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Bajaj Electricals: Lower taxes to the rescue
May 23, 2011

Bajaj Electricals has announced its March quarter results. The company has reported a 25% growth in topline and 53% YoY growth in net profits for the quarter ended March 2011. Here is our analysis of the results.

Performance summary
  • Topline grows by 25% YoY during the quarter
  • Operating profits grow at a lower rate of 11% as higher expenses take toll
  • At 53% YoY, the growth in net profits is better than operating performance on account of lower extraordinary losses and sharp fall in tax rates
  • Profit for the full year grows 23% YoY on the back of a 23% growth in topline


(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 7,842 9,796 24.9% 22,286 27,408 23.0%
Expenditure 6,927 8,779 26.7% 19,860 24,828 25.0%
Operating profit (EBDITA) 916 1,017 11.1% 2,427 2,580 6.3%
EBDITA margin (%) 11.7% 10.4%   10.9% 9.4%  
Other income 16 23 41.6% 36 57 58.7%
Interest (net) 55 65 18.3% 315 291 -7.6%
Depreciation 23 34 49.6% 92 108 17.0%
Profit before tax 854 941 10.2% 2,056 2,239 8.9%
Extraordinary items (131) (61)   (132) (61)  
Tax 348 306 -12.2% 754 740 -1.8%
Profit after tax/(loss) 375 575 53.4% 1,171 1,438 22.8%
Net profit margin (%) 4.8% 5.9%   5.3% 5.2%  
No. of shares (m) 97.6 98.9   97.6 98.9  
Diluted earnings per share (Rs)*         14.5  
Price to earnings ratio (x)*         16.0  
(* on trailing twelve months earnings)

What has driven performance in FY11?
  • The consumption story in India remained intact during the year. The company was able to take advantage of the same on account of its vast array of product offerings and strong distribution network. Consequently, the consumer durables business of the company managed to log in a strong growth rate of 34% YoY during the fiscal. Notwithstanding the high growth rate that the segment has witnessed in the past, the management is confident of achieving growth to the tune of 20%-25% for the foreseeable future. This it hopes to do by building upon its strong network and also by new product introductions. As far as segmental margins are concerned, the same have suffered a fall of 1.6% during the fiscal. This, the company feels was on account of high base effect and also the fact that FY11 was one of the most challenging years in terms of commodity price pressures in recent times. Going forward, segmental margins are expected to remain at current levels.

    Segmental break up...
    Segment 4QFY10 4QFY11 % change FY10 FY11 % change
    Lighting
    Revenues 1,824 2,013 10.4% 5,359 6,312 17.8%
    PBIT 171 161 -6.2% 335 323 -3.4%
    PBIT margin 9.4% 8.0%   6.2% 5.1%  
    Consumer durables
    Revenues 3,120 4,022 28.9% 9,545 12,769 33.8%
    PBIT 447 446 -0.2% 1,236 1,445 16.9%
    PBIT margin 14.3% 11.1%   12.9% 11.3%  
    Engg & Products
    Revenues 2,896 3,759 29.8% 7,368 8,314 12.8%
    PBIT 292 396 35.5% 792 736 -7.1%
    PBIT margin 10.1% 10.5%   10.7% 8.8%  
    Others
    Revenues 2 2 -12.5% 15 13 -10.2%
    PBIT 1 (1) n.a 7 4 -47.0%
    PBIT margin 20.8% n.a   44.9% 26.5%  

  • E&P business unit, the other major business unit for the company saw a relatively muted growth of 13% YoY for the fiscal. This was mainly on account of a tepid performance put together in the first nine months of the fiscal. Fourth quarter revenues from this business saw a strong jump of 30% YoY. The management has expressed hope that the FY11 performance of this segment was just an aberration and the segment should continue logging in growth in the range of 20% in the medium to long term. The margins of the segment that dropped to near 9% from around 11% in FY10 should also see an improvement as per the management.

  • The lighting business of the company also suffered on account of margins as segmental PBIT dropped 3% for the full year despite an 18% YoY growth in topline.

    Cost break-up...
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Raw materials 1,063 477 -55.1% 1,249 963 -22.9%
    % sales 13.6% 4.9%   5.6% 3.5%  
    Staff cost 217 324 49.1% 972 1,224 26.0%
    % sales 2.8% 3.3%   4.4% 4.5%  
    Goods purchased for trade 5,009 7,168 43.1% 15,265 19,984 30.9%
    % sales 63.9% 73.2%   68.5% 72.9%  
    Other expenditure 638 810 26.9% 2,374 2,657 11.9%
    % sales 8.1% 8.3%   10.7% 9.7%  

  • PBT for the full year came in higher by 9% YoY, a small improvement over 6% YoY growth in operating profits, mainly on account of higher other income and lower interest charges. At 23% YoY, the net profit growth for the full year has come in even better than the growth in PBT on account of lower effective tax rates and fall in extraordinary losses.

What to expect?
At the current price of Rs 245, the stock trades at around 8 times its expected FY13 earnings per share. The company’s performance has come in slightly below our expectations mainly on account of the fall in operating margins. However, with there being some scope for improvement in the margins of its E&P business unit, we believe the profitability should recover in the coming quarters. In view of this, we maintain our positive view on the stock).

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