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Bajaj Electricals: Some sanity restored

Jan 27, 2011

Bajaj Electricals has announced its December quarter results. The company has reported a 19% growth in topline and 19% YoY growth in net profits for the quarter ended December 2010. Here is our analysis of the results.

Performance summary
  • Topline grows by 17% YoY during the quarter
  • Operating profits grow at a slightly lower rate of 17% as higher expenses take toll
  • At 19% YoY, the growth in net profits is better than operating performance on account of less than proportionate increase in interest and depreciation charges.
  • Profit for the nine month period grows by 8% YoY on the back of a 22% growth in topline

(Rs m) 3QFY10 3QFY11 Change 9mFY10 9nFY11 Change
Net sales 5,807 6,895 18.7% 14,444 17,612 21.9%
Expenditure 5,199 6,186 19.0% 12,933 16,049 24.1%
Operating profit (EBDITA) 608 709 16.6% 1,511 1,562 3.4%
EBDITA margin (%) 10.5% 10.3%   10.5% 8.9%  
Other income 11 7 -38.6% 20 35 72.5%
Interest (net) 89 93 4.2%  260  226 -13.1%
Depreciation 24 27 12.2% 69 74 6.2%
Profit before tax 507 597 17.8% 1,202 1,298 7.9%
Extraordinary income/(expense) (0) 1   - (0)  
Tax 166 192 16.0%  405  434 7.1%
Profit after tax/(loss) 341 406 19.1%  797  863 8.3%
Net profit margin (%) 5.9% 5.9%   5.5% 4.9%  
No. of shares (m)  98.9  98.9   98.9 98.9  
Diluted earnings per share (Rs)*         12.5  
Price to earnings ratio (x)*         17.4  
(* on trailing twelve months earnings)

What has driven performance in 3QFY11?
  • Revenues were up 19% YoY during the quarter. This was led by a robust 34% growth of the consumer durables segment. As per the company, this segment continued to beat expectations as products just flew off the shelves during the quarter on the back of buoyant consumer sentiment. The fact that it also turned out to be a colder winter than normal helped off take of some of its products like geysers and heaters. Furthermore, an elaborate advertising campaign and expansion of dealer network also aided the strong topline growth.

    Segmental break up...
    Segment 3QFY10 3QFY11 % change
    Revenues 1,439 1,685 17.1%
    PBIT 58 74 26.5%
    PBIT margin 4.0% 4.4%  
    Consumer Durables      
    Revenues 2,478 3,319 33.9%
    PBIT 307 431 40.2%
    PBIT margin 12.4% 13.0%  
    Engg & Projects      
    Revenues 1,887 1,888 0.0%
    PBIT 225.2 178.3 -20.8%
    PBIT margin 11.9% 9.4%  
    Revenues 3 3 14.3%
    PBIT 1 1 85.7%
    PBIT margin 25.0% 40.6%  

  • Even more impressive was the 0.6% expansion in margins of the segment. While the magnitude of expansion may not look impressive, what makes it commendable is that it was achieved against a backdrop of severe price pressures from commodities like copper, aluminium and plastic. Factors like judicious price increases, value engineering efforts and intense cost cutting helped offset the rise in raw material prices and prop up the margins.

  • Engineering and projects division, the other significant division for the company continued to perform poorly as not only was the topline growth flat but margins were also lower over corresponding previous quarter. On a QoQ basis however, EBIT margins at 9.4% came in much higher than the 3% levels they had plunged to during 2QFY11 and this helped allay a fair bit of concern. The company has expressed confidence that this segment should see improved performance in the forthcoming quarters on the back of low overhead costs and also strong order book in the pipeline.

  • The lighting segment also did well as revenues were up by 17% YoY during the quarter and the EBIT at 27% was also quite impressive.

  • With the company following an asset light model, depreciation expenses came in much lower than growth in topline and with interest expense also under control, bottomline was able to grow more or less in line with the topline growth and thus offset a slightly disappointing performance on operating margins front.

What to expect?
At the current price of Rs 217, the stock trades at around 7.4 times our estimated FY13 earnings per share. While the company is on track to meeting our revenue targets for the current fiscal, we believe it might come short by 10-15% on the bottomline front. For the long term though, the growth story remains intact and we continue to remain positive on the company’s stock price.

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