Bajaj Electricals
Electrifying growth to continue
In spite of the track record of consistent high growth and promising future, the scrip continues to be available at attractive valuation
| Buy | Bajaj Electricals |
| BSE Code | 500031 |
| NSE Code | BAJAJELEC |
| Bloomberg | BJE@IN |
| Reuter | BJEL.BO |
| 52-week High/Low | Rs 740 / 189 |
| Current Price | Rs 498 (as on 22nd February 2008) |
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 up 90% for the quarter and 103% for the nine month ended December 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 Dec’07 Bajaj Electricals has registered 30% growth in net sales to Rs 110.09 crore. Operating profit margins (OPM) advanced to 10.2% (up by 190 bps), leading the operating profit to an increase of 59% to Rs 37.18 crore.
Other Income has increased by 155% to Rs 2.09 crore. Interest expenses have increased by 22% to Rs 7.73 crore while provision for depreciation has increased by 14% to Rs 1.97 crore. Thus PBT registered a growth of 83% at Rs 29.57 crore. After providing for a taxation of Rs 10.65 crore as against Rs 6.20 crore, the Net profit recorded a robust growth of 90% at Rs 18.92 crore.
For the nine-month ended Dec’07, Net sales increased by 31% to Rs 922.29 crore. The operating profit advanced by 64% to Rs 86.75 crore on the back of 190 bps rise in OPM at 9.4%. The other income for the period increased by 182% to Rs 3.70 crore. The interest outgo spurted by 28% to Rs 22.34 crore and depreciation moved up by 7% to Rs 5.51 crore, thereby resulting in a PBT of Rs 62.60 crore, up by 98%. After accounting for a taxation (including FBT and deferred tax) of Rs 22.72 crore as against Rs 12 crore in the corresponding previous period, the Net profit
All business segments are on strong growth path
Lighting division-bright days ahead:
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 Dec’07 the lighting division has reported growth in revenue of 30% to Rs 110.09 crore contributing almost 30% to the total revenue and the segment PBIT of the same reported a whopping growth of 462% at Rs 7.75 crore (contributing to 21% of total PBIT).
For the nine month ended Dec 2007 the lighting division reported growth in revenue of 25% to Rs 274.34 crore contributing almost 30% to the total revenue and the segment PBIT of the same reported a 106% growth at Rs 14.76 crore (contributing to 17% 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- new products increases competitive advantage:
The consumer durables division has reported growth in revenue of 37% to Rs 159.99 crore contributing 44% to the total revenue and the segment PBIT for the quarter stood at Rs 15.95 crore which was 80% higher as compared to the corresponding previous quarter and contributed around 43% to the results.
For the nine month ended Dec 2007 this division reported growth in revenue of 36% to Rs 417.89 crore contributing almost 45% to the total revenue and the segment PBIT of the same reported a 84% growth at Rs 39.93 crore (contributing to 47% of total PBIT).
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-increasing demands from the Infrastructure, & Power Transmission offers significant opportunity:
Engineering & Projects division reported Net sales of Rs 94.68 crore compared to Rs 80.86 crore in the corresponding previous quarter and a segment PBIT of Rs 12.73 crore as against Rs 11.40 crore. This division contributed 26% to total revenue and 35% to total PBIT of the company.
For the nine month ended Dec 2007 this division reported growth in revenue of 28% to Rs 228.94 crore contributing 25% to the total revenue and the segment PBIT of the same reported a 41% growth at Rs 30.16 crore (contributing to 35% of total PBIT).
This division continues to maintain 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.
Achieving targeted revenue of Rs 2000 crore by 2010 seems more likely than ever
The company had targeted Rs 1000 crore of sales in FY 2007. Against this, it has achieved sales of Rs 1079 crore.
For the nine months of FY 2008 ended September 2007, its sales have improved by 31% to Rs 922.29 crore.
Through both organic and inorganic growth strategies, the company aims to reach the targeted turnover of Rs 2,000 crore in 2010.
Eyeing European companies for inorganic growth
Bajaj Electricals is on the lookout for an acquisition overseas. The company, which has targeted the European Union market, is in talks with European firms for the acquisition.
The company currently exports to Oman, Qatar, Saudi Arabia, Bahrain, Yemen, Jordan, South Africa, Zambia, Kenya, Uganda, Bangladesh and Sri Lanka, among others. The products exported include fans, luminaries and GLS lamps. It now plans to tap the Latin American and European markets.
