Buy BHEL, L&T, ABB, Tata Power than BGR Energy: Tulsian
Investment Advisor SP Tulsian feels that BGR Energy’s valuation is very expensive.
“If I compare with its peers - their business model, their working capital requirement and their future plans of capital equipment, I am not justified with this kind of valuation,” he said. Instead, one may go for ABB, BHEL, L&T, Tata Power or REL, he added.
Excerpts of CNBC-TV18’s exclusive interview with SP Tulsian:
Q: Do you like the story of BGR Energy?
A: Very expensive. If one sees the performance of the IPO that has probably tempted the book runners and the issuers to go for very expensive valuations, BGR perfectly falls in that category.
If one sees the performance of the company for 18 months that’s FY07 ended 31st March 2007, they had a turnover of about Rs 800 crore which has given them a net profit margin of 5%. Since they are now into the BOP (balance of plant) business and now want to go into the EPC business, they will be requiring huge money; Rs 350 crore, which they intend to raise by making fresh issue. I am not talking the Rs 300 crore as an offer for sale; the total issue size by way of private placement and public issue is about Rs 650 crore. So out of Rs 350 crore, Rs 300 is been allocated for the working capital requirement and that is the reason that for the first three months, they had turnover of about Rs 250 crore.
Obviously one can improve topline, which will ultimately be reflected into increase in the bottomline also. But one needs huge working capital and that is a reason that their debtors have sharply gone up to about Rs 420 crore as on 30th June 2007, in which the have just posted a turnover of close to Rs 245-250 crore - that’s means the debtor cycle is about five months which is quite long. So once that happens, it will be difficult for the company to ramp-up the turnover or the business in FY09, and probably there could be stagnation.
The present turnover of Rs 250 crore - even if I take that, FY08 can give them a turnover of Rs 1,400 crore. The share is issued at a PE multiple of Rs 31-32 and one gets BHEL, L&T, ABB based on FY08 performance at about Rs 35-40. If they are not into the manufacturing, they are not making the critical parts of any power plant like turbine, generator, boiler, they are more into the BOP; then why would anybody be going with them?
They may probably be able to concentrate on the lower projects of about 100-150 mw, which all along they have been executing and now they target for 500 mw.
But I do not think that whole issue justifies this kind of valuation; Rs 300 crore is the dilution by the promoter - why should they make the dilution? They could have retained the holding of 85% or maybe 90%, which is about 81%. So considering from all the angles, if I take any parameter comparison with the peers, their business model, their working capital requirement, and their future plans of capital equipment; I am not justified with this kind of valuation. One may probably go for ABB or maybe BHEL, L&T and there are so many other and even the EPC players like Tata Power, Reliance Energy etc. So by all parameters, the issue definitely looks quite stretched.
Source: Moneycontrol.com
Wednesday, December 5, 2007
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment