BAJAJ ELECTRICALS LTD - Indbank

BAJAJ ELECTRICALS LTD
August 3, 2012
BSE Code:
500031
NSE Code:
BAJAJELEC
Reuters Code:
Bajaj Electricals Ltd (BEL) is expected to grow at the CAGR of 45% between
FY12-FY14E backed by robust growth in consumer durable segment and steady
growth in other divisions. Further, vast product portfolio, wide distribution
network and tie-up with globally reputed brands give an edge over
competition.
Investor’s Rationale

BEL remains confident of achieving a sales target of `38 billion
supported by strong growth in consumer durables and lighting, despite the
challenging external business conditions. The company has guided for 20%
revenue growth in its Consumer Durables segment along with 20% revenue
growth in its lighting segment and 15% growth in luminaires for FY13.
BJEL.BO
Bloomberg Code:
BJE:IN
Market Data
Rating
BUY
CMP (`)
Target (`)
181.0
217
~20%
Potential Upside
Duration
52 week H/L (`)
All time High (`)
Decline from 52WH (%)
Rise from 52WL (%)
Beta
Mkt. Cap (` bn)
Enterprise Value (` bn)
Long Term
234.0/132.9
347.0
22.6
36.2
0.5
17.9
19.6
Fiscal Year Ended
 BEL reported an 8.3% growth in its first quarter net profit at `119.8
million compared to `110.6 million in the corresponding period last year, due to
subdued performance in E&P (Engineering & Project) segment. While, net sales
for Q1’FY13 at stood at `6,661.9 million as against `5,443.6 crore in the first
quarter of the previous year, a jump of 22.4% on yoy basis led by robust growth
of 29% in the consumer durable segment.
FY11A
FY12A
FY13E
FY14E
Revenue (`mn)
27,394.1
30,941.9
38,002.8
44,843.3
Net Profit(`mn)
1,437.9
1,178.8
1,890.2
2,441.5
197.7
199.3
199.3
199.3
EPS (`)
14.5
11.8
19.0
24.5
P/E (x)
12.4
15.3
9.5
7.4
2.9
2.6
2.0
1.6
Share Capital
P/BV (x)

BEL’s tie-up with leading players including Morphy Richards, Nardi
Elettrodomestici Spa, Midea, Walt Disney etc. gives an edge over competition.
This helps the company in catering all the price point from low end to high
end/premium market. Its Morphy Richards (MR) brand strengthens its portfolio
as it is the first to cross the `1,000 million in the Indian small domestic
appliances market.
EV/EBITDA (x)
7.0
7.8
5.5
4.6
ROE (%)
23.5
16.8
21.3
21.6
ROCE (%)
14.7
12.2
15.2
16.0
One year Price Chart
 BEL’s E&P divisions profitability is likely to improve from H2FY13 as the
company is doing restructuring of E&P projects by closing its long delayed orders
and sharply focusing on profitability for new orders. Currently, the company’s
order book stood over `4.5 billion and expects to reach `7-8 billion by Q2FY13.

Despite intense competition and rapidly changing market dynamics,
lighting and luminaires business revenues surged impressively by 28.7% YoY and
13.6% YoY respectively in FY12. The CFL drive the growth as its sale has
increased by 41% over last year and crossed `2,500 million mark. The growth in
the segment would continue on higher demand as the result of awareness
among consumers for energy-saving.
Shareholding Pattern
Promoters
Jun’12
Mar’12
Diff.
55.1
55.1
0.03
FII
9.0
9.9
(0.96)
DII
10.4
10.9
(0.47)
Others
25.5
24.1
1.40
A ~`30 billion Company, one of the market leader in domestic home
appliances
BEL, part of the Bajaj Group, is
setting up its own R&D centre, which
will integrate all the R&D activities
across its various verticals under one
roof.
Bajaj Electricals Ltd (BEL) has diversified interests in Lighting, Luminaires, Appliances, Fans, and
Engineering & Projects. The company is the part of the Bajaj Group and has distribution
arrangements with Trilux lenze of Germany (for luminaries), Delta controls of Canada (for building
management systems), Securiton of Switzerland (for security systems), Morphy Richards of UK
and Nardi of Italy (for appliances), Disney of USA and Midea of China (for fans). The company has
also invested in Starlite Lighting for manufacture of energy saving lamps. BEL is also in the
business of manufacturing, erection and commissioning transmission line towers, telecom towers,
mobile telecom towers and wind energy towers.
