Final review of Portfolio, ‘Bottom fishing in 2012’

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Date: 28-Nov-12

JainMatrix Investments launched this portfolio in Jan 2012, when we published the report ‘Bottom fishing in 2012’. To read this now, click on LINK. This is the final review of this portfolio.

In Jan, we said, ‘A bottom is in place, and the price reversal has started‘; there is ‘a change in sentiment‘ and ‘a coordinated rise ’in the share prices. We suggested a portfolio of nine stocks for preferably SIP investment.

Today, Ten months later, lets check this portfolio for investor gains – how has it performed?

Performance

 Company

Report  Jan 17th

Review Feb 20th Gain/ Loss % Review  27th Nov Gain/ Loss % Sector Mkt Cap k Crores

Find out more?

Titan Industries

185

232 25 303 64 Consumer L – 27

LINK

Yes Bank

285

364 28 434 52 Bank L – 16

LINK

KEC International

49.1

61 24 63 28 Power M – 1.6

LINK

Hanung Toys & Textiles

128

140.6 10 164 28 Consumer S – 0.4

LINK

BGR Energy Systems

229

339 48 268 17 Power M – 1.9

LINK

Binani Industries

121

124.1 2.5 129 7 Cement+ S – 0.4
Diamond Power Infra

111

138 24 109 -2 Power S – 0.4
Adani Port & SEZ

135

150.5 12 130 -4 Ports, SEZ L – 26

LINK

IRB Infrastructures

153

208 36 126 -17 Infra M – 4.2

LINK

Average

 

  23.2   19.2  

 

 
NIFTY

4,967

5,564 12 5,727 15
Sensex

16,466

18,289 11 18,842

14

CNX Midcap

6,764

7,925 17.2 7,948 17

k – ‘000

BSE Small Cap

6,290

7,116 13.1 7,183 14

M-midcap

Observations & Learnings:

  • The portfolio’s absolute appreciation since Jan is an avg. gain of 19.2%!! It has outperformed all indices!!
  • Investment by SIP fashion from Jan’12, gives absolute gains of 11.1% so far, annualized to 13.3%.
  • Supporting this portfolio are research reports with Links included in above table.
  • Consumer and Banking sectors have emerged as better performers, while Power and Infra are weaker.

Suggestions and Risks:

  • This portfolio will appreciate, but invest in each stock with a minimum one year perspective.
  • This is an aggressive portfolio, so do not invest in only 1-2 stocks. Invest monthly in a SIP form.
  • Past performance is no indication of future results. In fact leadership in this portfolio has changed often.

New Model Portfolio (Mid Cap)

  • While we continue to be optimistic of the prospects of this portfolio, this will be the final such report.
  • A new Model Portfolio (Mid-Cap) is being created that will reflect the changing trends in this market. To access this, and other valuable research, readers need to sign up with JainMatrix Investments as a Paid Subscriber, see LINK.

Disclaimer:

These reports and documents are prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permissions; for any questions contact the director of JainMatrix Investments at punit.jain@jainmatrix.com. Also see: https://jainmatrix.wordpress.com/disclaimer/

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October report on ‘Bottom fishing in 2012’

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Date: 3-Oct-12

In Jan 2012, JainMatrix Investments published the report ‘Bottom fishing in 2012’. To read this now, click on LINK

The report indicated that: ‘A bottom is in place, and the price reversal has started‘; there is ‘a change in sentiment‘ and ‘a coordinated rise ’in the share prices. It suggested a portfolio of nine stocks for preferably SIP investment. They are Mid/ Small Caps with potential.

Nine months later, we will review this portfolio for investor gains – how has it performed?

Company

Report

Jan 17th

Review Feb 20th Gain/ Loss % Review

3rd Oct

Abs. Gain/ Loss % Sector Mkt Cap k Crores Find out more?
KEC International 49.1 61 24 72 47 Power M – 1.8 LINK
Yes Bank 285 364 28 398 40 Bank L – 14 LINK
Titan Industries 185 232 25 258 40 Consumer L – 23 LINK
BGR Energy Systems 229 339 48 279 22 Power M – 2.0 LINK
Binani Industries 121 124.1 2.5 132 9 Cement+ S – 0.4
Diamond Power Infra 111 138 24 119 7 Power S – 0.4
IRB Infrastructures 153 208 36 156 2 Infra M – 5.2 LINK
Hanung Toys & Textiles 128 140.6 10 124 -3 Consumer S – 0.3 LINK
Adani Port & SEZ 135 150.5 12 128 -5 Ports, SEZ L – 26 LINK
Average 23.2 17.5
NIFTY 4,967 5,564 12 5,722 15
Sensex 16,466 18,289 11 18,858 14
CNX Midcap 6,764 7,925 17.2 7,952 17.5 k – ‘000
BSE Small Cap 6,290 7,116 13.1 7,161 14 M-midcap

