9 30.2 3.6 0.1 33.3 11.5 67.5 2.7 30.9 20.9 4.4 0.6 30.8 11.9 67.5 2.3 28.0 18.9 4.4 0.7 29.0 12.1 12.1 12.9 2.0 65.8 16.0 16.0 17.1 3.0 78.3 28.0 28.0 29.4 7.0 98.1 44.8 44.8 47.2 10.0 131.9 45.5 45.5 48.4 10.0 165.7 41.5 41.5 45.0 15.0 189.7 32.8 30.8 6.0 0.5 1.9 18.7 2.9 24.8 23.3 5.1 0.8 1.5 14.2 2.2 14.2 13.5 4.1 1.8 0.9 8.0 1.5 8.9 8.4 3.0 2.5 0.7 5.8 1.2 8.7 8.2 2.4 2.5 0.7 5.9 1.1 9.6 8.8 2.1 3.8 0.6 5.1 0.8 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

July 29, 2011

10

BGR Energy | 1QFY2012 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

BGR Energy Systems No No No No

Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

July 29, 2011

11