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Bajaj Electricals: Engineering plays spoilsport
Feb 10, 2012

Bajaj Electricals has announced its December quarter results. The company has reported a 15% growth in topline and 19% YoY fall in net profits for the quarter ended December 2011. Here is our analysis of the results.

Performance summary
  • Topline grows by 15% YoY during the quarter, led by 25% growth in consumer durables.
  • Operating margins contract by 2.1% as higher other expenses take toll.
  • Bottomline suffers a fall of 19% YoY on the back of poor operating performance and significant jump in interest expenses.
  • Bottomline for nine month period falls 20% YoY on the back of 16% growth in topline.


(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Net sales 6,896 7,936 15.1% 17,615 20,388 15.7%
Expenditure 6,186 7,289 17.8% 16,049 18,913 17.8%
Operating profit (EBDITA) 710 648 -8.7% 1,566 1,476 -5.8%
EBDITA margin (%) 10.3% 8.2%   8.9% 7.2%  
Other income 6 21 243.5% 31 34 9.3%
Interest (net) 93 152 63.9% 226 387 71.5%
Depreciation 27 29 8.3% 74 89 20.7%
Profit before tax 597 488 -18.2% 1,298 1,034 -20.3%
Extraordinary items 1 -   (0) (1)  
Tax 192 160 -16.7% 434 344 -20.7%
Profit after tax/(loss) 406 328 -19.1% 863 689 -20.2%
Net profit margin (%) 5.9% 4.1%   4.9% 3.4%  
No. of shares (m) 98.9 99.7   98.9 99.7  
Diluted earnings per share (Rs)*         12.7  
Price to earnings ratio (x)*         13.5  
(* on trailing twelve months earnings)

What has driven performance in 3QCY11?
  • Company's topline managed to grow by a strong 15% YoY during the quarter. This was driven by its mainstay, the consumer durables business, which recorded a growth of 25% YoY. Another division that contributed strongly towards the robust topline growth was the lightings division. This segment grew in 19% higher revenues over same quarter last year. Growth in overall topline however was impacted due to the poor performance of the E&P division, which suffered a 5% YoY fall in revenues. This despite the company's confidence in the previous quarter that this was just a temporary phase.

  • As far as margins are concerned, they took a knock of 2.1% YoY during the quarter. This was mainly on account of a 37% surge in other expenses. As far as segmental margins are concerned, cost pressures took their toll on the consumer durables business as higher metal prices and lower rupee caused the margin of the segment to go down by 2%. However, what turned out to be a real dampener for the company was the sad margin performance of the E&P division. The lightings division though did well on the margin front.

    Segmental break up...
    Segment 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Lighting            
    Revenues 1,685 2,002 18.8% 4,298 5,169 20.3%
    PBIT 74 111 51.2% 163 286 75.6%
    PBIT margin 4.4% 5.6%   3.8% 5.5%  
    Consumer Durables            
    Revenues 3,319 4,138 24.7% 8,747 10,563 20.8%
    PBIT 431 461 6.9% 999 1,066 6.7%
    PBIT margin 13.0% 11.1%   11.4% 10.1%  
    Engg & Projects            
    Revenues 1,888 1,793 -5.1% 4,559 4,641 1.8%
    PBIT 178.3 65 -63.5% 340 53 -84.3%
    PBIT margin 9.4% 3.6%   7.5% 1.2%  
    Others            
    Revenues 3 3 6.3% 11 16 39.6%
    PBIT 1 1 -46.2% 5 8 58.3%
    PBIT margin 40.6% 20.6%   43.2% 49.0%  

  • Apart from operating margins, what also affected the profitability was the steep 64% jump on account of interest expenses. This was not only due to increased working capital requirement but also due to higher interest rates brought about by the RBI's strong monetary tightening.

  • Thus, lower operating margins as well as high financing costs combined together to result into a 19% fall in net profits on a YoY basis during the quarter.

What to expect?
At the current price of Rs 196, the stock trades at a multiple of around 7 times our expected FY14 earnings per share. We believe that the consumer durables story is far from over and while competition will no doubt slow growth, the division will still continue to increase revenues at a decent rate. Besides, the company's efforts at improving the fundamentals of the E&P division should also ensure that profitability comes in healthy. In view of these expectations, we maintain our positive stance on the stock.

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