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BHIL: Fewer opportunities to book profits

Jan 20, 2012

Bajaj Holdings and Investments (BHIL) declared its results for the third quarter of the financial year 2011-12 (3QFY12) results. The institution has reported a 78% YoY fall in income from operations while net profits have fell by 85% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Income from operations fall by 42% YoY in 9mFY12 on the back of an over 90% YoY fall in profit booked on the sale of investments.
  • Other income increases by 59% YoY in 9mFY12, however it falls by 12% in 3QFY12.
  • Net profit falls by 46% YoY for 9mFY12. For 3QFY12, profits fall by 85% YoY on lower profits booked on sale of investments. Having said that, BHIL's earnings are highly dependent on market movements and the company was not able to monetize gains so far this year.

Standalone Financial Results:
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Income from Operations 2,634 590 -77.6% 10,156 5,857 -42.3%
Expenses 15 19 21.7% 60 56 -6.2%
Profit from operations 2,618 572 -78.2% 10,096 5,801 -42.5%
Other Income 5 4 -12.0% 14 23 59.0%
Profit before tax 2,623 576 -78.0% 10,111 5,824 -42.4%
Tax 161 216 34.4% 441 578 31.2%
Effective tax rate 6.1% 37.4%   4.4% 9.9%  
Profit after tax/ (loss) 2,463 361 -85.4% 9,670 5,246 -45.7%
Net profit margin (%) 93.5% 61.1%   95.2% 89.6%  
No. of shares (m)         111.3  
Book value per share (Rs)*         457.5  
P/E (x)         13.1  
P/BV (x)         1.4  
* (Standalone book value as on 30th September 2011)

What has driven performance in 9mFY12?
  • BHIL's investment book has continued to appreciate nicely as per the latest available data, the portfolio of investments has appreciated 4.6 times over cost.

    Investment book (Rs m) Cost Market value Appreciation
    Equity Shares in associates 6,620 169,330 25.6x
    Equity Shares - Others 17,270 21,900 1.3x
    Fixed Income and others 23,070 23,070 1.0x
    Total 46,960 214,300 4.6x

  • BHIL's ability to monetize gains through the sale of investments was limited in 3QFY12 on account of the dismal performance of the BSE-Sensex during the quarter. The benchmark index was down 4% during the period from October-December 2011. However, judging by the buoyant performance of the index since the beginning of the year, as well as the more encouraging economic indicators, we believe that there may be a few more opportunities for profit-booking before the close of the current fiscal. The potential of valuations catching up with earnings growth and stability in economic growth present lucrative opportunities in the long term for companies like BHIL.

  • Net profits decreased by 46% in 9mFY12 on account of fewer opportunities for profit booking. Having said that, for a company like BHIL, P&L numbers do not have much meaning as most of its value comes from its solid investment book.

What to expect?
At the current price of Rs 658, the stock is trading at a attractive Price/Book value of 1.4 times and a trailing twelve months P/E ratio of 13.1 times. Even though the performance for the current quarter and nine month period do not look very encouraging, one has to view this in context with the movement of the broader markets during the same period. The benchmark index was down over 25% in FY11, thus there were limited opportunities for investment companies like BHIL to monetize gains through profit-booking. In 2010 on the other hand, the benchmark index saw significant gains, hence the disparity in the income figures. Judging by the performance of the Benchmark index so far this year, as well as the encouraging economic data we are positive on the company's prospects going forward. The potential of valuations catching up with earnings growth and stability in economic growth helps present lucrative opportunities in the long term for companies like BHIL. We maintain our current 'HOLD' view on the stock with a 2.5 year target price of Rs 944.

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