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BAJAJ ELECTRICALS LTD (BAEL)
PRICE: RS.171 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.190 FY13E P/E: 11X
q BAEL has reported Q3FY12 results in line with our estimates driven by
lighting and consumer durable segment.
q Engineering & Project segment reported muted sequential profit growth.
Margins continue to remain under pressure for the segment on account
of delay in pick up in major infrastructure projects in India.
q Pick-up in demand for lighting and consumer business in tier ii cities
augers well for company's growth. However rising interest rate and input
price trend would remain the key variable to monitor for next few
quarters.
q We tweak our estimates upward for FY13 to factor in margins stabilizing
at current levels and improvement in working capital for 2HFY13.
q In view of limited upside from current levels, we change our recommendation
to 'Accumulate' (from 'BUY' earlier) on the company's stock with
a one year DCF based revised price target of Rs 190 (Rs 180 earlier).
Result Highlights
n In Q3FY12, consolidated revenues stood at Rs 7.9 bn driven by lighting and consumer
durable business.
n On Consolidated basis, operating margins for the quarter stood at 8.2% vis-à-vis
10.3% in Q3FY11. Being a net importer, company has been observing margin
pressure in the lighting business due to depreciating rupee trend.
n We highlight that the company's imports comprises of 15-20% in fans and appliances
business and 35-40% in Morphy Richards. In the quarter company has reported
a forex loss of Rs 25 mn.
n However company has received some relief from drop in input prices, mainly
aluminum and copper. Management has been trying to maintain margins by
employing steady cost management across the board and maximizing contribution
from new products.
n Consumer appliances division revenues stood to Rs 4.2 bn vis-à-vis Rs 3.3 bn in
Q3FY11. Lighting division reported 19% YoY growth in revenues at Rs 2 bn in
the quarter. We believe that the Indian consumer space has been undergoing a
change in terms of consumer preference toward the branded products manufactured
by the company and peer group (Havells, Crompton Greaves etc) over the
unorganized sector.
n Current order book in E&P segment stands at Rs 7.8 bn that includes Rs 1.5 bn in
high mast and Rs 3.5 bn in special project. The segment has been observing
pressure due to sluggish public spending in infrastructure projects and building up
of overcapacity in the T&D space. Management has cut its order book guidance
to Rs 9 bn (Rs 10 bn in the end of Q2FY12) by year end.
n In the quarter under review, E&P segment has reported the operating profit of Rs
65 mn vis-à-vis Rs 178 mn in Q3FY11.
n Company has been taking several measures to contain the overhead costs and
increase efficiency in the E&P business. For stances, it has been striving to reduce
the project sites from current 60 locations to 32 locations.
n Company has been incurring additional cost for business promotion activities. It
has been increasing its focus on deeper brand penetration especially in the rural/
semi urban areas. We believe that this is likely to have a diminishing effect on
the margins in the short term.
n Interest charges have gone up significantly for the company due to significant
increase in interest rates. We believe that the increase in channel inventory has
led to increase in the working capital requirement.
n Fans segment has reported the growth of 10% in the quarter. In Q3FY12, company
has reported 56% increase in capital employed in consumer durable SBU
due to increase in finished goods inventory, mainly in the air-cooler segment.
n At the end of 9MFY12, company has reported a borrowing of Rs 2.6 bn majority
of which consist of working capital requirement.
Company to sustain high growth in lighting and consumer appliances
business; however sluggish growth in E&P business likely
to negatively affect free cash flow generation over FY12E-13E
n We project revenue growth of 15.5% CAGR between FY11-13 from Rs. 27 bn in
FY11 to Rs. 36 bn in FY13 on back of 1) continued momentum in consumer
durable space 2) pick up in investments in T&D space 3) incremental revenue
contribution from newly launched products 4) market share maintained at current
levels in key product categories.
n Within the revenue streams, we expect consumer business to grow by 23%
CAGR, lighting by 17.4% CAGR and E&P by 2% CAGR in the same period.
n We expect the company to leverage its existing dealer network to introduce new
products in consumer business. Overseas technical collaborations with Morphy,
Securiton etc are likely to strengthen the revenue streams over FY13E.
n Company enjoys a strong brand positioning in the key markets where it operates.
Despite increasing competition in the consumer appliances industry, it has
successfully taken the price hike of 2-3% over Q4FY11 and Q1FY12 to mitigate
the increasing raw material prices.
n We opine that the company is likely to experience margin pressure over next two
quarters due to 1) sluggish performance in E&P division 2) inventory accumulated
earlier at higher cost . In our projected financials we build 7.6% EBITDA margins
for FY13E.
Valuation and recommendation
n At current price of Rs.171, company's stock is trading at 11x P/E and 6.3 x EV/
EBITDA on FY13E earnings.
n We tweak our estimates upward for FY13 to factor in margins stabilizing at current
levels and improvement in working capital for 2HFY13.
n In view of limited upside form current levels, we change our recommendation to
'Accumulate' (from 'BUY' earlier) on the company's stock with a one year DCF
based revised price target of Rs 190 (Rs 180 earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BAJAJ ELECTRICALS LTD (BAEL)
PRICE: RS.171 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.190 FY13E P/E: 11X
q BAEL has reported Q3FY12 results in line with our estimates driven by
lighting and consumer durable segment.
q Engineering & Project segment reported muted sequential profit growth.
