Bajaj Electricals (BJE) Q1FY13 sales at Rs6,662mn (up 22.41% YoY) is slightly higher than their expectations, backed by strong growth in consumer segment (durables and lighting). However, E&P division maintained its disappointing streak and continued to weigh on the overall EBIDTA margin of the company which declined by 35bps YoY and 294bps QoQ to 5.19%. PAT at Rs120mn was up 8.32% YoY. SPA Securities expects consumer segment to continue to perform well but management's ability to improve margins in E&P division would be critical for overall performance of BJE. SPA continues to recommend BUY, valuing BJE at 11x FY14E EPS.
Consumer segment got a boost
Consumer durables (appliances and fans) division of BJE grew by 28.81% majorly led by strong growth in appliances (~37% in Bajaj appliances and ~29% in Morphy Richards). Demand for fans increased by 13% compared to 5% in FY12 due to extended summer. Lighting division also grew by 19.62% YoY led by strong growth in energy efficient CFLs. However, EBIT margin in consumer durables division came under pressure, down 120bps YoY, owing to depreciating Rs. SPA expects consumer segment (~73% of revenues) to maintain good growth run-rate and see improvement in margins on the back of stability in exchange rate and price hikes taken by BJE (~5-10% in beginning of July and another price hike expected in beginning of August).
E&P division, a dent on overall performance
E&P division maintained its disappointing performance in Q1FY13 dragging the overall BJE's performance. Although revenues in E&P division registered a YoY growth of 8.47%, EBIT margins slipped to - 5.73%. The loss at EBIT level was on the back of escalating cost due to delay in projects execution. BJE has directed its focus on securing profitability ahead of revenues in the division. However, SPA remains cautious on BJE's ability to improve E&P performance at EBIT level and expect it to show improvement in Q3FY13. BJE currently has order book of Rs4.5bn and expects order book of ~Rs7-8bn by the end of second quarter.
Other Key Highlights
- BJE has opened 15 Bajaj World outlets that showcase all Bajaj products, and is on target to scale it to 75-80 in FY13. The stores are mostly opened in rural markets
- BJE has done exports of ~Rs130mn and expects full year exports of Rs650-750mn
- BJE plans to offload its 50% stake in Bajaj Ventures (book value of ~Rs 150mn) and expects the deal to materialize in Q2FY13
Outlook & Valuation
Consumer segment performance of BJE has been very encouraging and is expected to continue its growth momentum leveraging BJE's strong brand and wide distribution network. It is expected to be less affected by overall economic slowdown owing to small ticket size of durables and lighting products. SPA remains cautious on the performance of E&P division and expect it to improve in Q3FY13. They retain BUY recommendation on the stock with 18 months target price of Rs235, valuing BJE at 11x FY14E EPS.
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SPA Securities was promoted by a team of finance professionals in 1995 with an objective to provide value added financial services. Initially, the Group focused as a niche financial solutions provider in corporate finance and wealth management to Indian companies and high net worth individuals. In January 2000, the Group expanded its operations and the range of services. Today, SPA provides services for securities broking, merchant banking, wealth management, financial advisory, corporate finance , risk management and insurance broking.
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