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Bajaj Electricals: Clean up act continues
Feb 7, 2013

Bajaj Electricals has announced its December quarter results. The company has reported a 10% growth in topline and 64% YoY fall in net profits for the quarter ended December 2012. Here is our analysis of the results.

Performance summary
  • Topline grows by 10% YoY during the quarter, led by 22% growth in consumer durables
  • Operating margins contract by 4.5% as higher other expenses take toll
  • Bottomline falls by 64% YoY on the back of a poor operating performance and higher interest expenses
  • Bottomline for the nine month period falls by 27% YoY on the back of a 12% growth in topline

(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Net sales 7,938 8,730 10.0% 20,391 22,730 11.5%
Expenditure 7,254 8,371 15.4% 18,862 21,763 15.4%
Operating profit (EBDITA) 684 359 -47.5% 1,529 967 -36.8%
EBDITA margin (%) 8.6% 4.1%   7.5% 4.3%  
Other income 23 27 17.0% 61 96 58.1%
Interest (net) 190 177 -6.7% 467 529 13.1%
Depreciation 29 35 22.1% 89 102 14.5%
Profit before tax 488 174 -64.4% 1,033 432 -58.2%
Extraordinary items - 0   - 247  
Tax 160 57 -64.1% 344 174 -49.6%
Profit after tax/(loss) 328 117 -64.4% 689 506 -26.6%
Net profit margin (%) 4.1% 1.3%   3.4% 2.2%  
No. of shares (m) 99.7 99.7   99.7 99.7  
Diluted earnings per share (Rs)*         10.0  
Price to earnings ratio (x)*         18.8  
(* on trailing twelve months earnings)

What has driven performance in 3QFY13?
  • Company's topline managed to grow by a decent 10% YoY during the quarter. This was driven by its mainstay, the consumer durables business, which recorded a growth of 22% YoY. With the consumer story remaining intact, this segment was able to once again record impressive growth. In the segment, while Bajaj appliances grew by 28% YoY, premium range marketed under the Morphy Richards brand grew 43% YoY. Its other segment of lighting too grew by 11% YoY

  • Growth in overall topline however was impacted due to the poor performance of the E&P division, which witnessed a decline of nearly 18% YoY. However, the company has expressed confidence that things would certainly look much better in FY14.

  • As far as margins are concerned, they took a knock of nearly 4.5% YoY during the quarter. It is clear from the table below that main culprit behind the poor margin performance is the company's E&P segment. The division suffered a loss at the PBIT level. As per the company this was mainly on account of the fact that the company is undergoing a major clean up exercise for the older projects that are seeing significant cost overruns. Once the legacy projects are taken care of, the performance of the company should improve as almost all the new orders that it has come with good margin potential.

    Cost break-up...
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Raw materials 569 262 -54.0% 594 339 -42.8%
    % sales 7.2% 3.0%   2.9% 1.5%  
    Purchase of traded goods 5,383 6,343 17.8% 14,798 17,229 16.4%
    % sales 67.8% 72.7%   72.6% 75.8%  
    Staff cost 348 396 13.7% 1,139 1,275 11.9%
    % sales 4.4% 4.5%   5.6% 5.6%  
    Other expenditure 953 1,370 43.8% 2,331 2,920 25.3%
    % sales 12.0% 15.7%   11.4% 12.8%  

  • Apart from operating margins, what also affected the profitability was the less than proportionate fall of 7% in interest expenses as also higher depreciation charges. This led to a massive 64% fall in both PBT as well as PAT for the company.

What to expect?
At the current price of Rs 188, the stock trades at a multiple of around 8 times our revised FY15 earnings per share. After struggling to get its E&P business in shape, the company is finally showing signs of some turnaround on this front. Although the segment is still expected to remain under pressure for the next 2-3 quarters, the firm still well placed to meet our estimates from an FY15 perspective. In view of this, we maintain our HOLD view on the stock.

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