Burnpur Cement V/S BGR Energy - The RICH One?

How Burnpur Cem made investors RICH than BGR Energy?

It was a splendid day for BGR Energy and Burnpur Cement; both have outperformed analysts’ expectations by getting bumper listing. Burnpur Cement, one of the established cement manufacturers of Eastern India, has garnered nearly Rs 27 crore whereas BGR Energy, a supplier of systems and equipment for the power, oil & gas, refinery, petrochemical and process industries, mopped up more than Rs 438 crore from the primary markets.

BGR Energy got subscribed 120 times, which was significantly higher as compared to other issues. The reason is that the company is in engineering sector where it supplies equipment for power, refinery sectors. The sector is hot favourite among the investors. However, Burnpur Cement was subscribed just 14.79 times.

Burnpur Cement closed the day at Rs 49.70, with a gain of 314.17% over its offer price of Rs 12 per share and BGR Energy Systems at Rs 902, up 87.92% over its offer price of Rs 480 per share on the NSE.

Such a fantastic listing heightened the market cap of the companies, but does this sharp upmove in stocks make retail investors happy? Lets check with an hypothetical example.

It is a theoretical example. If a person has invested Rs 1,00,000 in the BGR Energy, he would have applied for 208.33 shares. But because of huge oversubscription of 46.92 in the retail segment, the person would get only 4.44 shares in allotment. So the profit for the day one was around Rs 422 per share (Difference between close price and issue price), so in total the investor makes a profit of Rs 1,873.68 (Rs 422 * 4.44 shares).

In case of Burnpur Cement, if a person invested Rs 1,00,000 he would have applied for 8333.33 shares, he would get 537.29 shares in allotment as the retail’s portion was subscribed by 15.51 times only. The profit from this is Rs 37.7 per share, so total profit comes to Rs 20,255.74 (Rs 37.7 * 537.29 shares) on an investment of Rs 1,00,000.

After this comparison, a retail investor, who had invested Rs 1 lakh, earned more money in Burnpur Cement than BGR Energy. It means a person received more than 10 times profit in Burnpur Cement as compared to profit made in BGR Energy on the listing day.

Note: This is just a theoretical example. It is assumed that the number of shares applied or alloted are in fractions and not the minimum quantity as fixed by the company. So actually, there might be some difference in quantity of shares alloted to individuals. This is just to bring out the fact that though it may appear that a retail investor in BGR Energy would have made a windfall has actually performed worse than an investor who applied for Burnpur Cement.

Source: Moneycontrol.com

Bumper listing expected for BGR Energy

BGR Energy Systems, a supplier of systems and equipment for the power, oil & gas, refinery, petrochemical and process industries, is expected to see fantastic listing on January 3, 2008. Grey market premium is around Rs 340-350 while analysts expect the stock may list above Rs 850 and advised to book profits.

"BGR Energy is likely to list around Rs 650-700. Above Rs 750, one can book profits", R S Iyer of KR Choksey Securities said.

According to Investment Advisor, S P Tulsian, "BGR Energy is likely to get listed at Rs 900 as against the IPO price of Rs 480. Profit booking is advised in the stock at around the listing price."

Manish Bhatt of Prabhudas Lilladher advised to hold the stock for medium to long term. It is an attractive bet.

The company had entered capital market with a public issue of 91.36 lakh equity shares of Rs 10 each. The price band was at Rs 425 to Rs 480 per equity share. The issue was subscribed 119.54 times, according to data available on NSE website.

The company proposed to utilize the net proceeds of the issue to augment long term working capital requirements, expand production capacity by establishing additional manufacturing facilities in India, China and the Middle East and fund expenditure for general corporate purposes.

SBI Capital Markets Ltd, Kotak Mahindra Capital Company Ltd, UBS Securities India Private Ltd and CLSA India Ltd are the book running lead managers for the Issue.

Source: Moneycontrol.com

BGR Energy will subscribe easily despite being expensive

CNBC-TV18’s stocks editor, Udayan Mukherjee - BGR Energy is expensive but good and that’s different from saying good but expensive. My sense is that it will go pretty easily because everything in power is so richly valued now and if this whole generation story is going to play out as the market expects it to then companies like BGR will have to benefit. Because what they do is they make capital equipment for power projects. So if one is betting on the sector adding huge amount of mega watts in the next three-four years and ultra mega power projects coming in then they will have to source some of these items from companies like BGR Energy. If one is bullish on utilities and energy or generation then one has to be bullish per se on capital equipment tool for power plants.

I think they are also trying to inch their exports up in the Middle Eastern markets, which is another additional positive. Valuations of course are quite expensive like anything in that space 40-50 PE multiple. But that has not stopped people from buying into this space at all. So I don’t think BGR will be stopped.

It’s got a good German collaboration, which the market will like as well. That’s one point and for a company, which will do Rs 1,000-1,200 crore in terms of revenues this year, FY08, it has got an order book of Rs 3,300 crore. So at least next two-three years we have got clean visibility, the order book is nearly three times annual sales.

So next two years one need not to worry about revenue growth or profit growth at all, margins also seem to be respectable. So I suspect it will get done despite being expensive. Right space and just nicely positioned for to play out the big power generation story.

Source: Moneycontrol.com

BGR Energy is expensive: Tulsian

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