Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
Well Diversified product portfolio; presence at all price point: Over
the past seven decades, BEL has established strong presence in ‘value
for money’ segment of consumer durable products. To strengthen its
product portfolio, BEL strategically entered the premium segment
through tie‐ups with global premium brands. BEL also launched its
own brand “Bajaj Platini” to bridge the gap between the value and
premium brands.
Nationwide distribution network with wide urban and retail
penetration: We believe that consumer durables market is highly
fragmented with stiff competition from regional and national players.
Thus, to beat the competition BEL has created a strong presence in
pan India with network of 19 branch offices besides being supported
by a chain of about 1000 distributors, 4000 authorized dealers, over
4,00,000 retail outlets and over 282 Customer Care centers.
E&P business strained: Expected to improve in Q3FY12: BEL
registered 2.5% revenue growth in the E&P business during Q1FY12
due to slower execution. Though the project was not of low margin
but due to the extended time in closure of the project resulted into
additional cost pressure. BEL has started the cleaning process by
bringing down the projects from the current 82 level to ~ 50 projects
by the end of the year. This cleaning activity is expected to continue
through Q2FY12 and will improve margins thereafter.
Vendor driven outsourcing model: BEL attributed huge benefit
through vendor driven outsourcing model. This approach provides
flexibility in operation and competitive pricing. BEL sources consumer
appliances from its dedicated vendors in northern India (Noida, Delhi
and Himachal) and some products are imported from China. With
such kind of set‐up, BEL has more time and resources in its core
competency of R&D and marketing & distribution.
Raw‐Material Hedging ‐ Maintain EBIT margins: BEL consumes
aluminum, copper, zinc and steel. BEL has a committee to hedge
commodity on quarterly basis. The hedge ratio varies according to the
projected price pressure. BEL being a market leader in most of the
segment it operates can easily pass on the increase in cost to its
consumers. Recently, the company has increased prices of its various
products which in our view will benefit the company going forward as
the prices of commodities have declined in the current quarter.
Valuation & Recommendation
BEL can be purchased at current price of Rs. 180. Stock is trading at ~11x
FY12E earnings which look very attractive. It can give 15‐20% returns in
near term.
Investment Rationale
Q1FY12 was in aberration; though FY12E remains positive
BEL reported a poor performance in Q1FY12 due to the consumer business facing
poor market conditions (reported a moderate growth of 15.5%) and E&P
(Engineering & Projects) business showcased just a meager 2.5% growth against last
year. The consumer business was affected badly due to the markets for fan and
room coolers were extremely depressed in the quarter because of shorter summer
season this time. The inventory for fans and room coolers shot up due to the
sluggish quarter. BEL reported negative margin of 6.7% during Q1FY12 in E&P
business. The company had incurred an additional cost for closing down its several
old/stuck projects to free up more working capital and bring efficiency in employee
costs.
We expect 2HYFY12E result to be an excellent result on the account of better
performance by E&P business and the consumer facing business. To improve the
E&P business, the company is in the cleaning process where it’s planning to reduce
the number of projects from 82 to ~ 50 levels. This cleaning process is expected to
continue through Q2FY12 and margins are expected to improve thereafter. BEL
expects to register a growth of 24% in consumer facing business in FY12E.
The company being a strong leader in most of the segment it operates enjoys a
pricing power. The company has taken several price increases to counter the
negative effects of the high raw‐material prices. These raw‐materials (copper,
aluminium, zinc, plastic & steel) have softened in the current quarter. We expect
BEL to get benefit from the hike in prices and softening of raw‐material prices.
Management Guidance:
BEL intends to bring down the number of projects from 82 to ~ 50 projects
in E&P division. This will bring down the cost, check inventory management,
improve working capital position and will improve balance sheet going
forward.
Management has guided for EBIT margin improving in E&P division from
negative 6.7% in Q1FY12 to 12.7% by Q4FY12, indicating full year margin at
~8%.
BEL expects to clock – in growth of 24% in Consumer durable business in
FY12E and expect to maintain margin of FY11.
Introduction of new products at various price points:
Backed by its R&D efforts and global collaborations, the company has been able to
launch newer products across various price points/segments. The company is reentering
the pressure cooker sector after a gap of 25 years. The company has
completed successful test marketing in Orissa and West Bengal and is planning to
launch it in pan India in 2011. The company is also planning to foray into water
purifier segment for rural as well urban markets. Besides, BEL is also planning to
launch DG sets after test‐marketing in Tamil Nadu and Kerala. The company is also
trying to consolidate its position in the water lifting pumps after being in the market
for two years. BEL is planning to Introduce Microwave ovens under Morphy Richards
in the near future.
In our view, these initiatives will help the company to register strong growth going
forward on the back of strong distribution network and strong brand equity.
