Bajaj Electricals
Bunching up multiple growth stories
With wide range of products and engineering capabilities, the company benefits from excellent growth prospects in power, retail as well as industrial capex
| Buy | Bajaj Electricals |
| BSE Code | 500031 |
| NSE Code | BAJAJELEC |
| Bloomberg | BJE@IN |
| Reuter | BJEL.BO |
| 52-week High/Low | Rs 385 / Rs 186 |
| Current Price | Rs 366 (as on 14th November 2007) |
A part of the Shekhar Bajaj Group (Promoter holding: 67.49%), Bajaj Electricals (BEL) is a 69-year-old Engineering company, with interest in Lighting, Luminaires, Appliances, Fans, and Engineering & Projects.
It has 19 branch offices, a chain of 600 distributors, 3000 authorised dealers, over 1,20,000 retail outlets and over 200 service franchises spread across the country.
PAT more than doubles for the quarter and six months ended September 2007
The company has been focusing on enhancing revenue growth through introduction of new products, expansion of the dealer and retailer network along with good brand building efforts. The various actions that the company had taken for effective cost control, value engineering, competitive sourcing and improving credit discipline including introduction of channel finance continue and are giving good results.
For the quarter ended Sep’07 Bajaj Electricals has reported a 31% growth in net sales to Rs 304.89 crore. Operating profit margins shot up to 9.7% (up by 250 bps), leading the operating profit to increase by 77% to Rs 29.70 crore. Other Income increased by 129% to Rs 0.64 crore. Interest expenses went up 23% to Rs 7.66 crore while provision for depreciation has increased by 8% to Rs 1.82 crore. Thus PBT before EO zoomed by 128% to Rs 20.86 crore. EO was nil as against an expense of Rs 0.15 crore, representing amortization of expenditure in respect of voluntary retirement schemes. Thus, PBT after EO stood at Rs 20.86 crore (up by 132%). The provision for tax (including FBT and deferred tax) for the quarter was Rs 7.67 crore as against Rs 2.96 crore in the corresponding previous quarter. Finally, PAT reported a scintillating growth of 121% at Rs 13.19 crore.
For the half year ended Sep’07, net sales increased by 32% to Rs 557.16 crore. The Net profit recorded a growth of 117% at Rs 20.96 crore.
All business segments are on strong growth path
Lighting division- poised for improved growth in the future:
The Lighting BU markets a wide range of lamps and tube lights, which includes General Lighting Service (GLS) filament lamps, Fluorescent Tube Lights (FTL), Compact Fluorescent Lamps (CFL), miniature lamps and special purpose lamps. A strong distribution network exists for marketing these lamps both in urban and rural areas. The manufacturing of GLS and FTL lamps is undertaken at Hind Lamps, an associate company of BEL, located in U.P. Other lamps such as High Intensity Discharge (HID) lamps like mercury vapour and sodium vapour lamps, metal halide lamps and tungsten halogen lamps are marketed by the luminaires division.
For the quarter ended Sep’07 the lighting division has reported growth in revenue of 22% to Rs 95.93 crore contributing almost 31% to the total revenue and the segment PBIT of the same reported a 39% growth at Rs 5.07 crore (contributing to 17% of total PBIT).
For the six month ended Sep’07 the lighting division reported growth in revenue of 21% to Rs 164.25 crore contributing almost 29% to the total revenue and the segment PBIT of the same reported a 21% growth at Rs 7.01 crore (contributing to 14% of total PBIT).
This BU has successfully introduced new models like Ecospot, Ecofocus and Eline range of energy efficient consumer luminaries and completed Reliance Consumer Project by selling 6 million CFLs. The BU has continued to improve its retail presence by expanding its network and reaching in over 165000 outlets.
Consumer Durables- introducing new products and increasing competitive advantage:
The consumer durables division has reported growth in revenue of 35% to Rs 127.85 crore contributing 42% to the total revenue and the segment PBIT for the quarter stood at Rs 11.80 crore which was 101% higher as compared to the corresponding previous quarter and contributed around 40% to the results.
