BGR Energy Systems

IPO opens: December 5, 2007.
IPO closes: December 12, 2007.
Price band: Rs 425-480
IPO rating: 3 out of 5, average

Business

Turnkey contracts to supply the balance of plant (BOP) equipment, services and civil works for power generation projects, in which supply, from a single source, the balance of the plant, i.e. items other than the boiler, turbine and generator.

Design, engineer, manufacture, sell and service a range of systems and equipment for the power, oil & gas, refinery, petrochemicals and process industries.

Order book in excess of Rs 3300 crore.
More than 75% of the order book comes from power projects.

Financials

18 months ended March 31, 2007:

Topline: Rs 790.27 crore
Bottomline: Rs 39.96 crore

Three months ended June 30, 2007
Topline: Rs 24.52 crore
Bottomline: Rs 17.48 crore
NPM=7%.

Objectives

Financing the long-term working capital requirements
Finance investments in establishment of manufacturing and assembly facilities

Outlook

Ability to execute project on time without cost over runs is proved earlier.
One of the best return on networth despite having low net profit margin, primarily due to low fixed capital intensity of the business.
Banned by BHEL for three-year time and BHEL will not be doing any business with BGR.


The stock on offer is valued at 116 and 131 times fully diluted annualised earnings for FY2006-2007 on its fully diluted equity. Though this appears like a case of stretched valuation, the strong order book makes it a worthy proposition for the long-term investors.

Reliance Diversified Power Sector Fund, one of the best sector funds for the year has agreed to buy 14,40,000 shares of BGR at Rs 450.

If we decide to believe the rumours in the market, this counter becomes one of the cheapest counters and may emerge as a multibagger. Marketmen are talking that this company is about to get orders worth Rs 5000 crore. Reliance MF picking up stake in the counter is just an indication of the same.

However one should not rely on such speculation while investing.

Call
Invest if you understand momentum. Short-term traders are expected to get near 100% listing gains provided market remains strong.

For the investors the stock can be bought with a long-term horizon for multibagger returns over the next three years.