Light up your portfolio with Bajaj Electricals ::Business Line

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The stock of Bajaj Electricals looks to be an attractive buy at the current price of Rs 163. The stock is trading at a multiple of 11 times its projected earnings for FY14.

From its high of Rs 234 in October last year, the stock has corrected 30 per cent weighed down by losses in the E&P (Engineering and Projects) business. However, for investors with a one-year perspective, this could be the right time to enter the stock with the worst already over for the company.

Bajaj Electricals’ consumer durables business (55 per cent of revenue) is on a strong wicket. The company’s entry into the kitchen appliances segment with pressure cookers and induction cook-tops has been received well by the market.

Also, among the listed players in the consumer electronics and durables, Bajaj Electricals has the largest dealer network with over 4,000 authorised dealers and 45,000 retailers across the country. The company intends to expand its exclusive showrooms – Bajaj World in the current year by adding 100 new stores. For the first nine months of FY13, this segment reported a 22 per cent jump in revenues and a 20 per cent increase in operating profits. Profit margin was 10.1 per cent, not much changed from the previous year. Both copper and aluminium have corrected significantly in the international market over the last one year, but rupee’s depreciation has eaten into import savings which the company would have otherwise made.

The E&P segment is expected to move back into profits this year, helped by speedier execution of pending projects. As of April 1, the company had a Rs 400-crore order backlog. Also, there has been a fresh inflow of Rs 600 crore of orders, a chunk of which will be executed in the current year. Profit margins in the E&P business may also be better given that competition in transmission line towers segment has eased a bit with more stringent norms for bidders.

For the first nine months of FY-13, the E&P segment reported a 13 per cent drop in revenue and a loss of Rs 73.6 crore at the operating level. Profits came under pressure as the order pipeline dried up and there were cost over-runs at existing project sites.

In the lighting segment (contributes 25 per cent of revenue), the growth is expected to be driven by the new launches in LED and fluorescent lights. In the April-December 2013 period, this segment recorded an 11 per cent increase in revenue. The demand for LED lights is rising with increasing adoption of energy efficient lighting.

The company has been meeting the E&P business’ cash requirements from the profits of consumer businesses. Thus, borrowings haven’t increased much over the last one year with a comfortable debt-to-equity of 0.3.