For the six month ended the consumer durables division has reported revenue growth of 36% to Rs 257.90 crore contributing 46% to the total revenue and the segment PBIT for the quarter stood at Rs 23.98 crore which was 87% higher and contributed around 50% to the results.
This division continues to remain a celebrant leader in small appliances and Mixer category with sales of over 4,00,000 number in the Mixer category. The BU continues to dominate the Iron category by achieving a record sale of over 1 million Irons in a financial year. This BU has entered the Modern Retail format in a big way with a sale of over Rs 12 crore in 2006-07.
The company’s Morphy Richard brand products like Ovens, Mixers, Irons, Toasters, etc. introduced in the premium segment continued to receive a good consumer acceptance across 100 cities in the country where it has been introduced. The contribution from this product range is expected to grow significantly in the coming years.
The company has continued to introduce new products and different models in the existing Bajaj range of products and improve the technology and quality, wherever possible, in order to have a competitive advantage. Recent new product categories include inverters and UPS, both of which have excellent growth potential.
Engineering & Project division-ever increasing demands from the Infrastructure, & Power Transmission offers significant opportunity:
During the quarter ended September 2007, this division registered net sales of Rs 80.50 crore compared to Rs 59.20 crore and a segment PBIT of Rs 11.66 crore as against Rs 5.58 crore. This division contributed 26% to total revenue and 40% to total PBIT of the company.
During the six month quarter ended September 2007, this division reported net sales of Rs 134.26 crore, up 37%. It contributed to 24% of the total sales for the six months. This division registered segment PBIT of Rs 17.43 crore, up 74% and contributed 36% of the total PBIT.
The E & P BU has maintained its capacity utilisation of 100%. In FY 2007, this division produced 2,970 nos. of Highmasts and 17,181 nos. of Poles as against 1,760 nos. and 14,951 nos. respectively in the previous year. The Unit also manufactured 25,223 MT of transmission line towers as against 22,822 MT in the previous year.
The Unit continues to enjoy dominance in Highmast business with over 65% market share. The continued focus of the government on infrastructure offers a good opportunity to this BU's various business portfolios viz. Power Transmission, Highmast Street Lighting and Special Projects, to improve its growth and profitability in the future too.
This BU has received prestigious orders from BHEL for power plant illumination and the work at 14 different power station sites is under execution.
On track for achieving targeted revenue of Rs 2000 crore by 2010
The company had targeted Rs 1000 crore of sales in FY 2007. Against this, it has achieved sales of Rs 1079 crore.
For the six month of FY 2008 ended September 2007, its sales have improved by 32% to Rs 557.16 crore.
Through both organic and inorganic growth strategies, the company aims to reach the targeted turnover of Rs 2,000 crore in 2010.
By acquiring Starlite Lighting the company will grow its lightning business in a big way
The company has acquired 32% stake in Starlite Lighting Limited. This Equity participation in Starlite Lighting Ltd., a CFL manufacturer, is one of the major events that took place during FY 2007, which is expected to help the BU in a big way both in terms of quality and volumes. The proposed star ratings for energy efficient products being introduced from April 2007 will provide a good thrust to the FTL segments in 2007-08 as against a sluggish market situation in 2006-07.
Starlite has a production capacity of 10 million CFLs per annum, of which more than half is consumed by Bajaj Electricals. It exports more than 50% of its production and supplies lighting equipment to Sweden-based furniture retailer IKEA and other supermarket chains in Europe.
Has secured orders for 2007 and 2008 national games to provide impetus to the financials; frontrunner for 2010 Commonwealth Games
The company has bagged orders to provide lights for the 2007 National Games in Guwahati and the 2008 National Games in Ranchi. These orders will provide the company with steady growth for the next two years.
On the other hand, Bajaj Electricals is one of the front-runners for lighting-up New Delhi for the Commonwealth Games 2010. The Rs 500 crore project includes illumination of streets, stadiums and games villages. The company is planning to decorate the capital with designed lamps of various hues and high masts.
New light and fresh air from Licencing agreements with leading foreign companies
The company announced a tie-up with a UK-based company ‘Helver’ to act as a brand licensee for distributing lighting controls and dimmable ballasts. These include high-tech products that adjust lighting for rooms based on actual lighting situations.
