BGR Energy: Buy

Investors with a Five-year perspective can buy BGR Energy Systems.

The company’s strong financials, the resilience shown in the current slowdown and the ability to achieve financial closures in large projects during a liquidity crunch, suggest that the company will be able to capitalise on the huge business opportunity in the power and oil and gas space.

An order book of over Rs 15,000 crore (7 times FY08 sales) provides revenue visibility for the medium term. The company’s move to tie-up technology for power equipment manufacturing, if successful, could result in a significant rating of the stock over the next couple of years. At the current market price of Rs 150, the stock trades at 10 times its expected earnings for FY10. The stocks can be bought on declines linked to broad markets.

For the nine-months ended December 2008, BGR recorded 40 per cent growth in sales as well as net profits compared with a year ago numbers.

Profitability remained intact for the above nine months with operating profit margins holding at 11.5 per cent. While BGR did see a rise in its interest costs, higher profits provided sufficient cushion. The company’s superior debt servicing capabilities enabled it to tie up funding for two huge projects for state electricity boards (SEBs), thus achieving financial closure within time.