Margins continue to remain under pressure for the segment on account
of delay in pick up in major infrastructure projects in India.
q Pick-up in demand for lighting and consumer business in tier ii cities
augers well for company's growth. However rising interest rate and input
price trend would remain the key variable to monitor for next few
quarters.
q We tweak our estimates upward for FY13 to factor in margins stabilizing
at current levels and improvement in working capital for 2HFY13.
q In view of limited upside from current levels, we change our recommendation
to 'Accumulate' (from 'BUY' earlier) on the company's stock with
a one year DCF based revised price target of Rs 190 (Rs 180 earlier).
Result Highlights
n In Q3FY12, consolidated revenues stood at Rs 7.9 bn driven by lighting and consumer
durable business.
n On Consolidated basis, operating margins for the quarter stood at 8.2% vis-à-vis
10.3% in Q3FY11. Being a net importer, company has been observing margin
pressure in the lighting business due to depreciating rupee trend.
n We highlight that the company's imports comprises of 15-20% in fans and appliances
business and 35-40% in Morphy Richards. In the quarter company has reported
a forex loss of Rs 25 mn.
n However company has received some relief from drop in input prices, mainly
aluminum and copper. Management has been trying to maintain margins by
employing steady cost management across the board and maximizing contribution
from new products.
n Consumer appliances division revenues stood to Rs 4.2 bn vis-à-vis Rs 3.3 bn in
Q3FY11. Lighting division reported 19% YoY growth in revenues at Rs 2 bn in
the quarter. We believe that the Indian consumer space has been undergoing a
change in terms of consumer preference toward the branded products manufactured
by the company and peer group (Havells, Crompton Greaves etc) over the
unorganized sector.
n Current order book in E&P segment stands at Rs 7.8 bn that includes Rs 1.5 bn in
high mast and Rs 3.5 bn in special project. The segment has been observing
pressure due to sluggish public spending in infrastructure projects and building up
of overcapacity in the T&D space. Management has cut its order book guidance
to Rs 9 bn (Rs 10 bn in the end of Q2FY12) by year end.
n In the quarter under review, E&P segment has reported the operating profit of Rs
65 mn vis-à-vis Rs 178 mn in Q3FY11.
n Company has been taking several measures to contain the overhead costs and
increase efficiency in the E&P business. For stances, it has been striving to reduce
the project sites from current 60 locations to 32 locations.
n Company has been incurring additional cost for business promotion activities. It
has been increasing its focus on deeper brand penetration especially in the rural/
semi urban areas. We believe that this is likely to have a diminishing effect on
the margins in the short term.
n Interest charges have gone up significantly for the company due to significant
increase in interest rates. We believe that the increase in channel inventory has
led to increase in the working capital requirement.
n Fans segment has reported the growth of 10% in the quarter. In Q3FY12, company
has reported 56% increase in capital employed in consumer durable SBU
due to increase in finished goods inventory, mainly in the air-cooler segment.
n At the end of 9MFY12, company has reported a borrowing of Rs 2.6 bn majority
of which consist of working capital requirement.
Company to sustain high growth in lighting and consumer appliances
business; however sluggish growth in E&P business likely
to negatively affect free cash flow generation over FY12E-13E
n We project revenue growth of 15.5% CAGR between FY11-13 from Rs. 27 bn in
FY11 to Rs. 36 bn in FY13 on back of 1) continued momentum in consumer
durable space 2) pick up in investments in T&D space 3) incremental revenue
contribution from newly launched products 4) market share maintained at current
levels in key product categories.
n Within the revenue streams, we expect consumer business to grow by 23%
CAGR, lighting by 17.4% CAGR and E&P by 2% CAGR in the same period.
n We expect the company to leverage its existing dealer network to introduce new
products in consumer business. Overseas technical collaborations with Morphy,
Securiton etc are likely to strengthen the revenue streams over FY13E.
n Company enjoys a strong brand positioning in the key markets where it operates.
Despite increasing competition in the consumer appliances industry, it has
successfully taken the price hike of 2-3% over Q4FY11 and Q1FY12 to mitigate
the increasing raw material prices.
n We opine that the company is likely to experience margin pressure over next two
quarters due to 1) sluggish performance in E&P division 2) inventory accumulated
earlier at higher cost . In our projected financials we build 7.6% EBITDA margins
for FY13E.
Valuation and recommendation
n At current price of Rs.171, company's stock is trading at 11x P/E and 6.3 x EV/
EBITDA on FY13E earnings.
n We tweak our estimates upward for FY13 to factor in margins stabilizing at current
levels and improvement in working capital for 2HFY13.
n In view of limited upside form current levels, we change our recommendation to
'Accumulate' (from 'BUY' earlier) on the company's stock with a one year DCF
based revised price target of Rs 190 (Rs 180 earlier).
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