The Luminaire business of the company has successfully launched the Trilux products in India through a distribution arrangement with M/s.Trilux Lenze of Germany, who are a leading Luminaire Company in Europe. The lighting BU with its improved distribution network, wide product range, and efficient sourcing strategies is poised for improved growth in the future.
It markets Morphy Richard-branded products like ovens, mixers, irons and toasters catering to the premium segment.
Major contribution to come from the Engineering and project business to achieve Rs 2000 crore sales mark in FY 2010; others will also contribute significantly
Engineering and projects business unit will play an important role in its plans of being a Rs 2000 crore company by FY 2010. Currently, this segment accounts for just over 28% of the total revenues. Contribution from this business unit will increase along with the rise in the revenues.
Till recently, the company was only into the manufacture of power transmission towers. It has recently also entered in to the erection and commissioning of power transmission towers, which will be the main growth driver for the future. This division also deals with telecom transmission towers were companies like Reliance, Bharti, Tatas are all its customers. BEL is also into wind energy towers.
The BU's strategy of growth with diversification in related areas has been paying rich dividends. The successful launch of India's first 400 KV Transmission Line Monopole for Powergrid Corporation of India has opened new avenues of growth. The highmast and street lighting business has also crossed Rs 100 crore mark, with record dispatch of over 2900 masts and over 17000 street light poles. This BU's Ranjangaon Unit has achieved 100% capacity utilization and dispatched over 30,000 MT of galvanized material.
This BU has received prestigious orders from BHEL for power plant illumination and the work at 14 different power station sites is under execution.
In FY 2007 the BU has ventured into the rural electrification sector and is currently executing a project worth Rs 53 crore in Chattisgarh District, which will provide electricity to nearly 40,000 below poverty line (BPL) homes.
The company plans to invest Rs 30 crore in its Ranjangaon facility to raise the processing capacity from 30,000 tonnes of steel to 50,000 tonnes. The higher capacity of the high mast plant would help in total substitution of imports from the UK and West Asia till now. The plant would also cater to the hot dip galvanising needs of the infrastructure sector, particularly in Maharashtra and neighbouring states.
The company supplies masts of 11-60 m height. It has a market share of over 65% in this business. It had recently supplied complete turnkey solutions comprising high masts and lights to the Chennai Port and Guwahati Stadium
The company sees opportunity in urban projects being undertaken by various municipal corporations. Using of pole-hoisted signages by petrol stations is also a major boost for our business. There is also huge scope in the transmission line towers (TLTs) and other lattice structures business.
Illuminating outlook
The company has a good business portfolio with both consumer facing and industry facing businesses. The higher propensity to spend by the Indian consumer, increasing urbanisation and accelerating growth in organised retail augurs well for the consumer facing businesses of Appliances, Fans and Lighting. Increasing availability of power in the long-run will also benefit its consumer electrical business.
With increasing industrial activity, growing investments, higher capacity creation and greater infrastructure focus, the Luminaires and Engineering & Projects businesses are also likely to enjoy healthy growth rates.
The company’s business strategy is going in the right direction and will contribute to strengthening the organization in the years ahead. The company will emphasize to have a healthy mix of high-end products contributing to the bottom-line along with achieving Rs 2000 crore sales mark in FY 2010.
Attractive valuation
We expect the company to register sales and net profit of Rs 1377.01 crore and Rs 60.69 crore in FY 2008. On equity of Rs 17.29 crore and face value of Rs 10 per share, EPS works out to Rs 35.1. At current price of Rs 366, the scrip is available at a P/E of just 10.4.
