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Stable revenue growth; margins flat
Bajaj Electricals (BJE) reported decent Q3FY11 results. Revenues grew 16.4% Yo-
Y to INR 6.9 bn led by continued strong growth in the consumer durables
division. While lighting and consumer durables divisions grew 12.6% and 30.8%,
Y-o-Y, respectively, engineering & project (E&P) division reported flattish growth
at 0.1%. This was due to continued slow execution in the E&P business. EBITDA
grew 16.5% to INR 709 mn as the company reported flat margin at 10.3%. This
helped BJE post a PAT growth of 18.7% to INR 405 mn. For 9mFY11, while
revenue recorded a strong growth of 19.8% Y-o-Y to INR 17.6 bn, PAT grew
slower at 8.3% Y-o-Y to INR 863 mn.
Strong visibility; order backlog at INR 10.8 bn
The company’s order backlog stood at INR 10.8 bn (1.5x FY10 revenues from
E&P division). The transmission tower comprised 48% while rural electrification
made up 30% of the order book; special projects and lighting contracts
(including high mast) each made up 11% of the order book. Execution period
stands at 18-24 months and 8-24 months, for transmission projects and special
projects, respectively. High mast and lighting contracts have execution cycle of
around two months. The average blended execution cycle of the total order book
stands at 15 months. Order pipeline continues to be strong, given the vast
spending expected by Power Grid Corporation of India and several street
lighting/ illumination contracts expected to come up over the next few quarters.
Outlook and valuations: Positive; maintain ‘BUY’
BJE has come back strongly after disappointing numbers in the E&P business
during Q2FY11. Consumer-facing businesses are expected to continue to grow
strongly with new product launches in the same segment as well as entry into
new segments. With its ability to pass on increased raw material prices, we
believe margins in consumer-facing businesses will be protected.
At our EPS of INR 15.2 and INR 19.4, the stock is currently trading at P/E of
14.5x and 11.3x FY11E and FY12E, respectively. We maintain ‘BUY’
recommendation on the stock and rate it ‘Sector Outperformer’ on relative
return basis.
Decent segmental performance; consumer durables continues to shine
The revenue growth of 16.4% was led by the consumer durable segment which grew
30.8% Y-o-Y to INR 3,319 mn. While the lighting division recorded moderate revenue
growth of 12.6% Y-o-Y to INR 1,685 mn, the E&P business recorded flat sales growth to
INR 1,888 mn. The quarter’s key highlight is improved margin in the E&P business
sequentially as indicated by management. While E&P margin dipped 250bps Y-o-Y,
sequentially it improved 637bps to 9.4%. Management has indicated that margin in the
E&P will normalise by Q4FY11. Consumer durable and lighting segments recorded a
85bps and 47bps increase in margins to 13.0% and 4.4%, respectively. For 9mFY11,
while consumer durable and lighting segments recorded revenue growth of 24.9% and
18.5%, respectively the E&P segment recorded a flat growth of 1.9%.
Company Description
Incorporated as Radio Lamp Works in July 1938, the company changed its name to Bajaj
Electricals in October 1960. The 71-year old Bajaj Group company operates through five
strategic business units—home appliances, fans, lighting, luminaries, and engineering &
projects.
The company has two manufacturing facilities, one at Chakan for fans, and another at
Ranjangaon for galvanised material. The company sources the manufacture of CFL bulbs
through its associate company where BJE has acquired equity interest. It outsources all
other home appliances products like steam irons and toasters through its dedicated
manufacturers located across the country.
Investment Theme
With its consumer facing business growing steadily, the company is now focused more
on growing its E&P division. With a strong order backlog in the E&P division, we expect
BJE to continue on the high growth trajectory, with revenue CAGR of 31% over FY09-12E.
BJE is the largest small appliances company in India and the leader in the small domestic
appliances market. By virtue of tie ups with global majors like Morphy Richards (UK) and
Nardi (Italy), the company competes with premium players like Philips and Kenstar, and
has been able to create a niche in the premium segment. Its products like mixers, irons,
OTG, water heaters and room coolers are leading products in their respective products
ranges.
The company’s distribution reach is far wider than its competitors, and is efficiently
managed in terms of logistics and supply chain. BJE outsources most of its
manufacturing. It has long-term relations with its vendors, dating back several decades,
and has exclusive arrangements with 70% vendors. With such a set up in place, the
company is able to focus on its core competencies, i.e., marketing and distribution.
Key Risks
The market in which BJE primarily operates consists of large unorganised players with a
number of small and medium sized players. Over dependence on vendors or vendor buy
out by competition is a key risk. Further, intense competition in the consumer durable
segment can squeeze margins.
