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For 3QFY2011, Bajaj Electricals (BEL) posted top-line growth of 16.4% at `690cr
(`592cr), which was above our estimate of `666cr. OPM at 10.3% (10.3%) came
below our estimate of 11.8%. Net profit increased by 18.7% yoy to `40.5cr
(`34.1cr) and came in below our estimate, owing to suppressed OPM and higher
interest costs. During the quarter, interest cost rose to `9.3cr. For FY2011 and
FY2012, on account higher sales, we have revised upwards our top-line estimates
from `2,686cr and `3,241cr to `2,733cr to `3,285cr and margin estimates lower
from 10.2% and 10.6% to 10.0% and 10.4%, respectively. We also roll over to
FY2013 numbers. We recommend an Accumulate on the stock.
Top-line remains robust on impressive consumer durables performance: Sales for
the quarter were again driven by a strong 33.9% yoy growth in the Consumer
Durables business. Lighting division also performed well with 17.1% yoy growth,
while the E&P business sales came in flat. OPM was below expectations at 10.3%,
as the E&P division recorded a 249bp yoy decline in margins to 9.4% (11.9%),
although it was a remarkable improvement from 3.1% that it posted in
2QFY2011. Going ahead, margins are expected to hover at these levels.
Outlook and Valuation: We remain positive on the company primarily owing to
the strong growth in the consumer durables business. We expect sales to post a
CAGR of 20.9% over FY2010-13 to `3,935cr. However, we have revised
downwards our OPM estimates for FY2011 and FY2012 to 10.0% and 10.4%
respectively, while we estimate OPM of 10.4% for FY2013. We expect PAT to
register CAGR of 27.0% to `245cr over FY2010-13. At current levels, the stock is
trading at 10.8x FY2012E and 8.9x FY2013E EPS. We recommend an
Accumulate on the stock, with a Target Price of `248.
Sales growth at 16.4%
BEL has been consistently performing well on the sales front over the past few
quarters. In comparison however, growth in 3QFY2011 was subdued mainly
because of flat sales in the E&P division. Going ahead however, we expect sales of
this segment to pick up.
OPM improves from lows of 2QFY2011
OPM during 3QFY2011 improved sequentially to 10.3% as compared to 7.6% in
2QFY2011. However, OPM was flat on yoy basis. The main driver for OPM
improvement was the margins of the E&P division, which increased from 3.1% in
the last quarter to 9.4% in 3QFY2011.
PAT growth remains at a healthy 18.7%
PAT grew by 18.7% yoy to `40.5cr. Sequentially, PAT grew by a remarkable 73.1%
mainly on account of the 270bp improvement in OPM.
Management con-call - Key takeaways
The E&P business order book currently stands at `1,050cr. Of this, the lighting
projects business is `121cr, rural electrification `320cr, high mast and street
light `120cr and the transmission line towers ~`515cr.
The company is focusing on product innovations and network rollout to
maintain high growth trajectory in the consumer durables business.
Recently, BEL received 12 orders worth `75cr in packages and is well placed
in tenders worth `350cr. The company is expecting substantial order inflow in
February or March 2011.
Tax rate for the quarter was relatively low as some earlier income tax related
matters were settled in the company’s favour. Going ahead, the company is
expected to remain in the highest income tax bracket.
Over the last nine months, the company hiked prices by ~5.0% across its
product portfolio.
The response to Bajaj pressure cookers has been good in the eastern part of
the country and the company plans to launch the product across the rest of the
country as well.
Investment Arguments
Leveraging on strong brands and substantial market share: BEL has strong brand
positioning and well-spread distribution network. As per the company's internal
estimates, it is the fastest growing player in the Domestic Appliances market, which
is growing at 20% pa. In the Small Appliances market, BEL enjoys a market share
of over 15-30% across products.
Focus on high-margin E&P Division: Post a shift in Revenue mix, BEL has been
focusing on the high-Margin E&P Division. The E&P Division enjoys high Margins
of 12-13% compared to overall margins of 8%. In FY2005, E&P contributed 14.8%
(`99.5cr) of BEL's Gross Sales, which grew to 33.6% (`756cr) in FY2010. We
expect EBDITA Margins to sustain at current levels with a positive bias.
Future growth drivers - Rural markets, acquisitions, newer verticals: BEL plans to
capitalize on the growth in the rural markets. BEL has also identified 7-8 potential
acquisition candidates across businesses. Management expects about 15% of Sales
in future to come from acquired businesses. The company also plans to foray into
newer verticals like water management, which is an underpenetrated and rapidly
growing market.
Outlook and Valuation
We maintain our positive stance on the company given the strong growth in the
consumer durables segment and the improving prospects of the E&P division. We
are rolling over to FY2013 numbers. We expect sales to post a CAGR of 20.9%
over FY2010-13 to `3,935cr. However, we have revised downwards our OPM
estimates for FY2011 and FY2012 to 10.0% and 10.4% respectively, while we
estimate OPM of 10.4% for FY2013. We expect PAT to register CAGR of 27.0% to
`245cr over FY2010-13. At current levels, the stock is trading at 10.8x FY2012E
and 8.9x FY2013E EPS. We recommend an Accumulate on the stock, with a Target
Price of `248.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj Electricals – 3QFY2011 Result Update
Angel Broking recommends an Accumulate on Bajaj Electricals with a Target Price of Rs. 248.