Raw‐Material Hedging ‐ Maintain EBIT margins
BEL consumes aluminum, copper, zinc and steel. BEL has a committee to hedge
commodity on quarterly basis. The hedge ratio varies according to the projected
price pressures on commodities market. The Company increases hedge ratio if the
projected price rise is high and decreases if the expected price rise is low. BEL being
a market leader in most of the segment it operates can easily pass on the increase in
cost to its consumers. In E&P Business Unit, 75% of transmission line projects and
40% of remaining projects are covered in price variation. We believe that rawmaterial
hedging coupled with pricing power in consumer segment will help the
company to protect its EBIT margins even in adverse global commodity markets.
Recently, the company has increased its prices of various products which in our view
will benefit the company going forward as the prices of commodities have declined
in the current quarter.
Key Risks & Concerns
Sharp increase in raw material like copper, zinc, aluminium, plastic and steel will
impact the margins.
Inability to take further price hike to mitigate the rise in raw‐material prices will
impact the margins.
Any sharp decline in market share due to rise in competition or increase in
advertisement expenses could adversely affect earnings.
Any slowdown in economy may cause de‐growth in real estate sector. That may
impact business growth of BEL.
Rising interest rates, environmental clearances for various projects and land
acquisition issues can cause in the delay in investments in the T&D space. We
believe that severe delays in the execution of these projects and further delay in
the closure of projects would negatively impact company's E&P division.
Valuation & Recommendation
With a strong positive outlook in all segments that BEL is present in, the company is
poised to record strong growth going forward.
The stock has corrected sustainably post Q1FY12 results which were disappointing due
to loss reported by Engineering and Project (E&P) division and some margin pressure
witnessed in consumer division. The E&P division reported losses because of seasonally
weak quarter (Q1) coupled with closure of some old projects by the company resulting
into the cost pressure. The company is taking several initiatives to bring back the E&P
business on track. For this, the company is busy in cleaning process where it’s bringing
down the project from 82 levels to ~ 50 projects by the end of the year. This will help
the company in better management of working capital, better inventory
management and control in costs overrun in the future. Management has guided
the completion of the cleaning process by Q2FY12 and the improvement in margins
thereafter. We expect E&P division to bounce back and report normal profit in 2HFY12.
The concern of margins in consumer division is also easing off with some price increases
taken by the company and decline in the commodity prices. The company expects to
register a growth of 24% in consumer facing business unit in FY12E.
Stock is trading at ~11x FY12E earnings which look very attractive. The stock can be
purchased at CMP and may see positive upside of 15‐20% in the near term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
Well Diversified product portfolio; presence at all price point: Over
the past seven decades, BEL has established strong presence in ‘value
for money’ segment of consumer durable products. To strengthen its
product portfolio, BEL strategically entered the premium segment
through tie‐ups with global premium brands. BEL also launched its
own brand “Bajaj Platini” to bridge the gap between the value and
premium brands.
Nationwide distribution network with wide urban and retail
penetration: We believe that consumer durables market is highly
fragmented with stiff competition from regional and national players.
Thus, to beat the competition BEL has created a strong presence in
pan India with network of 19 branch offices besides being supported
by a chain of about 1000 distributors, 4000 authorized dealers, over
4,00,000 retail outlets and over 282 Customer Care centers.
E&P business strained: Expected to improve in Q3FY12: BEL
registered 2.5% revenue growth in the E&P business during Q1FY12
due to slower execution. Though the project was not of low margin
but due to the extended time in closure of the project resulted into
additional cost pressure. BEL has started the cleaning process by
bringing down the projects from the current 82 level to ~ 50 projects
by the end of the year. This cleaning activity is expected to continue
through Q2FY12 and will improve margins thereafter.
Vendor driven outsourcing model: BEL attributed huge benefit
through vendor driven outsourcing model. This approach provides
flexibility in operation and competitive pricing. BEL sources consumer
appliances from its dedicated vendors in northern India (Noida, Delhi
and Himachal) and some products are imported from China. With
such kind of set‐up, BEL has more time and resources in its core
competency of R&D and marketing & distribution.
Raw‐Material Hedging ‐ Maintain EBIT margins: BEL consumes
aluminum, copper, zinc and steel. BEL has a committee to hedge
commodity on quarterly basis. The hedge ratio varies according to the
projected price pressure. BEL being a market leader in most of the
segment it operates can easily pass on the increase in cost to its
consumers. Recently, the company has increased prices of its various
products which in our view will benefit the company going forward as
the prices of commodities have declined in the current quarter.
Valuation & Recommendation
BEL can be purchased at current price of Rs. 180. Stock is trading at ~11x
FY12E earnings which look very attractive. It can give 15‐20% returns in
near term.
