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Bajaj Electricals: E&P cuts its losses - Views on News from Equitymaster

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Bajaj Electricals: E&P cuts its losses
Feb 12, 2014

Bajaj Electricals has announced its December quarter results. The company has reported an 18% growth in topline and a 71% growth in net profit the quarter ended December 2013. Here is our analysis of the results.

Performance summary
  • Topline grows by 18% YoY during the quarter, led by 82% growth in Engg & Projects
  • Operating margins expand by 1.2% on the back of savings on the other expenses front
  • Bottomline gains 72% YoY on account of strong operating performance and lower interest charges
  • For the nine month period, bottomline is down nearly 89% on the back of a 22% growth in topline
(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Net sales 8,734 10,334 18.3% 22,740 27,770 22.1%
Expenditure 8,352 9,757 16.8% 21,763 27,007 24.1%
Operating profit (EBDITA) 382 577 51.1% 977 763 -21.9%
EBDITA margin (%) 4.4% 5.6%   4.3% 2.7%  
Other income 23 25 6.5% 86 64 -25.6%
Interest (net) 196 197 0.9% 529 557 5.4%
Depreciation 35 104 194.6% 102 184 80.3%
Profit before tax 174 300 72.4% 432 86 -80.1%
Extraordinary inc/(exp) 0 -   247 -  
Tax 57 99 73.1% 174 33 -81.2%
Profit after tax/(loss) 117 200 71.5% 506 53 -89.4%
Net profit margin (%) 1.3% 1.9%   2.2% 0.2%  
No. of shares (m) 99.8 99.8   99.8 99.8  
Diluted earnings per share (Rs)*         0.6  
Price to earnings ratio (x)*         384.5  
(* on trailing twelve months earnings)

What has driven performance in 3QFY14?
  • Company's topline managed to grow by a strong 18% YoY during the quarter. The major contribution came from the Engineering & Projects segment, which recorded a very strong growth of 82% YoY. The growth was led on account of urgency by the company to close old and low profitability projects.

  • Consumer durables segment which accounts for nearly half of the total revenues of the company, grew by a poor 3% YoY. This is not at all impressive as the division has had a history of growing in double digits for the past many quarters. The company has attributed this performance to heightened competition that has not only affected volumes but also put pressure on realizations. However, the company is hopeful of returning to double digit growth soon on the back of new product launches and new initiatives

  • Lighting, the other important segment of the company, grew by a decent 12% YoY. Even here, the company felt market share pressure but sounded confident that with the new line up of products ready, especially in the LED space which the company believes is the future, much higher growth could soon kick in.

  • As far as segmental margins are concerned, while they came down significantly for the lighting and consumer segments, they improved a great deal for the E&P segment although were still in the negative. For the E&P segment, the company suffered operating losses as it continued to close low profitability and loss making projects. The company is hopeful that this trend should end soon and it returns to earning margins of around 8% on a sustainable basis.

    Segmental performance
    Segment 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Lighting
    Revenues 2,216 2,472 11.6% 5,758 6,555 13.8%
    PBIT 156 129 -17.7% 359.9 397 10.2%
    PBIT margin 7.0% 5.2%   6.3% 6.1%  
    Consumer durables
    Revenues 5,046 5,192 2.9% 12,942 14,098 8.9%
    PBIT 609 500 -18.0% 1,307 1,288 -1.5%
    PBIT margin 12.1% 9.6%   10.1% 9.1%  
    Engg & Projects
    Revenues 1,469 2,667 81.6% 4,028 7,104 76.4%
    PBIT -398 -135 n.a. (737) (827) n.a.
    PBIT margin -27.1% -5.1%   -18.3% -11.6%  
    Others
    Revenues 3 3 0.0% 12.4 13.5 8.9%
    PBIT 1 0 -20.0% 4.4 5.5 25.0%
    PBIT margin 16.1% 12.9%   35.5% 40.7%  

  • Thus, the improved margin performance from the E&P segment more than compensated for the lower margins of the other segment and led to a 72% growth in bottomline for the company.
What to expect?

At the current price of Rs 231, the stock trades at a multiple of around 10 times our revised FY15 earnings per share. Although some legacy orders in the E&P segments are still to be completed, the company expects a much improved performance from this segment from here on. Given the company's seriousness in achieving this and the continued strong growth prospects of its consumer durables and lightings business, we maintain our HOLD view on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation and that no single mid cap stock comprises more than 3-4% of your portfolio.

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