For 3QFY2011, Bajaj Electricals (BEL) posted top-line growth of 16.4% at `690cr
(`592cr), which was above our estimate of `666cr. OPM at 10.3% (10.3%) came
below our estimate of 11.8%. Net profit increased by 18.7% yoy to `40.5cr
(`34.1cr) and came in below our estimate, owing to suppressed OPM and higher
interest costs. During the quarter, interest cost rose to `9.3cr. For FY2011 and
FY2012, on account higher sales, we have revised upwards our top-line estimates
from `2,686cr and `3,241cr to `2,733cr to `3,285cr and margin estimates lower
from 10.2% and 10.6% to 10.0% and 10.4%, respectively. We also roll over to
FY2013 numbers. We recommend an Accumulate on the stock.
Top-line remains robust on impressive consumer durables performance: Sales for
the quarter were again driven by a strong 33.9% yoy growth in the Consumer
Durables business. Lighting division also performed well with 17.1% yoy growth,
while the E&P business sales came in flat. OPM was below expectations at 10.3%,
as the E&P division recorded a 249bp yoy decline in margins to 9.4% (11.9%),
although it was a remarkable improvement from 3.1% that it posted in
2QFY2011. Going ahead, margins are expected to hover at these levels.
the strong growth in the consumer durables business. We expect sales to post a
CAGR of 20.9% over FY2010-13 to `3,935cr. However, we have revised
downwards our OPM estimates for FY2011 and FY2012 to 10.0% and 10.4%
respectively, while we estimate OPM of 10.4% for FY2013. We expect PAT to
register CAGR of 27.0% to `245cr over FY2010-13. At current levels, the stock is
trading at 10.8x FY2012E and 8.9x FY2013E EPS. We recommend an
Accumulate on the stock, with a Target Price of `248.
Segment-wise performance
The lighting segment reported a growth of 17.1% yoy to `168cr (`144cr). EBIT
margins for the quarter improved by 32bp to 4.4% (4.0%).
The consumer durables segment continued to perform well recording 33.9% yoy
growth in top-line to `332cr (`248cr). The segment is witnessing robust demand in
both the appliances as well as fans business units (BUs). The company continues to
focus on network expansion, marketing and product innovation to drive its growth
in this segment. The segment reported strong EBIT margins at 13.0% (12.4%),
increasing by 58bp.
The E&P division, though, reported flat sales of `189cr (`189cr). Margins for this
segment fell 249bps to 9.4% (11.9%). Going ahead, this division is expected to
perform better, as orders for its Transmission Line Towers (TLT) business start
coming in.
Sales growth at 16.4%
BEL has been consistently performing well on the sales front over the past few
quarters. In comparison however, growth in 3QFY2011 was subdued mainly
because of flat sales in the E&P division. Going ahead however, we expect sales of
this segment to pick up.
OPM improves from lows of 2QFY2011
OPM during 3QFY2011 improved sequentially to 10.3% as compared to 7.6% in
2QFY2011. However, OPM was flat on yoy basis. The main driver for OPM
improvement was the margins of the E&P division, which increased from 3.1% in
the last quarter to 9.4% in 3QFY2011.
PAT growth remains at a healthy 18.7%
PAT grew by 18.7% yoy to `40.5cr. Sequentially, PAT grew by a remarkable 73.1%
mainly on account of the 270bp improvement in OPM.
Management con-call - Key takeaways
The E&P business order book currently stands at `1,050cr. Of this, the lighting
projects business is `121cr, rural electrification `320cr, high mast and street
light `120cr and the transmission line towers ~`515cr.
The company is focusing on product innovations and network rollout to
maintain high growth trajectory in the consumer durables business.
Recently, BEL received 12 orders worth `75cr in packages and is well placed
in tenders worth `350cr. The company is expecting substantial order inflow in
February or March 2011.
Tax rate for the quarter was relatively low as some earlier income tax related
matters were settled in the company’s favour. Going ahead, the company is
expected to remain in the highest income tax bracket.
Over the last nine months, the company hiked prices by ~5.0% across its
product portfolio.
The response to Bajaj pressure cookers has been good in the eastern part of
the country and the company plans to launch the product across the rest of the
country as well.
Investment Arguments
Leveraging on strong brands and substantial market share: BEL has strong brand
positioning and well-spread distribution network. As per the company's internal
estimates, it is the fastest growing player in the Domestic Appliances market, which
is growing at 20% pa. In the Small Appliances market, BEL enjoys a market share
of over 15-30% across products.
Focus on high-margin E&P Division: Post a shift in Revenue mix, BEL has been
focusing on the high-Margin E&P Division. The E&P Division enjoys high Margins
of 12-13% compared to overall margins of 8%. In FY2005, E&P contributed 14.8%
(`99.5cr) of BEL's Gross Sales, which grew to 33.6% (`756cr) in FY2010. We
expect EBDITA Margins to sustain at current levels with a positive bias.
Future growth drivers - Rural markets, acquisitions, newer verticals: BEL plans to
capitalize on the growth in the rural markets. BEL has also identified 7-8 potential
acquisition candidates across businesses. Management expects about 15% of Sales
in future to come from acquired businesses. The company also plans to foray into
newer verticals like water management, which is an underpenetrated and rapidly
growing market.
Outlook and Valuation
We maintain our positive stance on the company given the strong growth in the
consumer durables segment and the improving prospects of the E&P division. We
are rolling over to FY2013 numbers. We expect sales to post a CAGR of 20.9%
over FY2010-13 to `3,935cr. However, we have revised downwards our OPM
estimates for FY2011 and FY2012 to 10.0% and 10.4% respectively, while we
estimate OPM of 10.4% for FY2013. We expect PAT to register CAGR of 27.0% to
`245cr over FY2010-13. At current levels, the stock is trading at 10.8x FY2012E
and 8.9x FY2013E EPS. We recommend an Accumulate on the stock, with a Target
Price of `248.
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