Observations:

  • Definitely the portfolio is up since Jan, and on average the shares have gained 17.5%!! It has outperformed all indices except the CNX Midcap, and is on par with this.
  • Investment in a SIP fashion from Jan’12, would give absolute gains of 10.4% so far, annualized to 16%.
  • Supporting this portfolio are new research reports for Adani Port and Yes Bank, included in above table.
  • The recent upturn in indices has helped as we bought earlier at lower levels. We continue to be optimistic of the prospects of this portfolio.

Suggestions and Risks:

  • This portfolio will appreciate, but invest with a minimum one year perspective.
  • This is an aggressive portfolio. Do not put all your eggs in one basket. Invest monthly in a SIP form.
  • Past performance is no indication of future results.

Additionally:

  • Some research reports are only available to Subscribers. Join up to receive actionable, high quality insights and recommendation for Equity investments. Boost your returns.
  • Spread the cheer. Share this letter with friends and fellow investors; invite them to also subscribe.
  • To subscribe, use this Signup Form CLICK or enter your email on the top right of this page.

Disclaimer:

These reports and documents are prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permissions; for any questions contact the director of JainMatrix Investments at punit.jain@jainmatrix.com. Also see: https://jainmatrix.wordpress.com/disclaimer/

‘Bottom Fishing in 2012’ Review of Portfolio – April’12

Date: April 18, 2012

In Jan this year, JainMatrix Investments published a report, ‘Bottom fishing in 2012’ …… To read this now, click on LINK

  • The report indicated that: ‘A bottom is in place, and the price reversal has started‘; there is ‘a change in sentiment‘, and ‘a coordinated rise’ in the share prices.
  • A lot has happened since then, including a crude oil price rise, a Union Budget, and even a lowering of Interest Rates by RBI !!

Lets review the suggested portfolio at the three months milestone – how has it performed?

 Company

Reported 

Jan 17th

Review Feb 20th

Gain/ Loss %

Review

Apr 18th

Gain/ Loss %

Sector

Mkt Cap k Crores

Find out more?

BGR Energy Systems

229

339

48

358

42

Power

M – 2.6

LINK

KEC International

49.1

61

24

63.8

30

Power

S – 1.6

LINK

IRB Infrastructures

153

208

36

198

30

Infra

M – 6.6

Yes Bank

285

364

28

370

30

Bank

L – 13

LINK

Titan Industries

185

232

25

240

27

Consumer

L – 21.3

LINK

Hanung Toys & Textiles

128

140.6

10

147

15

Consumer

S – 0.4

LINK

Binani Industries

121

124.1

2.5

122

1

Cement +

S – 0.4

Diamond Power Infra

111

138

24

110

-1

Power

S – 0.4

Adani Port & SEZ (Mundra)

135

150.5

12

130

-4

Ports, SEZ

L – 26

LINK

Average

 

 

23.2

 

20.6

 

 

 

NIFTY

4,967

5,564

12

5,300

7

Sensex

16,466

18,289

11

17,392

6

CNX Midcap

6,764

7,925

17.2

7,700

14

k – ‘000

BSE Small Cap

6,290

7,116

13.1

6,914

10

M-midcap

Observations:

  • Definitely the portfolio is down compared to Feb evaluation. Even so, since Jan, it has gained 20.6%!!
  • It has outperformed even the best of these Indices, CNX Midcap by over 6%!!
  • There are several changes in the ranking of individual stocks.
  • Note the added Link to the Report on IRB Infrastructure, added in this period.

Based on the above, we strongly suggest:

  • This portfolio will appreciate. Invest but with a minimum one year perspective.
  • Subscribe to reports from JainMatrix Investments. Receive actionable, high quality insights and recommendation for Equity investments. Boost your returns.
  • This is an aggressive portfolio. Do not put all your eggs in one basket. Invest monthly in a SIP form.

Note:

  • Past performance is no indication of future results.
  • Spread the cheer. Share this letter with friends and fellow investors; invite them to also subscribe.
  • To Subscribe, use this Signup Form CLICK
  • Check back on the website www.jainmatrix.com for updates.

