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BHIL: Lackluster markets take its toll
May 22, 2012

Bajaj Holdings and Investment Ltd. (BHIL) declared its results for the financial year 2011-12 (FY12). The institution has reported a 40% YoY fall in income from operations while net profits have fallen by 43% YoY during the year. Here is our analysis of the results.

Performance summary
  • Income from operations fall by 40% YoY in FY12 on the back of an over 88% YoY fall in profit booked on the sale of investments.
  • Other income increases by 29% YoY in FY12, however it falls by 67% in 4QFY12.
  • Net profit falls by 43% YoY for FY12. For 4QFY12, profits increase by 30% 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.
  • The board declares a dividend of Rs 25 per equity share for FY12, implying a dividend yield of 3%.

Standalone Financial Results
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Income from Operations 590 622 5.5% 10,746 6,479 -39.7%
Expenses 14 20 44.4% 73 77 4.4%
Profit from operations 576 602 4.6% 10,672 6,403 -40.0%
Other Income 5 2 -66.7% 19 24 29.1%
Profit before tax 581 604 4.0% 10,691 6,427 -39.9%
Tax 250 175 -29.8% 690 754 9.2%
Effective tax rate 43.0% 29.0%   6.5% 11.7%  
Profit after tax/ (loss) 331 429 29.6% 10,001 5,674 -43.3%
Net profit margin (%) 56.1% 68.9%   93.1% 87.6%  
No. of shares (m)         111.3  
Book value per share (Rs)*         435.6  
P/E (x)         15.1  
P/BV (x)         1.8  
* (Standalone book value as on 31st March 2012)

What has driven performance in FY12?
  • BHIL's investment book has continued to appreciate nicely as per the latest available data, the portfolio of investments has appreciated 5 times over cost.

      FY12 FY11
    Investment book (Rs m) Cost Market value Appreciation Cost Market value Appreciation
    Equity Shares in associates 6,620 187,610 28.3x 6,320 162,680 25.7x
    Equity Shares - Others 17,530 26,860 1.5x 14,350 29,430 2.1x
    Fixed Income and others 23,280 23,220 1.0x 26,760 26,690 1.0x
    Total 47,430 237,690 5.0x 47,430 218,800 4.6x

  • BHIL's ability to monetize gains through the sale of investments was limited in FY12 on account of the dismal performance of the BSE-Sensex during the year. The benchmark index was down 10% during the period from April 2011-March 2012. However, since the beginning of this year, the benchmark index is up 4%. Judging by the monetary easing, better expected economic growth as well as the more encouraging economic indicators, we believe that there may be a few opportunities for profit-booking in FY13. 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 43% YoY in FY12 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 770, the stock is trading at a Price/Book value of 1.8 times and a trailing twelve months P/E ratio of 15.1 times. Even though the performance for the twelve 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 10% in FY12, 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 'SELL' view on the stock, as average returns expected over the next two years are 11%. We still maintain our 2 year target price of Rs 944 for FY14.

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