| | 0303 (12) | 0403 (12) | 0503 (12) | 0603 (12) | 0703 (12) | 0803 (12P) |
| Net Sales | 443.14 | 506.92 | 649.63 | 844.21 | 1078.86 | 1377.01 |
| OPM (%) | 1.6 | 5.2 | 6.8 | 8.1 | 8.1 | 9.1 |
| OP | 6.90 | 26.30 | 43.92 | 68.07 | 87.52 | 125.03 |
| Other inc. | 6.98 | 3.39 | 1.62 | 1.95 | 4.30 | 6.94 |
| PBIDT | 13.88 | 29.69 | 45.54 | 70.02 | 91.82 | 131.97 |
| Interest | 18.07 | 18.65 | 16.38 | 17.96 | 23.07 | 29.52 |
| PBDT | -4.19 | 11.04 | 29.16 | 52.06 | 68.75 | 102.45 |
| Dep. | 6.36 | 6.02 | 5.99 | 6.38 | 7.28 | 7.80 |
| PBT | -10.55 | 5.02 | 23.17 | 45.68 | 61.47 | 94.65 |
| EO | -2.93 | 11.70 | -1.38 | 1.30 | -1.18 | 0.03 |
| PBT after EO | -13.48 | 16.72 | 21.79 | 46.98 | 60.29 | 94.62 |
| Tax | -3.41 | 5.36 | 7.95 | 17.15 | 21.68 | 33.93 |
| PAT | -10.07 | 11.36 | 13.84 | 28.20 | 38.53 | 60.69 |
| EPS (Rs)* | -5.8 | 6.6 | 8.0 | 16.3 | 22.3 | 35.1 |
| * Annualised on current equity of Rs 17.29 crore; | ||||||
| Bajaj Electricals: Results |
| | 0709(3) | 0609(3) | Var. (%) | 0709(6) | 0609(6) | Var. (%) | 0703 (12) | 0603 (12) | Var. (%) |
| Net sales | 304.89 | 233.44 | 31 | 557.16 | 422.98 | 32 | 1078.86 | 845.89 | 28 |
| Compensation- | 0 | 0 | | 0 | 0 | | 0 | 1.68 | -100 |
| Total Sales | 304.89 | 233.44 | 31 | 557.16 | 422.98 | 32 | 1078.86 | 844.21 | 28 |
| OPM (%) | 9.7 | 7.2 | | 8.9 | 7.1 | | 8.1 | 8.1 | |
| OP | 29.7 | 16.77 | 77 | 49.6 | 29.89 | 66 | 87.52 | 68.07 | 29 |
| Other inc. | 0.64 | 0.28 | 129 | 1.61 | 0.49 | 229 | 4.3 | 1.95 | 121 |
| PBIDT | 30.34 | 17.05 | 78 | 51.21 | 30.38 | 69 | 91.82 | 70.02 | 31 |
| Interest | 7.66 | 6.21 | 23 | 14.61 | 11.14 | 31 | 23.07 | 17.96 | 28 |
| PBDT | 22.68 | 10.84 | 109 | 36.6 | 19.24 | 90 | 68.75 | 52.06 | 32 |
| Dep. | 1.82 | 1.69 | 8 | 3.54 | 3.41 | 4 | 7.28 | 6.38 | 14 |
| PBT before EO | 20.86 | 9.15 | 128 | 33.06 | 15.83 | 109 | 61.47 | 45.68 | 35 |
| EO | 0 | 0.15 | 0 | 0.03 | 0.3 | -90 | -1.18 | 1.3 | PL |
| PBT | 20.86 | 9 | 132 | 33.03 | 15.53 | 113 | 60.29 | 46.98 | 28 |
| Taxation | 8.06 | 3.9 | 107 | 13.19 | 6.59 | 100 | 22 | 15.75 | 40 |
| Deferred Tax | -0.39 | -0.94 | -59 | -1.12 | -0.79 | 42 | -0.32 | 1.4 | LP |
| PAT before PPA | 13.19 | 6.04 | 118 | 20.96 | 9.73 | 115 | 38.61 | 29.83 | 29 |
| PPA | 0 | 0.06 | 0 | 0 | 0.06 | 0 | 0.08 | 1.63 | -95 |
| Net profit | 13.19 | 5.98 | 121 | 20.96 | 9.67 | 117 | 38.53 | 28.2 | 37 |
| EPS (Rs)* | # | # | | # | # | | 22.8 | 16.8 | |
| * Annualised on current equity of Rs 17.29 crore; | |||||||||
| Bajaj Electricals: Segment Results |