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Disclaimers:

Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

Bottom fishing in 2012 ……

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JainMatrix Investments has published a review of this portfolio, please click  on the link  October Review

Article Published  January 17th 2012

A Happy New Year to you!                                                             January 17th 2012

In my first post of 2012, I’d like to mull over a very basic question. There are a number of fundamentally good companies, firms in good sectors that are showing QoQ growth and profits, with upside potential and great order booked numbers. I’d like to invest in such firms.

But my worry has been that along with the Sensex, these firms have seen their share price falling week after week. The question is:  How much can a good company fall? More importantly, when can we be sure that the share price fall is complete, a bottom is in place, and the reversal has started?

If we can answer this for a few companies, it can be a great investing opportunity. I suggest the following 9 firms as turnaround candidates.

1.      Hanung Toys & Textiles: CMP 128.

  • This mid sized consumer products firm has 75% revenues from exports. Its share has jumped by 67% in the last 1 month, on high volumes.
  • My fundamental analysis indicates it’s a buy. In my report called Hanung – Look for the rebound, I had predicted such a reversal. Here’s a link to the report
  • Here is a one month view of this stock:
JainMatrix Investments, Hanung Toys

Hanung Toys – One month view (click to enlarge)

  • But the two-year view of the stock shows the extent of fall. The converse of this is that this share has a long climb before it, to even reach past highs.
JainMatrix Investments, Hanung Toys

Hanung Toys – Two year view. Click to Enlarge

2.      KEC International. CMP 49.1

Background:

  • KEC is a power transmission EPC firm owned by the RP Goenka group
  • It has increased EPS 30% CAGR for 5 years, and over 50% of the revenues from international projects.
  • A recent US acquisition in the transmission towers – SAE Towers – gives it 30% growth in balance sheet and a foothold in the America geography
  • Overall margins have been steady at 10% for the last 4 years
  • Recent small but synergistic diversifications in India give it an entry into Power Systems and Cables, and new verticals like Railways, Telecom and Water.

Situation:

  • In the last 4 weeks, the share has gained 53%, again on good volumes.
  • Here are the details, in a one month view:
JainMatrix Investments, KEC International

KEC International – One month view

  • Here is a two-year view of the stock that shows the extent of the fall. One of the issues is poor sentiments in the Power sector. However, for KEC, the fall is overdone.
JainMatrix Investing, KEC International

KEC International – Two year view

3.      BGR Energy Systems CMP 229

  • It is a leading power generation EPC firm. A detailed analysis is available on the link
  • The stock is up 35% in the last 2 weeks
JainMatrix Investments, BGR Energy Systems

BGR Energy Systems – One month view

The fall in the last two years has been massive, as we can see:

JainMatrix Investing, BGR Energy Systems

BGR Energy Systems – Two year view

4.      Diamond Power Infrastructure – CMP 111

  • This Gujarat based small cap is an integrated power sector player into Cables, transmission towers, transformers and conductors
  • It has aggressively expanded capacities, and maintains a higher proportion of in house manufacture in its EPC projects.
  • In the last month, the share has risen 51% from its low.
JainMatrix Investments, Diamond Power Infrastructure

Diamond Power Infrastructure – One month view

  • If you see the two-year chart, the extent of the fall is obvious. Again this is partly due to a poor perception of the Power sector combined with the fall of the Sensex. The fall is overdone, and the stock should bounce back.
JainMatrix Investments, Diamond Power Infrastructure

Diamond Power Infrastructure – Two year view

5.      Titan Industries, CMP 185

  • It is the Tata group company that owns the Titan and Tanishq brands
  • It is a large Cap, consumer-oriented firm with a big retail presence. A detailed analysis is available at link
  • The share is up 21% in the last one month, as we can see:
JainMatrix Investing, Titan Industries

Titan – One month view

  • The one-year view of Titan shows that it has fallen sharply in this period. It surely has some catching up to do.
JainMatrix Investments, Titan Industries

Titan – One year view

6.      Mundra / Adani Port and SEZ, CMP 135

  •  This Port and SEZ major is part of Adani group. It is an infrastructure stock.
  • A detailed report is available on Link
  • A recent development in this stock was the acquisition of Abbot Point Port in Australia. This was seen as an expensive acquisition, and this was one reason for the recent fall
  • This share is up by 25% from a recent one month low, as we can see:
JainMatrix Investing, Mundra / Adani Port and SEZ