Open offer at Rs 389 is unsuccessful
To consolidate promoters' holdings, the Bajaj Brothers - Rahul, Shekhar, Madhur and Niraj – had made an voluntary open offer to acquire 12.10 lakh shares of Bajaj Electricals (BEL) at Rs 389 per share. The offer which opened on January 24, 2008 and remained open till February 12, 2008 was largely unsuccessful.
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 and lighting 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 1380.37 crore and Rs 66.59 crore in FY 2008. On equity of Rs 17.29 crore and face value of Rs 10 per share, EPS works out to Rs 38.5. The EPS is projected to rise to Rs 51 in FY 2009. At current price of Rs 498, the scrip is available at a P/E of just 12.9 on FY 2008 EPS and of 9.8 on FY 2009 EPS..
| | 0403 (12) | 0503 (12) | 0603 (12) | 0703 (12) | 0803 (12P) | 0903 (12P) |
| Net Sales | 506.92 | 649.63 | 844.21 | 1078.86 | 1380.37 | 1725.46 |
| OPM (%) | 5.2 | 6.8 | 8.1 | 8.1 | 9.7 | 9.7 |
| OP | 26.30 | 43.92 | 68.07 | 87.52 | 133.47 | 167.37 |
| Other inc. | 3.39 | 1.62 | 1.95 | 4.30 | 7.70 | 15.00 |
| PBIDT | 29.69 | 45.54 | 70.02 | 91.82 | 141.17 | 182.37 |
| Interest | 18.65 | 16.38 | 17.96 | 23.07 | 29.17 | 35.59 |
| PBDT | 11.04 | 29.16 | 52.06 | 68.75 | 112.00 | 146.78 |
| Dep. | 6.02 | 5.99 | 6.38 | 7.28 | 7.95 | 8.90 |
| PBT | 5.02 | 23.17 | 45.68 | 61.47 | 104.05 | 137.88 |
| EO | 11.70 | -1.38 | 1.30 | -1.18 | 0.00 | 0.00 |
| PBT after EO | 16.72 | 21.79 | 46.98 | 60.29 | 104.05 | 137.88 |
| Tax | 5.36 | 7.95 | 17.15 | 21.68 | 37.46 | 49.64 |
| PAT | 11.36 | 13.84 | 28.20 | 38.53 | 66.59 | 88.24 |
| EPS (Rs)* | 6.6 | 8.0 | 16.3 | 22.3 | 38.5 | 51.0 |
| * Annualised on current equity of Rs 17.29 crore; | ||||||
| Bajaj Electricals: Results |
| | 0712(3) | 0612(3) | Var. (%) | 0712(9) | 0612(9) | Var. (%) | 0703 (12) | 0603 (12) | Var. (%) |
| Net sales | 365.13 | 283.3 | 29 | 922.29 | 706.44 | 31 | 1078.86 | 845.89 | 28 |
| OPM (%) | 10.2 | 8.3 | | 9.4 | 7.5 | | 8.1 | 8.1 | |
| OP | 37.18 | 23.39 | 59 | 86.75 | 52.98 | 64 | 87.52 | 68.07 | 29 |
| Other inc. | 2.09 | 0.82 | 155 | 3.7 | 1.31 | 182 | 4.3 | 1.95 | 121 |
| PBIDT | 39.27 | 24.21 | 62 | 90.45 | 54.29 | 67 | 91.82 | 70.02 | 31 |
| Interest | 7.73 | 6.33 | 22 | 22.34 | 17.47 | 28 | 23.07 | 17.96 | 28 |
| PBDT | 31.54 | 17.88 | 76 | 68.11 | 36.82 | 85 | 68.75 | 52.06 | 32 |
| Dep. | 1.97 | 1.73 | 14 | 5.51 | 5.14 | 7 | 7.28 | 6.38 | 14 |
| PBT before EO | 29.57 | 16.15 | 83 | 62.6 | 31.68 | 98 | 61.47 | 45.68 | 35 |
| EO | 0.00 | 0.00 | -- | 0.00 | 0.00 | -- | -1.18 | 1.30 | PL |
| PBT | 29.57 | 16.15 | 83 | 62.6 | 31.68 | 98 | 60.29 | 46.98 | 28 |
| Taxation | 11.47 | 6.02 | 91 | 24.66 | 12.61 | 96 | 22 | 15.75 | 40 |
| Deferred Tax | -0.82 | 0.18 | -556 | -1.94 | -0.61 | 218 | -0.32 | 1.4 | LP |
| PAT before PPA | 18.92 | 9.95 | 90 | 39.88 | 19.68 | 103 | 38.61 | 29.83 | 29 |