Investment Rationale
Q1FY12 was in aberration; though FY12E remains positive
BEL reported a poor performance in Q1FY12 due to the consumer business facing
poor market conditions (reported a moderate growth of 15.5%) and E&P
(Engineering & Projects) business showcased just a meager 2.5% growth against last
year. The consumer business was affected badly due to the markets for fan and
room coolers were extremely depressed in the quarter because of shorter summer
season this time. The inventory for fans and room coolers shot up due to the
sluggish quarter. BEL reported negative margin of 6.7% during Q1FY12 in E&P
business. The company had incurred an additional cost for closing down its several
old/stuck projects to free up more working capital and bring efficiency in employee
costs.
We expect 2HYFY12E result to be an excellent result on the account of better
performance by E&P business and the consumer facing business. To improve the
E&P business, the company is in the cleaning process where it’s planning to reduce
the number of projects from 82 to ~ 50 levels. This cleaning process is expected to
continue through Q2FY12 and margins are expected to improve thereafter. BEL
expects to register a growth of 24% in consumer facing business in FY12E.
The company being a strong leader in most of the segment it operates enjoys a
pricing power. The company has taken several price increases to counter the
negative effects of the high raw‐material prices. These raw‐materials (copper,
aluminium, zinc, plastic & steel) have softened in the current quarter. We expect
BEL to get benefit from the hike in prices and softening of raw‐material prices.
Management Guidance:
BEL intends to bring down the number of projects from 82 to ~ 50 projects
in E&P division. This will bring down the cost, check inventory management,
improve working capital position and will improve balance sheet going
forward.
Management has guided for EBIT margin improving in E&P division from
negative 6.7% in Q1FY12 to 12.7% by Q4FY12, indicating full year margin at
~8%.
BEL expects to clock – in growth of 24% in Consumer durable business in
FY12E and expect to maintain margin of FY11.
Introduction of new products at various price points:
Backed by its R&D efforts and global collaborations, the company has been able to
launch newer products across various price points/segments. The company is reentering
the pressure cooker sector after a gap of 25 years. The company has
completed successful test marketing in Orissa and West Bengal and is planning to
launch it in pan India in 2011. The company is also planning to foray into water
purifier segment for rural as well urban markets. Besides, BEL is also planning to
launch DG sets after test‐marketing in Tamil Nadu and Kerala. The company is also
trying to consolidate its position in the water lifting pumps after being in the market
for two years. BEL is planning to Introduce Microwave ovens under Morphy Richards
in the near future.
In our view, these initiatives will help the company to register strong growth going
forward on the back of strong distribution network and strong brand equity.
Raw‐Material Hedging ‐ Maintain EBIT margins
BEL consumes aluminum, copper, zinc and steel. BEL has a committee to hedge
commodity on quarterly basis. The hedge ratio varies according to the projected
price pressures on commodities market. The Company increases hedge ratio if the
projected price rise is high and decreases if the expected price rise is low. BEL being
a market leader in most of the segment it operates can easily pass on the increase in
cost to its consumers. In E&P Business Unit, 75% of transmission line projects and
40% of remaining projects are covered in price variation. We believe that rawmaterial
hedging coupled with pricing power in consumer segment will help the
company to protect its EBIT margins even in adverse global commodity markets.
Recently, the company has increased its prices of various products which in our view
will benefit the company going forward as the prices of commodities have declined
in the current quarter.
Key Risks & Concerns
Sharp increase in raw material like copper, zinc, aluminium, plastic and steel will
impact the margins.
Inability to take further price hike to mitigate the rise in raw‐material prices will
impact the margins.
Any sharp decline in market share due to rise in competition or increase in
advertisement expenses could adversely affect earnings.
Any slowdown in economy may cause de‐growth in real estate sector. That may
impact business growth of BEL.
Rising interest rates, environmental clearances for various projects and land
acquisition issues can cause in the delay in investments in the T&D space. We
believe that severe delays in the execution of these projects and further delay in
the closure of projects would negatively impact company's E&P division.
Valuation & Recommendation
With a strong positive outlook in all segments that BEL is present in, the company is
poised to record strong growth going forward.
The stock has corrected sustainably post Q1FY12 results which were disappointing due
to loss reported by Engineering and Project (E&P) division and some margin pressure
witnessed in consumer division. The E&P division reported losses because of seasonally
weak quarter (Q1) coupled with closure of some old projects by the company resulting
into the cost pressure. The company is taking several initiatives to bring back the E&P
business on track. For this, the company is busy in cleaning process where it’s bringing
down the project from 82 levels to ~ 50 projects by the end of the year. This will help
the company in better management of working capital, better inventory
management and control in costs overrun in the future. Management has guided
the completion of the cleaning process by Q2FY12 and the improvement in margins
thereafter. We expect E&P division to bounce back and report normal profit in 2HFY12.
The concern of margins in consumer division is also easing off with some price increases
taken by the company and decline in the commodity prices. The company expects to
register a growth of 24% in consumer facing business unit in FY12E.
Stock is trading at ~11x FY12E earnings which look very attractive. The stock can be
purchased at CMP and may see positive upside of 15‐20% in the near term.
No comments:
Post a Comment