Bajaj Electricals – 2QFY2011 Result Update :Neutral : Angel Broking

Visit http://indiaer.blogspot.com/ for complete details �� ��


Bajaj Electricals posted top-line of `588cr, which was in line with our estimates.
However, there was disappointment on the margins front, with OPM falling to
7.6% compared to 10.7% in 2QFY2010 and our expectation of 9.5%. The main
reason for the fall in OPM was subdued margins in the engineering and projects
(E&P) division. Interest costs rose to `7.6cr for the quarter. Net profit for the
quarter declined 19.8% yoy to `23.4cr (`29.2cr) on the back of lower margins
and higher interest costs. We remain Neutral on the stock.

OPM remains subdued on lower E&P margins: Sales for the quarter increased
mainly on the back of a strong 32.1% growth in the consumer durables business.
However, margins fell to 7.6% vis-à-vis 10.7% in 2QFY2010. This was mainly on
account of low EBIT margin of 3.1% in the E&P division. The main reason for the
decline in E&P division margin was that most of the projects were at the execution
and completion stage, when the project margins are the lowest. However, going
ahead, margins are set to improve with the execution portion expected to decline.

Outlook and Valuation: We are positive on the company’s business prospects,
owing to the healthy order book of `1,150cr in the E&P division and strong
growth in consumer durables. We expect sales to post a CAGR of 20.6% over
FY2010-12 to `3,241cr. As a result of the fall in margins in 2QFY2011, we have
revised downwards our margin estimates for FY2011 and FY2012 to 10.2% and
10.6% from 10.6% and 10.7%, respectively. We expect PAT to log a CAGR of
36.1% to `207cr over FY2010-12. At the CMP, the stock is trading at 17.7x and
13.9x FY2011E and FY2012E EPS. We maintain our Neutral view on the stock.