3QFY2012 Result Update Bajaj Electrical:: Reliance capital

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Consumer Durables and Lighting show the growth path
Key highlights of the result
 Net Sales grew ~15% yoy: Bajaj Electrical’s (BEL) Net Sales for 3QFY2012
grew ~15% yoy to ~Rs794cr (~Rs690cr in 3QFY2011), whereas, it grew ~13%
qoq (Rs701cr in 2QFY2012). The increase in top-line on yoy basis was due to
the strong growth in sales in different segments like Lighting (up ~19% yoy/ ~6%
qoq), Consumer Durables (up ~25% yoy/ ~22% qoq), Others (up ~6% yoy) and
also because of the volume and average realization price.
 OPMs marginally under pressure: The Company reported EBITDA of ~Rs65cr in
3QFY2012, de-growth of ~9% yoy. EBITDA margin contracted a significant
212bp yoy on account of higher raw material prices (up 282bp yoy), purchase of
traded goods (up 7bp yoy), employee costs (up 14bp yoy), other expenses (up
199bp yoy) and loss on forex transaction of Rs2.5cr. On a sequential basis
EBITDA margin was higher 66bp.
 Net Profit declines ~19%: Net Profit for 3QFY2012 decreased ~19% yoy to
~Rs33cr (~Rs41cr in 3QFY2011), due to poor operating performance on account
of increased raw material prices, higher interest cost (up ~64% yoy to Rs15cr)
and higher tax (up 84bp).
Outlook and Valuation
Bajaj Electrical’s 3QFY2012 results were very disappointing. Considering the overall
9MFY2012 results, we have lowered our estimates for FY2012E and FY2013E for
BEL (the company’s earnings for 9MFY2012 were not as per expectations due to
higher interest cost i.e. ~72% yoy jump in interest costs to ~Rs39cr in 9MFY2012
vis-à-vis ~Rs23cr in 9MFY2011). However, we expect the company to report Net
Sales CAGR of ~16% and Net Profit CAGR of ~8% over FY2011-13E.
The management has given a guidance of double-digit sales growth for FY2012
(~Rs3,200cr) & FY2013 (~Rs3,700-3,800cr), but on the margins front, the
management did not seem much confident going forward, due to competition, high
interest cost, increasing raw material prices etc. Nonetheless, we believe that the
company is set to witness robust growth in the coming financial year, driven by both
E&P segment order book worth ~Rs783cr and its continued focus on - product
innovation, value engineering, cost reduction and new product introduction. At the
CMP of Rs169, the stock is trading at a P/E of 13.3x and 10.1x its FY2012E and
FY2013E EPS respectively. We maintain Buy on Bajaj Electricals with a revised
target price of Rs201 (Rs230 earlier).
Risks to the view
 Prolong slowdown in the Indian economy can have an adverse effect on the
growth prospects of the company
 Any unfavorable change in the prices of commodities, foreign exchange and
interest rates can have negative impact on profitability
 Delay in execution of jobs in E&P business can deteriorate earnings