BEL is also setting up its own R&D centre, which will integrate all the R&D activities across its
various verticals under one roof. The aim is to save cost and develop innovative end
environmental friendly products in future. The company has also entered into technology tie-ups
with international players for marketing their products in India. Some appliances are marketed
under the Morphy Richards brand name. Most of the lamps are manufactured by their group
company, Hind Lamps, in technical collaboration with Philips N.V. of Holland. BEL has a pan India
presence with an excellent distribution network of over 5,000 dealers across India coupled with
more than 400,000 retailers.
Business Segments
Lighting
25% of
revenue
s
Consumer
Durables
Engineering &
Projects
48% of
revenue
s
27% of
revenue
s
Q1FY13 net up 8.3% to `119.8 million; led by subdued performance in E&P
BEL reported 8.3% growth in its first
quarter net profit at `119.8 million
compared to `110.6 million in the
corresponding period last year, due
to subdued performance in E&P
(Engineering & Project) segment.
BEL reported an 8.3% growth in its first quarter net profit at `119.8 million compared to `110.6
million in the corresponding period last year, due to subdued performance in E&P (Engineering &
Project) segment. Further, the poor market conditions such as commodity prices volatility and
exchange rate fluctuations also hampered the bottom-line. While, net sales for Q1’FY13 stood at
`6,661.9 million as against `5,443.6 crore in the first quarter of the previous year, a jump of 22.4%
on yoy basis led by robust growth of 29% in the consumer durable segment.
The consumer durable segment has performed well registering a growth of 28.8% over the
previous period and the lighting segment continuing its good work with a revenue growth of 19.6%
backed by strong growth in volumes. Further, the growth in the consumer durables segment was
led by 13% growth in the fan segment, 29% surge in sales of Morphy Richards brand and 32% rise
in sales for Bajaj Appliances. But the strong growth in overall revenue was offset by pressure on
margins and continued sluggishness in the engineering and projects business. The performance of
the Engineering and Project division continues to perform badly, dragging the overall company's
performance, as the overall EBIDTA margin of the company declined by 35bps YoY and 294bps
QoQ to 5.19%. Although revenues in E&P division registered an 8.47% YoY growth while, EBIT
margins slipped to - 5.73% on the back of escalating cost due to delay in projects execution.
However management is confident to come back strongly in this business from Q3 FY'13 onwards.
Segment-wise revenue trend
Restructuring of business to augment growth
BEL is restructuring the business with
separate focus on the consumer
products and B2B products in order
to augment growth.
Restructuring exercise with separate focus on the consumer products and B2B products undertaken
by BEL would augment growth in both the divisions. B2B division includes engineering projects and
luminaires segment, while consumer products comprises of all the lighting appliances, fans, and
Morphy Richards. The company aims to bring in business synergies with this new organizational
structure and the realignment of the business verticals.
Also, the company has appointed Mr. Anant Bajaj as the Joint MD to lead the organization post this
restructuring focusing on high margin products. The consumer products unit would be headed by
executive director PS Tandon while the B2B vertical will be managed by executive director Lalit
Mehta. Besides, it is setting up a R&D center within a year, which will integrate the entire R&D across
its various verticals under one roof to save costs and develop innovative products in future.
Consumer durable segment to sustain high growth momentum
BEL’s appliances BU continues to
be on the path of aggressive
growth and has achieved a
turnover of `8,380 million with a
growth of 23% and CAGR of 28%
during the financial year 2011-12.
BEL maintained its dominant position in the marketing of electrical consumer durable and offers an
array of product for both small appliances and fans. The appliances BU continues to be on the path
of aggressive growth and has achieved a turnover of `8,380 million with a growth of 23% and CAGR
of 28% during the financial year 2011-12. The company maintained its dominance in Small
Appliances Industry, with leadership position in Irons, Water Heaters, Toasters & Grillers and
Mixers. Further, the company wants to expand through this segment and has plans to set up 60
Exclusive Bajaj Showrooms named “Bajaj World” in current finance year in major cities across India
in order to make Bajaj Appliances and other products to have more visibility. Further to deepen its
presence in the rural market, the company has plans to distribute various products through the
outlets of BPCL, IOCL, Coremondel and IRC Choupal. Besides, the Fans BU has achieved Sales of
`5,460 crore with growth of 6.7% and CAGR of 20.4%, as against the de-growth witnessed by the
Industry. The BU has a market share of about 17%.
