02 September 2014

Bajaj Electricals :: ICICI Securities

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Major order inflow in E&P segment…
Bajaj Electricals’ engineering & project (E&P) division has bagged four
orders of | 602 crore under the TLT and special projects categories. New
order inflows consist of | 66 crore from transmission lines in Tamil Nadu
& West Bengal from Power Grid Corporation of India (PGCIL) and West
Bengal State Electricity Transmission Company. Also, | 535 crore is from
special projects includes rural electrification (under RGGVY XIIth Plan)
works at Bihar from north and south Bihar power distribution company.
The current order book size stands at | 2800 crore. The E&P segment
witnessed 13% YoY revenue growth during Q1FY15 as the company has
largely focused on maintaining the margin. The EBIT loss narrowed down
substantially QoQ from | 26 crore to ~| 6 crore in Q1FY15. The EBIT also
includes incremental depreciation charges of | 2 crore due to a change in
the depreciation policy.
Consumption story to remain intact
The core business of BEL (CD, lighting contributes ~70% to topline)
recorded a subdued FY14 performance. Given the GDP growth in FY14
slowed down to 4.7%, urban and rural income levels were negatively
impacted. This, in turn, resulted in dismal segment revenue growth of
~5%, ~8% YoY, respectively, with muted offtake of kitchen appliances,
fans and luminaries. However, under the appliances category, BEL’s
premium brand Morphy Richards (MR) recorded sales growth of 11%
YoY to | 190 crore in FY14. BEL plans to revamp its MR product portfolio
with new models in the premium segment in steam irons, mixers, food
processors, induction cookers, instant water heaters and dry irons.
However, BEL is facing stiff competition from LED lighting manufacturers
as CFL is losing ground to LED products. Still, segment revenue would be
driven by the luminaries segment. We expect the CD & lighting segment
revenue to witness CAGR of 17%, 10%, respectively, in 2014-16E.
Execution of higher margin projects to drive overall margin
BEL’s E&P segment remained a laggard over last two years at the EBIT
level, despite sales CAGR of ~18% during FY12-14, largely due to sharp
cost overruns on legacy projects. During FY14, the company completed
40 legacy sites, which were loss making and recorded a loss of | 103
crore. However, the company turned cautious and focused on bidding
only on higher margin projects to improve profitability. We believe new
orders would flow in the P&L from FY16 onwards. With a completion
period of 24 months, the major part of revenue would flow in FY17E.
However, continuous order inflow improved the visibility of revenue
booking from the E&P segment. We believe BEL will benefit from the
government’s thrust to improve power infrastructure in India. We expect
E&P segment to record ~22% sales CAGR in FY14-16E with positive EBIT
of | 54 crore and | 86 crore in FY15E and FY16E, respectively.
Consumer business to drive rating
With an expected turnaround in the E&P business from FY15E onwards
and continued dominance in the lighting & CD business, we expect BEL to
generate EBITDA of | 315 crore in FY15E and | 430 crore in FY16E. We
believe the stock is trading at attractive multiples considering the
turnaround in the E&P segment. We have valued the CD, lighting and E&P
business at 12x, 6x and 6x FY16E EBITDA, respectively, to arrive at a
target price of | 416/share with a BUY recommendation.


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Link
http://content.icicidirect.com/mailimages/IDirect_BajajElectricals_CoUpdate_Sept2014.pdf

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