Mundra Port – One month view

  • The high for Mundra/ Adani was 184.5 in mid 2009 and the share is now 36% lower than this in spite of the recent rise:
JainMatrix Investments, Mundra / Adani Port and SEZ

Mundra Port – Two year view

7.      IRB Infrastructure – CMP 153

  • This is a leading Roads Developer and Operator in India.
  • It is on a rapid growth path even in the current slow environment. It has a very good portfolio of projects, many of which are operational / toll roads, giving it a predictable and visible cash flow. It has restricted new business bids to larger and more lucrative road projects, where it has competitive advantages. Order Booked are around 10,000 crores.
  • In the medium term, the IRB stock has been suffering from a sentiment driven fall. In the last few weeks, however, it has recovered 24% from a low of 123.5 to the current 152 level
JainMatrix Investments, IRB Infrastructure

IRB Infrastructure Developers – One month view

Over a 2-year period, we can see that the stock has fallen significantly, and this should reverse in a falling interest rate scenario.

JainMatrix Investments, IRB Infrastructure

IRB Infrastructure – Two year view

8.      Binani Industries – Cement and metals manufacturer. CMP 121

  • It is a holding company with interests in Cement, Zinc, Glass Fiber, composites, etc.
  • However, the significant valuable asset is Binani Cement, which was recently merged into the holding company. This itself has a turnover of 2000 crores, and had a market cap of 1600 crores (before merger).
  • Other assets are not significant loss making entities. As of now, Binani Industries has a market cap of just 360 crores. The stock is under valued.
  • The share price has rebounded by 39% from recent lows.
JainMatrix Investments, Binani Industries

Binani Industries – One month view

The 2-year picture of Binani Industries shows the spike in 2011 around the time of the merger with Binani Cement, and a subsequent fall.

JainMatrix Investments, Binani Industries

Binani Industries – Two year view

9.      Yes Bank, CMP 285

  • It is a leading private sector bankA detailed analysis of this stock is available on the link
  • The share has shot up in the last month by 24% from a recent low.
JainMatrix Investments, Yes Bank

Yes Bank – One month view

  • The two-year view of the stock indicates that the current price is significantly below the highs, even though business performance is steady.
JainMatrix Investments, Yes Bank

Yes Bank – Two year view

Risks:

  • A close look at any of the 2-year charts of these shares indicates that there are several 20-40% bounces on the way down. There is a small probability that this too is just a bounce. However, several factors build my confidence that this is more than just a small reversal.
  1. We have indications (see article) that the interest rate cycle has peaked in India; that the Inflation too has peaked. So this could be a sign of economic improvements.
  2. The INR has weakened considerably. This can be a booster to export oriented firms.
  3. The coordinated fashion in which above nine firms (and others in the market) have risen indicates a change in sentiment, and perhaps lowering of investment negativity.
  4. At the beginning of the New Year, many investors, especially foreign, open their books and make fresh investments.
  • Investment in turnaround companies is inherently a higher risk approach, but with potentially higher returns. Take this approach only if you have a high-risk appetite.
  • One view of the above stocks can be that the best is already past, and the resurgence in the last month is unlikely to be repeated. My view is that at this stage fresh investments in these stocks are less risky than a month ago; the reversal is more likely to be sustained, and most of these stocks have a long way to rise before they are back at their highs, even though on valuation parameters, many should be near their all time highs.
  • It is possible that an external negative event takes place that makes share prices fall below these recent lows. However at this juncture, this looks like a small probability event.
  • Socialize with us  Like on Facebook
  • Check back on the website www.jainmatrix.com for updates.
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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

BGR Energy Systems – Time to Re-energize

  • Date: December 2, 2011
  • CMP: Rs 269; Small Cap – Market Cap 1952 crores
  • Advice:  Invest at lower levels. Target – Rs 800 in 24 months.

BGR Energy is a leader in the Power Plant EPC space. However the industry headwinds have pulled down the business performance. BGR shares have fallen sharply to current under priced levels, and may stay around these level for 2 quarters. Thereafter the stock is expected to rise and recover lost ground.

Warning – Extreme volatility – this stock is not for the faint hearted.

