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BGR Energy Systems – Review and Recommendation

December 10, 2007

BGR Energy Systems carries out business in two segments— Supply of systems and equipment and turnkey engineering project contracting. In the systems and equipment business, the company designs, manufactures, sells and services range of systems and equipment for power, oil and gas, refinery, petrochemical and process industries. In the turnkey engineering project contracting business, the company carries out engineering, manufacturing, procurement, construction and commissioning of projects in power and oil and gas sector.

Key business areas:
Power plant business
BGR boasts its self to be one of the first companies to develop the BOP concept in India. The company manufactures approximately 40-50% of the materials included in BOP, inhouse, while the rest of the materials are sourced from outside. After successfully executing a number of BOP contracts, the company has started taking up EPC contracts now. Till date the power plant division has completed three projects and is currently executing four other.

Captive power business
This segment provides services to standalone power plants and public utility projects in India. The division executes projects ranging from 25-150 megawatt (MW) and is currently working on two projects.

Oil and gas equipment business
The oil and gas equipment business provides range of services mainly those needed to transport oil or gas between wellhead and end users. Manufacturing activities for this business are carried out by the subsidiary Progen. Customers include industries focused on oil and gas fields, cross country pipelines, refineries, petrochemicals and power plants.

Air Fin Cooler business
The Air Fin Cooler business designs, manufactures and markets air-cooled heat exchangers, air-cooled radiators and finned tubes used in oil and gas, power, process and petrochemical industries. The manufacturing facility is located in Panjetty near Chennai.

Strong Order Book
As on September 30, 2007 the company has a strong order book of Rs3,321.2 crore with majority of orders coming for the power project business.

Present IPO & Valuations
Retail portion : 25.9 lakh shares
Price band : Rs 425-480
Annualising the reported figures of the quarter ending June 2007, the stock trades at 44x-50x its annualized fully diluted earnings per share (EPS) of Rs9.6. The stock does leave upside for SHORT TERM RETAIL Investors. We recommend a subscribe. There are rumors that Anil Ambani may take a stake in the company. So if you are alloted you may want to hold for long term as well.

The IPO will be heavily oversubscribed. Allotment will be definitely on lottery even for Rs 100,000 application. Grey Market Premium for BGR Energy is already Rs 300.

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