| PPA | 0 | 0 | 0 | 0 | 0 | 0 | 0.08 | 1.63 | -95 |
| Net profit | 18.92 | 9.95 | 90 | 39.88 | 19.68 | 103 | 38.53 | 28.2 | 37 |
| EPS (Rs)* | # | # | | # | # | | 22.8 | 16.8 | |
| * Annualised on current equity of Rs 17.29 crore; | |||||||||
| Bajaj Electricals: Segment Results |
| | 0712(3) | 0612(3) | Var. (%) | % to total | 0712(9) | 0612(9) | Var. (%) | % to total | 0703 (12) | 0603 (12) | Var. (%) | % to total |
| Segment revenue | | | | | | | | | | | | |
| Lighting | 110.09 | 84.92 | 30 | 30 | 274.34 | 220.17 | 25 | 30 | 326.71 | 263.73 | 24 | 30 |
| Consumer durables | 159.99 | 117.16 | 37 | 44 | 417.89 | 306.26 | 36 | 45 | 445.4 | 335.42 | 33 | 41 |
| Engg & Proj. | 94.68 | 80.86 | 17 | 26 | 228.94 | 178.76 | 28 | 25 | 305.19 | 244.57 | 25 | 28 |
| Others | 0.37 | 0.36 | 3 | 0 | 1.12 | 1.25 | -10 | 0 | 1.56 | 2.17 | -28 | 0 |
| Total | 365.13 | 283.30 | 29 | 100 | 922.29 | 706.44 | 31 | 100 | 1078.86 | 845.89 | 28 | 100 |
| Less: Inter segment revenue | | | | | 0.00 | 0.00 | | | 0 | 0 | | |
| Net sales | 365.13 | 283.30 | 29 | | 922.29 | 706.44 | 31 | | 1078.86 | 845.89 | | |
| Results | | | | | | | | | | | | |
| Lighting | 7.75 | 1.38 | 462 | 21 | 14.76 | 7.17 | 106 | 17 | 16.43 | 14.56 | 13 | 20 |
| Consumer durables | 15.95 | 8.84 | 80 | 43 | 39.93 | 21.68 | 84 | 47 | 31.2 | 22.59 | 38 | 38 |
| Engg & Proj. | 12.73 | 11.40 | 12 | 35 | 30.16 | 21.41 | 41 | 35 | 36.08 | 32.02 | 13 | 43 |
| Others | 0.45 | -0.18 | -350 | 1 | 0.43 | -0.31 | -239 | 1 | -0.53 | 0.22 | -341 | -1 |
| PBT before tax and interest | 36.88 | 21.44 | 72 | 100 | 85.28 | 49.95 | 71 | 100 | 83.18 | 69.39 | 20 | 100 |
| Less: Interest | 7.73 | 6.33 | | | 22.34 | 17.47 | | | 23.07 | 17.96 | | |
| Less: Other unallocable income(Net) | -0.42 | -1.04 | | | 0.34 | 0.80 | | | -0.76 | 4.67 | | |
| PBT before EO | 29.57 | 16.15 | 83 | | 62.60 | 31.68 | 98 | | 60.87 | 46.76 | | |
| EO | 0.00 | 0.00 | | | 0.00 | 0.00 | | | -0.58 | 0.22 | | |
| PBT after EO | 29.57 | 16.15 | 83 | | 62.6 | 31.68 | 98 | | 60.29 | 46.98 | | |
| Capital Employed | | | | | | | | | | | | |
| Lighting | 17.68 | 23.87 | -26 | 5 | 17.68 | 23.87 | -26 | 5 | 15.93 | 14.69 | 8 | 5 |
| Consumer durables | 68.34 | 69.87 | -2 | 18 | 68.34 | 69.87 | -2 | 18 | 49.41 | 48.78 | 1 | 15 |
| Engg & Proj. | 285.39 | 179.44 | 59 | 75 | 285.39 | 179.44 | 59 | 75 | 249.8 | 191.77 | 30 | 76 |
| Others | 9.85 | 14.34 | -31 | 3 | 9.85 | 14.34 | -31 | 3 | 13.71 | 16.42 | -17 | 4 |
| Total CE | 381.26 | 287.52 | 33 | 100 | 381.26 | 287.52 | 33 | 100 | 328.85 | 271.66 | 21 | 100 |
| Add: Unallocable CE | 33.71 | 58.78 | -43 | | 33.71 | 58.78 | -43 | | 32.38 | 19.97 | 62 | |
| Total CE | 414.97 | 346.30 | 20 | | 414.97 | 346.30 | 20 | | 361.23 | 291.63 | 24 | |
| Figures in Rs crore | ||||||||||||
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