Strong brand positioning with sizeable market share
BEL has a pan India presence with
an excellent distribution network
of over 5,000 dealers across India
coupled with more than 400,000
retailers.
BEL is one of the market leaders in most of its business segments. For the year gone by the company
maintained its dominance in various product categories, markets, quality, etc. by ensuring
continuous improvements in products & processes, widening of the product range and entering
new categories and geographies. Further, with the growing disposable incomes and increasing
preference for brand/quality has resulted in a structural shift from the unorganized sector to the
organized segment will boost the growth of its consumer durables and lighting businesses. Pick-up
in demand for lighting and consumer business in tier II cities has augers well for company's growth.
BEL has a pan India presence with an excellent distribution network of over 5,000 dealers across
India coupled with more than 400,000 retailers. Further, the company has plans to open over 70
Bajaj World retail outlets this year, of which 50 will be in small towns, in a move to further deepen
its presence. Further, the company expects the exports to reach `650-750mn by the end of this
financial year.
Bajaj Electricals maintains FY13 sales target of `38 billion
BEL remains confident of
achieving a sales target of `38
billion supported by strong
growth in consumer durables
and lighting.
Bajaj Electricals remains confident of achieving a sales target of `38 billion supported by strong
growth in consumer durables and lighting, despite the challenging external business conditions. The
Consumer Durables segment (~50% of revenues) is expected to continue its growth momentum and
may witness improvement in margins on the back of stability in exchange rate and price hikes taken
by the company. Further, the company has guided for 20% revenue growth in its Consumer Durables
segment along with 10.5% EBIT margin for FY13. Further, the Management has guided for 20%
revenue growth with 7.5% EBIT margin for FY13 in its lighting segment and 15% growth in
luminaires. Besides, in a bid to reduce the impact of the commodity prices volatility and exchange
rate fluctuations, the company is taking price hikes to offset the pressures and expects margins will
be back on track by the second quarter. BEL also remains focused towards cost reduction through
Research and Development, Value Engineering reduction in working capital deployment by
implementation of the principles of Theory of Constraints, improvement in IT infrastructure and
systems thereby enhancing business through e-commerce and higher security controls, etc.
Tie-ups with leading players to support exponential growth
BEL’s tie-up with globally reputed brands gives an edge over competition. To propel the future
growth, the company made various foreign technical collaborations with world leaders in the
respective product groups which ensure quality products. The company has tie-ups with leading
players including Morphy Richards, Nardi Elettrodomestici Spa, Midea, Walt Disney etc. Now, the
tie-ups enhance the competitive position of the company and enjoy a strong reputation regarding
quality and technology for their products and services.
BEL has tie-up with leading
players
including
Morphy
Richards, Nardi Elettrodomestici
Spa, Midea, Walt Disney etc
which gives an edge over
competition.
Morphy Richards (MR) is the No.1 Indian brand in Kettles, Toasters, Coffee Makers and Oven
Toaster Grillers. MR is the fastest growing brand and the first to cross the `1,000 million in the
Indian small domestic appliances market. It is preparing to launch a new range of sophisticated and
versatile food processors in the current financial year and has plans to launch, a range of feature
rich and differentiated Induction Cookers with copper coils, a unique selling proposition in the
Indian market. During the last financial year, the BU has introduced new products like Microwave
Ovens, Induction & Radiant cookers, deep fryers, steam mops and steam cleaners and has plans to
enter into new categories like Water Heaters and Fans in the next financial year. MR is also pushing
for an increased retail reach to 14,000 retail outlets and distribution coverage in the top 500 urban
markets across the country. During FY12, it has achieved sales of `1,430 million, with a growth of
37% and targeting sales of over `2,000 million in FY13E.
BEL also tied up with Italy based Nardi Elettrodomestici Spa for gas appliances, cooking etc. With
the tie-up, the company targets 25% market share of kitchen appliance. In the fans segment, the
company has tied up with Midea (China), the world’s largest fan company, for TPW (table, pedestal
and wall) fans, and with Walt Disney for children’s fans. Bajaj fans have unchallenged leadership in
12 major states in the country and a dominant player in 6 states backed by strong relationships
with its vendors located across the states in India.