BGR Energy – Description and Profile

  • ‘Water water everywhere, but not a drop to drink’. For BGR, the line needs to be – electricity shortages everywhere, but no orders for generation :-)
  • BGR Energy is primarily a Power Sector focused Engineering- Procurement- Construction (EPC) company. It builds Power plants for Utility companies and commissions and hands over the plant. It is Chennai based, with 2010-11 revenues of 4747 crores; market cap 1894 crores and 2200 employees.
  • Power Plant work can be in a Turnkey EPC mode, responsible for entire plant, or BoP (Balance of Plant) other than the BTG (Boiler Turbine Generator), or only BTG.
  • BGR has domain capabilities in power, and the ability to plan, design, procure/ build, execute and commission projects. Thus experienced personnel are the main resource of this firm.
  • Shareholding pattern is: Promoters – Individual and Corporate: 81.1%, DII 5.1%; Bodies Corporate 1.9%; Individuals – retail plus others 11.9%. Thus Promoters hold significant stake – a good sign.
  • By nature, the firm is paid in terms of milestones achieved in the project execution, so revenues tend to be lumpy. Also the Orders booked for this firm as a proportion of current revenues indicates the safety and visibility of the current business.

Strategies executed by BGR

  • BGR has extended its offerings to other verticals like Oil & Gas, Electrical projects (substations), environmental engineering projects and air fin coolers.
  • In recent years, it has diversified into manufacture of BTG as well as key technology components with partners/ JVs, thus capturing a larger share of the Turnkey project budget. This also gives it an edge in terms of cost and timely execution of projects.   It has set up a number of collaborations, subsidiaries and JVs to assemble the Plants and machinery:
  1. With Hitachi, it has Turbine and Boiler JVs. These two firms are setting up manufacturing facilities in Tamil Nadu, near Chennai
  2. Group companies with GEA Energietechnik of Germany give access to Cooling systems technologies and specialized tube cleaning systems
  3. Other group companies – Progen Systems – focuses on Design and manufacture capability for Process equipments. Also Cuddalore Powergen Corp Ltd is setting up a Power Plant.
  • It can be seen that BGR is over time going to straddle the entire Power Generation lifecycle, from BoP to EPC to BTG/ key components manufacture, to the Plant Operator (Generation) and the Utility play.

Industry Note:

Classification of Indian Industry players

  • Power Industry is at a high level divided into Generation, Transmission and Distribution. The Public sector dominates the industry, owning 70-80% of current assets. However the government is opening up to the Private sector. In future, 50% of investments are expected to be from Private investments
  • The key players in the Power Plant EPC market are NTPC, BHEL, L&T, and AIA Engineering. But it is a crowded market. The competition also includes Reliance Infra and Tatas.
  • Sub-segments are BoP and BTG manufacturers. Chinese manufacturers of BTG have a price advantage in India compared to locals. This anomaly should soon be corrected by the government.
  • The government has just come out with an order compelling open access, in line with the Electricity Act, 2003. This will allow all consumers of >1 MW freedom to choose the supplier, and only inform their current distributor. This will be a game changer for the Power industry if correctly implemented.

Stock valuation, performance and returns

  • BGR Energy had its IPO in Dec 2007. In a blockbuster offering, it was oversubscribed 119 times. Hoping to generate 438 crores, they attracted 52,000 crores.
  • However, from its IPO price of 480, it has now fallen to 269 a fall of 14% per year. See Fig 1.
BGR Energy, JainMatrix Investments

Fig 1 – Investment and Returns

  • As compared to share price, we can see that in the last 4 years, sales have grown at an average of 57% CAGR. See Fig 2 – Quarterly Sales and Profits.
  • Both EBITDA (53%) and Net Profits (69%) are growing rapidly.
BGR Energy, JainMatrix Investments

Fig 2 – Quarterly Sales and Profits

  • We can see from EPS and Cash Flow – Fig 3, the unevenness of the business model of BGR. Cash flow is unpredictable and lumpy.
  • EPS however is growing fast at 57% CAGR. Again this is a good data, but from a low base.
BGR Energy, JainMatrix Investments

Fig 3 – EPS and Cash Flow

BGR Energy, JainMatrix Investments

Fig 4 – Gross Debt

  • Debt is the big issue with BGR. It has increased significantly in the recent past. Gross Debt also stems from two sources – Net working capital and Debtors.
  • Working capital increased from 103 days (end FY11) to 206 days (end 2QFY12). This could be due to execution delays across the ongoing projects.
  • Debtors went up from 243 days (end FY11) to 341 days (end 2QFY12). This was due to a sharp rise in Retention Money, which was 1300 crores (end 2QFY12). Of this 900 crores is due to projects under execution and 400 crores against completed projects v/s 1100 crores (end FY11).
  • Retention Money is generally Bank deposits/guarantees for performance on projects. The completed project Debtors is certainly payment issues faced from some customers, possibly State Electricity Boards that are themselves in financial stress.
  • BGR expects debt to fall from 2300 crore (see Fig 4) to 2000 crores by the end of FY12 as the retention money is realized. And Debt equity is expected to increase from 1.4 (FY11) to 2.0 (FY12 Estd).
  • An important ratio for BGR analysis is the Orders booked to Revenues ratio (BTB). This has shown a cyclical nature, and by indications, is on an upswing now.
BGR Energy, JainMatrix Investments

Fig 5 – Orders Booked and Billings

Financial Projections, with FY14 estimates

The financials and PE of BGR has been projected for the next 3 years. See Exhibit 6.

