Buy -Bharat Bijlee Q3FY11 Result Update; In line; Target: Rs 1,350: Emkay

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Bharat Bijlee Ltd

In line; Reiterate Buy

BUY

CMP: Rs 1,088                                       Target Price: Rs 1,350

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n     PAT grows by 92% yoy to Rs142mn (our expectations -Rs137mn) - driven by 28% revenue growth (mainly volume growth) and increase in EBITDA margins to 11.8% (+320bps)  

n     9mFY11 EPS stands at Rs62.2/Share (up 47% yoy), maintain earnings of Rs96.1 and Rs116.4 in FY11E and FY12E with upward bias going into Q4FY11E  

n     Valuations (3xFY12E EBITDA and 5.8xFY12E earnings) not pricing in value of inv. in Siemens (at 40% discount to CMP of Siemens, the value is Rs265/Share or 28% of BBL’s CMP);

n     Top pick in transformers pack; Reiterate Buy

PAT growth of 92% driven by volume growth in both the businesses

Bharat Bijlee reported 28% yoy growth in revenues to Rs2.1bn, in line with estimates.

The EBITDA margins improved (due to low base) to 11.8% (our estimate - 12.2%) from

8.6% in Q3FY10 (+320bps yoy). The improvement is driven by (1) better transformers

margins on low base and increased volumes and (2) ~ 20% volume growth in motors

business driven by improvement in industrial capex. As a result of 320bps improvement

in EBITDA margins, EBITDA and PAT grew by 76% and 92% yoy to Rs244mn and

Rs142mn, in line.

Maintain earnings with upward bias going into Q4FY11E

For 9mFY11, BBL has reported earnings of Rs62.2/Share (up 47% yoy). The Q4FY11E

implied number stands at Rs33.9/share (growth of 14% yoy). This is 36% of overall

FY11E earnings. Given the company’s history of almost 40%+ earnings in Q4, we

maintain our FY11E and FY12E earnings with positive bias going into Q4FY11E.

Though we are factoring in only 40bps improvement in EBITDA margins in FY12E, we

continue to believe there is a higher scope of operational leverage coming into play and

improve the margins.

Price not factoring in improving performance & Siemens inv. value;

Reiterate Buy

BBL has a long-term investment in Siemens (2.8mn shares) and HDFC (0.10mn

shares). After according 40% (earlier 50%) discount to CMP of the above securities, per

share investment value for BBL works out to Rs265/Share. To value BBL, we have

removed the above value (Rs265/Share) from the CMP of Rs943/Share. The stock is

trading (ex-investment value) at “Bargain Hunt” valuations of 5.8xFY12E earnings,

3.0xFY12E EBITDA and 1.3xFY12E Book Value. On the back of (1) earnings CAGR of

26% in FY10-12E, (2) cheap valuations, (3) qtr by qtr improving numbers and (4)

performance track record, we reiterate our ‘Buy’ ratings. Bharat Bijlee remains our top

pick in the transformers pack. Maintain our target price of Rs1350/Share (at 5xFY12E

EBITDA).