BJE’s Q4 FY12 Results was broadly in line with below our expectation which grew by 8%
YoY at Rs 10,602mn. The operating margin however was marginally below our
estimation remained at 8% a de growth of 200 bps YoY. The decline in the EBITDA
margin was due to raw material cost as % of sales climbed to 78% from 75% QoQ.
We expect current rupee deprivation would impact margins as input costs rise and BJE
will find it difficult to pass on the increased cost given the current demand scenario.
Along with that E& P BU continues to be a drag on the overall business as we see no
significant improvement in the margins given that Q4 is the best quarter for the
business. The segment reported an EBIT margins of 6% only 200bps improvement in
QoQ. We were expecting around 300‐350 bps improvement.
We are confident about the top line growth of 13‐14% for the BJE, as the focus on Tier 1
and Tier II cities will help them fight the demand slowdown in urban areas for consumer
appliances and Fans and also lighting business is expected to grow at 15‐20% range. BJE
has a total order book size of Rs 610cr and another contract of Rs 650cr is expected to
be added as they are the L1 bidder.
We retain Accumulate with a TP of Rs 195
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Result Summary:
Consumer durable continues to show robust growth:
BJE‘s consumer durable segment for has grown by 10.4% YoY for Q4FY12,however
EBITDA had declined by 200 bps from 11.4% to 9.5% mainly on account of higher import
cost due to depreciating rupee. The performance of Consumer Durables has been
impacted mainly because of the poor performance of the fans and coolers which are
weakened, however some pick up is seen in the demand in the current quarter and
management is confident of liquidation of fans inventory which will add up to their top
line.
Few segments in consumer durables remain strong like Morphy Richards which grew by
49% YoY and segments like Mixer, Heaters, and Toasters Irons continues to show good
traction growing over 25% YoY. We expect consumer durable business to continue
robust growth 18% in FY13 and is expected to drive the top line.
Going forward company is focusing on rural India and Tier II cities as they expect larger
demand coming from those areas. Along with this the company also plans to increase its
sourcing from domestic vendors to reduce the foreign currency exposure. Although it
will take time and for the short run management expects margins to remain under
pressure.
Valuations
Based on the latest quarterly performance we are reducing our estimates our
revised revenue growth is 19% CAGR over FY12‐FY14E. Our revised EPS growth is at
15% CAGR over FY21‐14E. We maintain our earning estimate for FY13E at Rs
15.Currently BJE is trading at 14x FY12 and 12x FY13E, We have arrived at our new
price target of Rs 195, valued our stock at 13x times is FY13 earnings.
E&P business continues to be under pressure.
BJE’s E&P Business has been under pressure for the last two quarters, for Q4FY12 it reported a
revenue de growth of 2% YoY. The EBIT margins declined by 5oo bps YoY . The margins were affected
due to locked up working capital and delay in execution process. Due to the Unwarranted delay in
execution the fixed over heads increased thus impacting margins. However we expect margins in E&P
segment to bottom out, there has been an improvement of 200bps in the EBIT margins on sequential
basis.
Management has been successful in closing few projects which were EBITDA dilutive and in order to
do that they were incurring extra cost in the form of hiring temporary workers, equipments etc. BJE
had total 79 sites on 1st April, 2011 out of which 21 sites have been closed and 80 new sites have
been introduced. Management has confirmed that the new orders has been bided with higher
margins and is not expected to dilute margins going ahead.
We have built in a margin compression of 400 bps over FY11 and expect the revenue to be Rs 6,072
mn and Rs 7,140mn in FY12‐13E respectively.
Current Order Book Situation
Currently BJE has an order book of Rs 6bn out of which ~ Rs 1.8bn is for TLT (Transmission line
towers), ~ Rs 3bn in High Mast and ~Rs1.3bn in Special projects. Along with this there is another Rs 6
bn order where BJE is in the L1 category. The order inflow has been steady but low compared to last
year, due to the slowdown in the capital goods sector and hardening of interest rates more over
management is cautious over bidding for new projects.
Q3FY12: Margins impacted
The blended EBITDA Margin for Q4FY12 stood at 8% as against 10% in Q4FY11 and remained flat
QoQ, the gain in margins from E&P segment was off set by lower than expected margins in consumer
durables .The higher raw material price and higher other expense due to forex volatility has impacted
the margins. (BJE imports appliances products from China).
The cost rationalization steps taken by the management to reduce working capital is being
operational and will reduce the working capital burden by 60% in the next quarter.
View and Valuation:
We expect margins and earnings to stabilize going ahead, however it will take two quarters time to get back
to original level of 10‐11% .We expect E&P BU to improve margins in the coming quarters, however
slowdown in the capital goods sector and hardening of interest rates will keep the top line in E&P BU flat, and
however we have factored this in our assumptions.
Valuation:
Based on the latest quarterly performance we are reducing our estimates our revised revenue growth is 19%
CAGR over FY12‐FY14E. Our revised EPS growth is at 15% CAGR over FY21‐14E. We maintain our earning
estimate for FY13E at Rs 15.Currently BJE is trading at 14x FY12 and 12x FY13E, We have arrived at our new
price target of Rs 195, valued our stock at 13x times is FY13 earnings.
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