Why BGR Energy Share Price is Falling

Power consumption in India has experienced robust growth since April 2023, fuelled by a resurgence in economic activities, particularly driven by strong industrial demand.

Following the disruption caused by the Covid-19 pandemic, economic activities bounced back strongly, leading to robust usage of power.

Additionally, the cold wave led to heightened use of heating appliances like heaters, blowers, and geysers, and the low rainfall due to El Nino conditions forced increased use of pumps for irrigation, further driving up the power demand.

According to the latest government data, power consumption in the country rose to 1,354.9 billion units (BU) during the April-January period of this fiscal year, marking a 7.5% increase from 1259.5 BU recorded during the same period in financial year 2022-23.

The strong surge in power consumption has driven the stock prices of companies within the energy sector to soar.

Energy stocks were trading with gains, with the S&P BSE Energy index having gained 5% in the past month.

Amid this positive sentiment, shares of BGR Energy have plummeted 43%.

Here's what drove the stock down.

#1 Promoters Stake sell

The recent decline in the company's stock can be attributed to ongoing promoter sell-offs. In the case of BGR Energy Systems, Promoter Sasikala Raghupathy has been persistently selling her stake.

In the latest session, she sold 1.7 million shares at an average price of Rs 55.8, representing a divestment of a 2.5% equity stake.

On 27 February, she sold a significant 7% stake, amounting to 5.1 m shares at an average price of Rs 64.9.

On February 26, she divested 1.8 m at an average price of Rs 79.7, equivalent to a 2.5% stake through open market transactions.

As of December 2023, Sasikala Raghupathy's stake stood at 23.9% in the company.

The continuous selling pressure, especially following the recent bulk deal in the stock contributed to the decline in the stock value.

#2 Independent Directors Resignation

On Tuesday, after market hours, the company, through an exchange filing, said that its four directors-M. Gopalakrishna, S.A. Bohra, Gnana Rajasekaran, and S.R. Tagat-had tendered their resignations, citing personal reasons.

This development has resulted in a decline in the share price, raising concerns regarding corporate governance.

Independent directors play a pivotal role in overseeing and ensuring ethical practices within the company, and their departure may prompt investors and stakeholders to scrutinize internal management and governance practices.

Additionally, independent directors often serve on various board committees, such as audit and remuneration committees.

Their resignation may disrupt the functioning of these committees, creating uncertainties about the company's ability to address crucial matters effectively.

Furthermore, sudden or unexplained resignations may attract legal and regulatory scrutiny. Investors may become concerned about potential legal or compliance issues within the company, further contributing to a sell-off of shares.

#3 Poor Q3 Results

For the December 2023 quarter, the company's revenue came in higher by 82% YoY, reaching Rs 4.7 billion (bn) compared to Rs 2.6 bn a year earlier.

However, BGR Energy Systems experienced a widened loss amounting to Rs 6.9 bn in the same quarter, primarily attributed to increased expenses.

The consolidated net loss for the quarter ending on 31 December 2022 stood at Rs 592.2 m. Total expenses escalated to Rs 10.3 bn from Rs 3.3 bn in the corresponding period of the previous year, adding to concerns.

Despite these challenges, a silver lining for the company was the decline in selling, general & administrative (SG&A) expenses.

This reduction in expenses presents a positive aspect that could potentially contribute to an enhancement in the company's financial performance in the future.

What Next?

Going forward, the company plans to focus on its core competencies in engineering, procurement, and construction (EPC) services for power plants.

Their current projects involve building electrical systems for nuclear power plants and installing fibre optic cables for power transmission lines, showcasing their expertise in traditional energy infrastructure.

Overall, while BGR's plans regarding the energy transition are not entirely clear, their current projects and the broader market trends suggest that they might be well-positioned to adapt and potentially contribute to the future of clean energy in India.

As the energy landscape evolves, BGR may choose to diversify into renewable energy technologies.

How BGR Energy Shares have Performed Recently

In last five days, shares of the company have been trading 44% lower.

On a year-to-date basis, BGR Energy has lost 45% while in the past month, shares are down 43%.

The company touched its 52-week high of Rs 119.5 on 20 February 2024 and its 52-week low of Rs 44.3 on 28 March 2023.

About BGR Energy

BGR Energy Systems is a manufacturer of capital equipment for power plants, petrochemical industries, refineries and process industries.

It undertakes a turnkey balance of plant (BOP) and engineering procurement and construction (EPC) contracts for power plants.

Its segments include the capital goods segment and construction and EPC contracts segment.

It operates through five business divisions: power projects, electrical projects, oil and gas equipment, environmental engineering and air fin coolers. Power projects offer turnkey solutions for power plants.

The electrical projects division provides a portfolio of services in electrical contracting and customized solutions to electrical utilities.

The oil and gas equipment division offers process equipment packages and systems, pipeline equipment, such as pig launchers/receivers, compressor packaging and storage tanks.

For more details, see the BGR Energy company fact sheet and quarterly results.

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