Restructuring of E&P projects to improve performance from H2FY13
BEL is doing restructuring of E&P
projects by closing its long
delayed orders and sharply
focusing on profitability for new
orders.
BEL is the undisputed leader in turnkey illumination projects and high mast lighting system,
including design, supply, installation, testing and commissioning. With foray into E&P segment, BEL
turned into a complete electrical solution provider from a pure electrical product supplier. Also, it
helps the company in securing large size orders for lighting division. Further, its vast experience in
power distribution & transmission-line segment helps the company in getting its first 765-KV
transmission line order from Power Grid Corporation of India Ltd. (PGCIL) during FY12.
While, the company has reported dismal performance in the E&P segment from the past few
quarters as margins have dropped due to increase in competition & sluggish order flow. The
market conditions for the E&P segment remain tough with overall slow pace of infra sector growth.
During FY12, revenue of the E&P BU was flat at `8.3 billion. It produced 4,655 nos. of Highmasts
and 53,279 nos. of Street Lighting Poles as against 4,200 nos. and 45,000 nos. respectively in the
previous year. The BU also manufactured 24,035 MT of transmission line towers as against 19,004
MT in the previous year. The company desperately requires high-value orders to sustain growth
path.
BEL is taking measures for restructuring its order book by closing long delayed orders and sharply
focusing on profitability for new orders. The company has 24 sites for transmission line towers
(TLT) and expecting 18 to close down by March 2013.
Order book and revenue trend of E&P segment
The management also expects that in coming quarters the performance would improve on
increase in government spending on infrastructure development through various programs like
Restructured-Accelerated Power Development and Reform Programme (R-APDRP), new packages
under Rajeev Gandhi Gramin Vidyutikaran Yojana to reduce the power deficit by adding around
100,000 MW power generation capacities in the 12th plan. This would result in spending on
transmission & distribution, which will offer better opportunity for business to the BU.
Currently, the company’s order book stood over `4.5 billion comprising of `1,330 million of TLT,
`640 million of high mast and poles and `2,530 million of special projects, which translates into
robust book-to-bill ratio of over 1.8x of its FY’12 earnings and providing the earning visibility for
ensuring 15-18 months. Further, the company expects order book would increase to `7-8 billion by
Q2FY13.
Lighting & Luminaires to aid growth led by rising CFL demand
Despite intense competition and
rapidly changing market dynamics,
lighting and luminaires business
revenues surged impressively by
28.7% YoY and 13.6% YoY
respectively in FY12.
BEL markets a wide range of light sources and domestic luminaires. The light sources include
general lighting service (GLS) lamps, fluorescent tube lights (FTL), compact fluorescent lamps (CFL)
and special purpose lamps. The company entered the CFL market through the acquisition of a 32%
stake in Starlite Lighting Ltd. Under luminaires business, it markets a comprehensive range of
luminaires (light fittings) covering, commercial, industrial, flood lighting, street lighting and posttop lighting. At present, this BU is developing a new generation of energy saving luminaires with
LEDs and induction lamps.
Despite intense competition and rapidly changing market dynamics, revenues grew impressively
by 21.1% at `7,650 million during FY12. The lighting business revenues surged by 28.7% YoY at
`4,070 million and luminaires revenues swelled by 13.6% YoY at `3,580 million. The CFL (Compact
Fluorescent Lamps) sale has increased by 41% over last year and crossed `2,500 million mark. This
growth is the result of awareness among consumers for energy-saving. Further, both the segments
have seen improvement in their margins. In line with the growth plans, the company is focusing on
developing energy-efficient consumer luminaire and lighting products based on LED and lighting
control technologies which is a global mandate to arrest global warming.
