Performance largely hit by project division… • Bajaj Electricals ::ICICI Securities, report link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Performance largely hit by project division… • Bajaj Electricals (BEL) recorded revenues of | 1029 crore, down 0.4% YoY during Q3FY15, marred by a decline in revenue of the core business i.e. consumer durable (CD) & lighting by ~2% & ~6% YoY, respectively. Decline in primary sales was due to higher inventory built up at dealer’s level in Q2FY15 coupled with lower demand for consumer products post the festive season. The lighting segment was hit by a shift in consumer preference more towards LED products while BEL has a limited presence in the LED segment • E&P segment saw ~9% YoY revenue growth as BEL has largely focused on maintaining margins. However, BEL incurred an EBIT loss of | 76 crore due to provision of | 83 crore vs. legacy orders, thereby removing pain of legacy orders from books. Current order books stands at | 3491 crore (excluding new order of | 566 crore) • Lower operating leverage in consumer business along with losses booked from legacy orders of E&P segment resulted in EBITDA loss of | 35 crore in Q3FY15. We revise our revenue earning estimates lower ~8%, ~25% for FY16E & ~9%, ~20% in FY17E, respectively Short-term hiccups for consumer segment…betting on long term growth The core business of BEL (CD, lighting contribute ~70% to topline) recorded a subdued FY14 performance. Given the GDP growth in FY14 slowed down to 4.7% (unrevised), urban & 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, instant water heaters, dry irons, etc. However, BEL is facing stiff competition from LED lighting manufacturers as CFL is losing ground to LED products. We expect the CD & lighting segment revenue to witness CAGR of ~13% and 6%, respectively, in 2014-17E. Execution of higher margin projects to drive overall margin post FY15 The E&P segment remained a laggard in the last two years despite sales CAGR of ~18% in FY12-14, due to sharp cost overruns on legacy projects. During FY14, BEL completed 40 legacy loss making sites and recorded a loss of | 103 crore. However, the company turned cautious and focused on bidding only in 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, majority of revenue would flow in FY17E. However, continuous order inflow improved visibility of revenue booking from 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 ~17% sales CAGR in FY14-17E with positive EBIT of | 46 crore, | 56 crore in FY16E, FY17E, respectively. Consumer business to drive rating; maintain BUY BEL being a strong brand in the CD segment is well positioned to reap the benefits of a revival of Indian economy. We believe write-off of legacy orders is one-time pain and measures taken by the company to turn around the business would bring in positive results from FY16E onwards. We have revised our estimates and build in a conservative margin for FY16E-17E. We have valued the CD, lighting and E&P businesses at 12x, 6x and 6x FY17E EBITDA, respectively, and revised our target price downward to | 263 per share with a BUY recommendation

LINK
http://content.icicidirect.com/mailimages/IDirect_BajajElectricals_Q3FY15.pdf