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BAJAJ ELECTRICALS LTD (BAEL)
PRICE: RS.195 RECOMMENDATION: BUY
TARGET PRICE: RS.272 FY13E P/E: 10X
q BAEL has reported Q2FY12 results, which ahead of our estimates mainly
driven by lighting and consumer durable business.
q Engineering & Project segment reported marginal profits in the quarter
vis-à-vis loss in Q1FY12. However, we believe that over FY12 margins in
this segment are likely to remain under pressure on account of delays in
pick up in major infrastructure projects.
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 downward for FY12 to factor in margin pressure
on account of increase in input prices and interest rates; maintain 'BUY'
rating on the company's stock with a one year DCF based revised price
target of Rs 272 (Rs 285 earlier).
Result Highlights
n In Q2FY12, consolidated revenues stood at Rs 7 bn driven by lighting and consumer
durable business.
n Consumer appliances division revenues stood at Rs 3.3 bn vis-à-vis Rs 2.9 bn in
Q2FY11. Lighting division reported 25% YoY growth in revenues at Rs 1.8 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 Company has reported increase in inventory levels of Rs 39 bn mainly on account
of piling up of finished goods inventory. It has observed sluggish demand for fans
and air-coolers this year due to lighter summer.
n On Consolidated basis, operating margins for the quarter stood at 7.5% vis-à-vis
7.7% in Q2FY11. Company has been able to effectively manage cost overheads
and pass on the increase in price hike to the customers.
n E&P segment has been observing the major pressure due to the sluggish growth
and building up of overcapacity in the T&D space.
n In the quarter under review, E&P segment has reported operating profit of Rs 65
mn vis-à-vis Rs 48 mn in Q2FY11.
n Company has been taking several measures to contain the overhead costs and
increase efficiency in the E&P business. For instance, 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 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. Company has built considerable
amount of finished goods inventory over Q3-Q4FY11.
n In Q2FY12, company has reported 39% increase in capital employed in consumer
durable SBU due to increase in finished goods inventory, mainly in the aircooler
segment.
n Despite sluggish demand scenario in E&P business and increasing working capital
Company has been able to maintain a healthy D/E ratio of 0.3. It has reported
cash levels of Rs 2.8 bn in the quarter vis-à-vis Rs 3.9 bn in the previous year.
Valuation & Recommendations
n At current price of Rs.195, company's stock is trading at 10x P/E and 5.7 x EV/
EBITDA on FY13E earnings.
n We opine that the company is well positioned to benefit from increasing disposable
income among Indian households and changing consumer preference for
branded products.
n We build recovery in E&P business over FY13E on back of pickup in infrastructure
spending..
n We tweak our estimates downward for FY12 to factor in margin pressure on
account of increase in input prices and interest rates; maintain 'BUY' rating on
the company's stock with a one year DCF based revised price target of Rs 272
(Rs 285 earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BAJAJ ELECTRICALS LTD (BAEL)
PRICE: RS.195 RECOMMENDATION: BUY
TARGET PRICE: RS.272 FY13E P/E: 10X
q BAEL has reported Q2FY12 results, which ahead of our estimates mainly
driven by lighting and consumer durable business.
q Engineering & Project segment reported marginal profits in the quarter
vis-à-vis loss in Q1FY12. However, we believe that over FY12 margins in
this segment are likely to remain under pressure on account of delays in
pick up in major infrastructure projects.
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 downward for FY12 to factor in margin pressure
on account of increase in input prices and interest rates; maintain 'BUY'
rating on the company's stock with a one year DCF based revised price
target of Rs 272 (Rs 285 earlier).
Result Highlights
n In Q2FY12, consolidated revenues stood at Rs 7 bn driven by lighting and consumer
durable business.
n Consumer appliances division revenues stood at Rs 3.3 bn vis-à-vis Rs 2.9 bn in
Q2FY11. Lighting division reported 25% YoY growth in revenues at Rs 1.8 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 Company has reported increase in inventory levels of Rs 39 bn mainly on account
of piling up of finished goods inventory. It has observed sluggish demand for fans
and air-coolers this year due to lighter summer.
n On Consolidated basis, operating margins for the quarter stood at 7.5% vis-à-vis
7.7% in Q2FY11. Company has been able to effectively manage cost overheads
and pass on the increase in price hike to the customers.
n E&P segment has been observing the major pressure due to the sluggish growth
and building up of overcapacity in the T&D space.
n In the quarter under review, E&P segment has reported operating profit of Rs 65
mn vis-à-vis Rs 48 mn in Q2FY11.
n Company has been taking several measures to contain the overhead costs and
increase efficiency in the E&P business. For instance, 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 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. Company has built considerable
amount of finished goods inventory over Q3-Q4FY11.
n In Q2FY12, company has reported 39% increase in capital employed in consumer
durable SBU due to increase in finished goods inventory, mainly in the aircooler
segment.
n Despite sluggish demand scenario in E&P business and increasing working capital
Company has been able to maintain a healthy D/E ratio of 0.3. It has reported
cash levels of Rs 2.8 bn in the quarter vis-à-vis Rs 3.9 bn in the previous year.
Valuation & Recommendations
n At current price of Rs.195, company's stock is trading at 10x P/E and 5.7 x EV/
EBITDA on FY13E earnings.
n We opine that the company is well positioned to benefit from increasing disposable
income among Indian households and changing consumer preference for
branded products.
n We build recovery in E&P business over FY13E on back of pickup in infrastructure
spending..
n We tweak our estimates downward for FY12 to factor in margin pressure on
account of increase in input prices and interest rates; maintain 'BUY' rating on
the company's stock with a one year DCF based revised price target of Rs 272
(Rs 285 earlier).
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