Balance Sheet
(`million)
Profit & Loss Account
FY11A
FY12A
FY13E
FY14E
197.7
199.3
199.3
199.3
Reserve and surplus
5,913.4
6,799.3
8,687.9
11,127.8
Net Worth
6,111.1
6,998.6
8,887.2
11,327.1
Loan funds
1,121.7
1,871.6
2,376.6
3,029.1
730.7
797.5
977.6
1,132.7
9,693.8
9,847.9
10,663.2
11,409.6
Capital Employed
17,657.3
19,515.5
22,904.6
26,898.5
Total Fixed Assets
1,532.8
1,869.8
2,194.6
2,577.2
365.8
440.6
517.1
607.2
20.1
19.4
21.4
23.5
Loans & Advances
1,651.0
2,014.6
2,375.2
2,784.7
Trade Receivables
10,655.6
11,082.2
13,298.6
15,958.3
3,431.9
4,088.9
4,497.8
4,947.6
17,657.3
19,515.5
22,904.6
26,898.5
Share Capital
Provisions
Other Liabilities
(`million)
FY11A
FY12A
FY13E
FY14E
Total Operating
Income
27,574.0
31,133.7
38,211.1
45,069.4
Expenses
24,864.0
28,618.6
34,582.6
40,583.2
2,710.1
2,515.2
3,628.5
4,486.2
108.0
125.2
153.8
181.5
2,602.1
2,390.0
3,474.7
4,304.7
366.5
630.5
774.4
913.8
Exceptional Item
50.0
0.0
0.0
0.0
Profit Before Tax
2,185.6
1,759.5
2,700.3
3,390.9
747.7
580.7
810.1
949.4
1,437.9
1,178.8
1,890.2
2,441.5
EBITDA
Depreciation
EBIT
Interest
Investment
Deferred Tax assets
Other Current assets
Capital Deployed
Key Ratios
Tax
Net Profit
Valuation and view
FY11A
FY12A
FY13E
FY14E
EBITDA Margin (%)
9.8
8.1
9.5
10.0
EBIT Margin (%)
9.4
7.7
9.1
9.6
NPM (%)
5.2
3.8
4.9
5.4
ROCE (%)
14.7
12.2
15.2
16.0
ROE (%)
23.5
16.8
21.3
21.6
EPS (`)
14.5
11.8
19.0
24.5
P/E (x)
12.4
15.3
9.5
7.4
BVPS
61.8
70.2
89.1
113.6
P/BVPS (x)
2.9
2.6
2.0
1.6
EV/Operating Income (x)
0.7
0.6
0.5
0.5
EV/EBITDA (x)
7.0
7.8
5.5
4.6
EV/EBIT (x)
7.3
8.2
5.8
4.8
BEL has a varied business interest in consumer durables,
lighting and engineering & projects (E&P). With sizable
product portfolio, wide distribution network and tie-up with
reputed brands, the company has an edge over competitors.
Higher demand for appliances due to lifestyle changes augurs
well for the consumer businesses of the company. Besides,
recent restructuring, implementation of value engineering
and increasing volume growth would benefit the company in
driving the double-digit growth guided by the management.
Considering, the above aspects we recommend ‘BUY’ on Bajaj
Electricals Ltd. At the current market price of `181.0, the
stock is trading at a P/E of 9.5x on FY’13E EPS of `19.0 and
7.4x on FY’14E EPS of `24.5.
Indbank Merchant Banking Services Ltd.
I Floor, Khiviraj Complex I,
No.480, Anna Salai, Nandanam, Chennai 600035
Telephone No: 044 – 24313094 - 97
Fax No: 044 – 24313093
www.indbankonline.com
Disclaimer
@ All Rights Reserved
This report and Information contained in this report is solely for information purpose and may not be used as an offer document or solicitation
of offer to buy or sell or subscribe for securities or other financial instruments. The investment as mentioned and opinions expressed in this
report may not be suitable for all investors. In rendering this information, we assumed and relied upon, without independent verification, the
accuracy and completeness of all information that was publicly available to us. The information has been obtained from the sources that we
believe to be reliable as to the accuracy or completeness. While every effort is made to ensure the accuracy and completeness of information
contained, Indbank Limited and its affiliates take no guarantee and assume no liability for any errors or omissions of the information. This
information is given in good faith and we make no representations or warranties, express or implied as to the accuracy or completeness of the
information. No one can use the information as the basis for any claim, demand or cause of action.
Indbank and its affiliates shall not be liable for any direct or indirect losses or damage of any kind arising from the use thereof. Opinion
expressed is our current opinion as of the date appearing in this report only and are subject to change without any notice.
Recipients of this report must make their own investment decisions, based on their own investment objectives, financial positions and needs of
the specific recipient. The recipient should independently evaluate the investment risks and should make such investigations as it deems
necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document and should
consult their advisors to determine the merits and risks of such investment.
The report and information contained herein is strictly confidential and meant solely for the selected recipient and is not meant for public
distribution. This document should not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or
to the media or reproduced, duplicated or sold in any form.