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Bajaj Electricals: A forgettable year - Views on News from Equitymaster
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Bajaj Electricals: A forgettable year
May 29, 2012

Bajaj Electricals has announced its March quarter results. The company has reported an 8% growth in topline and 15% YoY fall in net profits for the quarter ended March 2012. Here is our analysis of the results.

Performance summary
  • Topline grows by 8% YoY during the quarter, led by 23% growth in lighting segment.
  • Operating margins contract by 2% as higher other expenses take toll.
  • Bottomline suffers a fall of 15% YoY on the back of poor operating performance and significant jump in interest expenses.
  • Bottomline for full year falls 18% YoY on the back of 13% growth in topline.


(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 9,799 10,602 8.2% 27,414 30,990 13.0%
Expenditure 8,812 9,740 10.5% 24,864 28,618 15.1%
Operating profit (EBDITA) 987 862 -12.6% 2,550 2,371 -7.0%
EBDITA margin (%) 10.1% 8.1%   9.3% 7.7%  
Other income 91 64 -29.6% 161 144 -10.2%
Interest (net) 103 163 58.0% 367 631 72.0%
Depreciation 35 37 5.8% 108 125 15.9%
Profit before tax 940 726 -22.7% 2,236 1,760 -21.3%
Extraordinary items (50) -   (50) -  
Tax 315 236 -25.0% 748 581 -22.3%
Profit after tax/(loss) 575 490 -14.7% 1,438 1,179 -18.0%
Net profit margin (%) 5.9% 4.6%   5.2% 3.8%  
No. of shares (m) 98.9 99.7   98.9 99.7  
Diluted earnings per share (Rs)*         11.8  
Price to earnings ratio (x)*         18.4  
(* on trailing twelve months earnings)

What has driven performance in 4QFY12?
  • Company's topline managed to grow by 8% YoY during the quarter. This was driven by its lighting business, which recorded a growth of 23% YoY. Consumer durables, the company's mainstay of the past many quarters, grew by a moderate rate of 10%. On account of this being not a very hot summer season, sales of fans and coolers were impacted and this in turn had an effect on the overall growth of consumer durables. Its other appliances and the sales of Morphy Richards continued to remain impressive however. Growth in overall topline however was also impacted due to the poor performance of the E&P division, which suffered a 2% YoY fall in revenues.

  • As far as margins are concerned, they took a knock of 2% YoY during the quarter. This was mainly on account of a 34% surge in other expenses. As far as segmental margins are concerned, cost pressures took their toll on the consumer durables as lower rupee amongst other things 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 58% jump on account of interest expenses. This was mainly due to increased working capital requirement on the back of the company carrying high inventory of unsold fans.

  • Thus, lower operating margins as well as high financing costs combined together to result into a 15% fall in net profits on a YoY basis during the quarter.

What to expect?
At the current price of Rs 215, the stock trades at a multiple of around 8.5 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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