| | 0709(3) | 0609(3) | Var. (%) | % to total | 0709(6) | 0609(6) | Var. (%) | % to total | 0703 (12) | 0603 (12) | Var. (%) | % to total |
| Segment revenue | | | | | | | | | | | | |
| Lighting | 95.93 | 78.88 | 22 | 31 | 164.25 | 135.25 | 21 | 29 | 326.71 | 263.73 | 24 | 30 |
| Consumer durables | 127.85 | 94.63 | 35 | 42 | 257.90 | 189.10 | 36 | 46 | 445.4 | 335.42 | 33 | 41 |
| Engg & Proj. | 80.50 | 59.20 | 36 | 26 | 134.26 | 97.90 | 37 | 24 | 305.19 | 244.57 | 25 | 28 |
| Others | 0.61 | 0.73 | -16 | 0 | 0.75 | 0.73 | 3 | 0 | 1.56 | 2.17 | -28 | 0 |
| Total | 304.89 | 233.44 | 31 | 100 | 557.16 | 422.98 | 32 | 100 | 1078.86 | 845.89 | 28 | 100 |
| Less: Inter segment revenue | 0.00 | 0.00 | | | 0.00 | 0.00 | | | 0 | 0 | | |
| Net sales | 304.89 | 233.44 | 31 | | 557.16 | 422.98 | 32 | | 1078.86 | 845.89 | | |
| Results | | | | | | | | | | | | |
| Lighting | 5.07 | 3.65 | 39 | 17 | 7.01 | 5.79 | 21 | 14 | 16.43 | 14.56 | 13 | 20 |
| Consumer durables | 11.80 | 5.86 | 101 | 40 | 23.98 | 12.84 | 87 | 50 | 31.2 | 22.59 | 38 | 38 |
| Engg & Proj. | 11.66 | 5.58 | 109 | 40 | 17.43 | 10.01 | 74 | 36 | 36.08 | 32.02 | 13 | 43 |
| Others | 0.65 | 0.24 | 171 | 2 | -0.02 | -0.13 | -85 | 0 | -0.53 | 0.22 | -341 | -1 |
| PBT before tax and interest | 29.18 | 15.33 | 90 | 100 | 48.40 | 28.51 | 70 | 100 | 83.18 | 69.39 | 20 | 100 |
| Less: Interest | 7.66 | 6.21 | | | 14.61 | 11.14 | | | 23.07 | 17.96 | | |
| Less: Other unallocable income(Net) | 0.66 | 0.12 | | | 0.76 | 1.84 | | | -0.76 | 4.67 | | |
| PBT before EO | 20.86 | 9.00 | 132 | | 33.03 | 15.53 | 113 | | 60.87 | 46.76 | | |
| EO | 0.00 | 0.00 | | | 0.00 | 0.00 | | | -0.58 | 0.22 | | |
| PBT after EO | 20.86 | 9.00 | 132 | | 33.03 | 15.53 | 113 | | 60.29 | 46.98 | | |
| Capital Employed | | | | | | | | | | | | |
| Lighting | 10.91 | 22.86 | -52 | 3 | 10.91 | 22.86 | -52 | 3 | 15.93 | 14.69 | 8 | 5 |
| Consumer durables | 68.76 | 55.27 | 24 | 20 | 68.76 | 55.27 | 24 | 20 | 49.41 | 48.78 | 1 | 15 |
| Engg & Proj. | 254.68 | 181.29 | 40 | 74 | 254.68 | 181.29 | 40 | 74 | 249.8 | 191.77 | 30 | 76 |
| Others | 11.26 | 14.63 | -23 | 3 | 11.26 | 14.63 | -23 | 3 | 13.71 | 16.42 | -17 | 4 |
| Total CE | 345.61 | 274.05 | 26 | 100 | 345.61 | 274.05 | 26 | 100 | 328.85 | 271.66 | 21 | 100 |
| Add: Unallocable CE | 31.09 | 28.75 | 8 | | 31.09 | 28.75 | 8 | | 32.38 | 19.97 | 62 | |
| Total CE | 376.70 | 302.80 | 24 | | 376.70 | 302.80 | 24 | | 361.23 | 291.63 | 24 | |
| Figures in Rs crore | ||||||||||||
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