JainMatrix Investments

Exhibit 6 – Key Financials and Projections

  • The current PE of BGR Energy is 6.7, below the industry average of 9.9. The average PE in the last 4 years has been 17.5. Certainly today BGR is at the lower end of the pricing range.
  • The Price and PE chart Fig 7 – shows that the successful IPO gave big valuations, but this fell rapidly in the 2008-09 global financial crisis. The view of the EPS chart – Fig 8 shows that EPS continued its rise thereafter, and the share price smartly recovered, only to fall again in this current situation. Certainly the fall in share price is very steep compared to EPS, so the share is today underpriced.
BGR Energy, JainMatrix Investments

Fig 7 – Price and PE trends

  • The EPS of BGR is on a growth path, and is expected to stay in the defined Trend line range.
BGR Energy, JainMatrix Investments

Fig 8 – Price and EPS trend

Risks:

  • Industry: 3-4 years ago the Electricity sector was the darling of Entrepreneurs and Investors. The yawning gap between demand and supply gave a demand assurance. Investors believed that they will be able to sell power at Merchant rates, and planned for large generation addition. Government too encouraged this with the Electricity Act, 2003 that threw open the sector to Private investors.
  1. Today systemic flaws are appearing in the sector. There is financial stress among Utilities, particularly State Electricity Boards that are facing Tariff inflexibility and Collection issues.
  2. Power Plants in India are facing an issue with fuel linkages and a shortage of Coal/ Natural Gas. This has affected the investment climate in this sector. The projects under execution by BGR may also be affected, and execution/commissioning may be delayed. See Notes on Petronet LNG and Bharat Forge.
  3. Project execution delays due to government clearances like environmental, land acquisition, etc.
  • Interest rates increases in the Indian economy are certainly impacting the balance Sheet of BGR
  • BGR: BGR is certainly facing a shortfall in Order Bookings due to this environment.  However, as seen in Fig 5 this is reversing, and we expect recovery in the next 6-12 months.
  • Vertical focus Risk, as revenues are essentially from the Power Gen. vertical. However, this is being addressed by BGR extending its EPC, manufacturing and technology strengths to other verticals.
  • BGR share has fallen by 67% from 843 in Sept 2010 to today’s 270. This is massive value destruction. It is partly because BGR has also been in the news for all the wrong reasons in the last 12 months:
  1. In Nov10, BGR was in the news for a Finance bribery scam. The company clarified that it has no dealings with LICHF and Money Matters, and cooperated with the authorities.
  2. In Oct 2011, BGR received a notice from the Central Excise Department, for tax evasion of Rs 107 crore. The company is confident that it has not evaded taxes, and will clear these charges.

Opinion, Outlook and Recommendation

  • India has a surging growth in electricity demand, and there is a 9-13% power deficit today. This will widen in the next few years.
  • As a leading EPC company, BGR’s fortunes are closely linked to the improvements in the regulatory environment and overall industrial climate of the Indian power sector. In a stable environment, BGR should perform excellently based on current skill sets and manufacturing and execution capacities.
  • The core undeniable strengths of BGR will take around 2 quarters to emerge in the form of business metrics like Orders booked, billings, profitability and EPS, as the government addresses industry systemic issues.  BGR also needs to repair the Balance Sheet and manage the debt levels. A good sign is that Merchant power rates are now on the upswing in India.
  • FY2011 was an excellent year, and BGR will not be able to show any significant improvements in FY12. However the demand gap will catch up, and FY13 will be a good year for BGR.
  • BGR is a High Risk, High Gain stock. Share may even fall from current levels. Investors with a risk appetite and a 2-3 year time horizon can accumulate BGR at 220-270 levels over next 6 months.
  • The 24-month projection (Sept 2013), for BGR is Rs 800, a 310% appreciation from CMP.
  • Socialize with us  Like on Facebook
  • Check back on the website www.jainmatrix.com for updates.
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