Increase in prices of key raw materials such as steel and zinc can hamper margins of the
E&P division. Greater contribution of E&P business is likely to increase the debt levels in
the form of higher working capital that this business demands. Excess competition can
put pressure on margin. This could go against the company’s forecasts of margin
improvement.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Stable revenue growth; margins flat
Bajaj Electricals (BJE) reported decent Q3FY11 results. Revenues grew 16.4% Yo-
Y to INR 6.9 bn led by continued strong growth in the consumer durables
division. While lighting and consumer durables divisions grew 12.6% and 30.8%,
Y-o-Y, respectively, engineering & project (E&P) division reported flattish growth
at 0.1%. This was due to continued slow execution in the E&P business. EBITDA
grew 16.5% to INR 709 mn as the company reported flat margin at 10.3%. This
helped BJE post a PAT growth of 18.7% to INR 405 mn. For 9mFY11, while
revenue recorded a strong growth of 19.8% Y-o-Y to INR 17.6 bn, PAT grew
slower at 8.3% Y-o-Y to INR 863 mn.
Strong visibility; order backlog at INR 10.8 bn
The company’s order backlog stood at INR 10.8 bn (1.5x FY10 revenues from
E&P division). The transmission tower comprised 48% while rural electrification
made up 30% of the order book; special projects and lighting contracts
(including high mast) each made up 11% of the order book. Execution period
stands at 18-24 months and 8-24 months, for transmission projects and special
projects, respectively. High mast and lighting contracts have execution cycle of
around two months. The average blended execution cycle of the total order book
stands at 15 months. Order pipeline continues to be strong, given the vast
spending expected by Power Grid Corporation of India and several street
lighting/ illumination contracts expected to come up over the next few quarters.
Outlook and valuations: Positive; maintain ‘BUY’
BJE has come back strongly after disappointing numbers in the E&P business
during Q2FY11. Consumer-facing businesses are expected to continue to grow
strongly with new product launches in the same segment as well as entry into
new segments. With its ability to pass on increased raw material prices, we
believe margins in consumer-facing businesses will be protected.
At our EPS of INR 15.2 and INR 19.4, the stock is currently trading at P/E of
14.5x and 11.3x FY11E and FY12E, respectively. We maintain ‘BUY’
recommendation on the stock and rate it ‘Sector Outperformer’ on relative
return basis.
Decent segmental performance; consumer durables continues to shine
The revenue growth of 16.4% was led by the consumer durable segment which grew
30.8% Y-o-Y to INR 3,319 mn. While the lighting division recorded moderate revenue
growth of 12.6% Y-o-Y to INR 1,685 mn, the E&P business recorded flat sales growth to
INR 1,888 mn. The quarter’s key highlight is improved margin in the E&P business
sequentially as indicated by management. While E&P margin dipped 250bps Y-o-Y,
sequentially it improved 637bps to 9.4%. Management has indicated that margin in the
E&P will normalise by Q4FY11. Consumer durable and lighting segments recorded a
85bps and 47bps increase in margins to 13.0% and 4.4%, respectively. For 9mFY11,
while consumer durable and lighting segments recorded revenue growth of 24.9% and
18.5%, respectively the E&P segment recorded a flat growth of 1.9%.
Company Description
Incorporated as Radio Lamp Works in July 1938, the company changed its name to Bajaj
Electricals in October 1960. The 71-year old Bajaj Group company operates through five
strategic business units—home appliances, fans, lighting, luminaries, and engineering &
projects.
The company has two manufacturing facilities, one at Chakan for fans, and another at
Ranjangaon for galvanised material. The company sources the manufacture of CFL bulbs
through its associate company where BJE has acquired equity interest. It outsources all
other home appliances products like steam irons and toasters through its dedicated
manufacturers located across the country.
Investment Theme
With its consumer facing business growing steadily, the company is now focused more
on growing its E&P division. With a strong order backlog in the E&P division, we expect
BJE to continue on the high growth trajectory, with revenue CAGR of 31% over FY09-12E.
BJE is the largest small appliances company in India and the leader in the small domestic
appliances market. By virtue of tie ups with global majors like Morphy Richards (UK) and
Nardi (Italy), the company competes with premium players like Philips and Kenstar, and
has been able to create a niche in the premium segment. Its products like mixers, irons,
OTG, water heaters and room coolers are leading products in their respective products
ranges.
The company’s distribution reach is far wider than its competitors, and is efficiently
managed in terms of logistics and supply chain. BJE outsources most of its
manufacturing. It has long-term relations with its vendors, dating back several decades,
and has exclusive arrangements with 70% vendors. With such a set up in place, the
company is able to focus on its core competencies, i.e., marketing and distribution.
Key Risks
The market in which BJE primarily operates consists of large unorganised players with a
number of small and medium sized players. Over dependence on vendors or vendor buy
out by competition is a key risk. Further, intense competition in the consumer durable
segment can squeeze margins.
Increase in prices of key raw materials such as steel and zinc can hamper margins of the
E&P division. Greater contribution of E&P business is likely to increase the debt levels in
the form of higher working capital that this business demands. Excess competition can
put pressure on margin. This could go against the company’s forecasts of margin
improvement.
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