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Bajaj Electricals: Hurt by rupee depreciation
Jul 27, 2012

Bajaj Electricals has announced its June quarter results. The company has reported a 22% growth in topline and 8% YoY growth in net profits for the quarter ended June 2012. Here is our analysis of the results.

Performance summary
  • Topline grows by 22% YoY during the quarter, led by 29% growth in consumer durables
  • Operating margins contract by 0.4% as higher expenses take toll
  • Bottomline grows by a relatively lower 8% YoY on the back of poor operating performance and jump in interest expenses

Financial picture
Rs m 1QFY12 1QFY13 Change
Net sales 5,444 6,662 22.4%
Expenditure 5,137 6,316 22.9%
Operating profit 306 346 12.9%
Operating margins (%) 5.6% 5.2%  
Other Income 17 33 97.0%
Interest (net) 122 164 35.0%
Depreciation 31 32 4.2%
Profit before Tax 171 183 7.0%
Extraordinary item - -  
Tax 60 63 4.5%
Profit after Tax/(Loss) 111 120 8.3%
Net profit margin (%) 2.0% 1.8%  
No. of Shares (m) 99.7 99.7  
Diluted Earnings per share (Rs)*   11.9  
Price to earnings ratio (x)*   14.1  
*12 months trailing earning

What has driven performance in 1QFY13?
  • Company's topline managed to grow by a strong 22% YoY during the quarter. This was driven by its mainstay, the consumer durables business, which recorded a growth of 29% YoY. All of the division's products viz. appliances, coolers, induction cookers and fans registered strong growth rates. Even Morphy Richards grew by a strong 29% YoY. Growth in overall topline however was impacted due to the subdued performance of the E&P division, which managed an 8% YoY growth. However, the company has expressed confidence that things would certainly look much better second half onwards.

  • As far as margins are concerned, they took a knock of nearly 0.4% YoY during the quarter. It is clear from the table below that margins were down for all the major segments of the company. The main culprit, it should be noted, was the strong depreciation of the rupee which imports costlier and thus impacted the margins negatively. However, the company did well to control wage costs and other expenses.

    Segmental break-up...
    (Rs m) 1QFY12 1QFY13 Change
    Lighting      
    Revenues 1,274 1,524 19.6%
    PBIT 74 74 -0.5%
    PBIT margins 5.8% 4.8%  
    Consumer durables      
    Revenues 3,031 3,904 28.8%
    PBIT 292 328 12.3%
    PBIT margins 9.6% 8.4%  
    Engineering and projects      
    Revenues 1,137 1,232 8.4%
    PBIT (76) (71) n.a.
    PBIT margins -6.7% -5.7%  
    Others      
    Revenues 2 2 0.0%
    PBIT (1) (1) n.a.
    PBIT margins -52.9% -64.7%  

  • Apart from operating margins, what also affected the profitability was the strong 35% jump on account of interest expenses. This seemed mainly on account of increased working capital requirement, especially in the E&P business.

  • Thus, lower operating margins as well as high financing costs combined together to result into a modest growth of 8% in net profits on a YoY basis during the quarter. Lower tax rates and strong growth in other income gave good support to overall profitability.

What to expect?
At the current price of Rs 167, the stock trades at a multiple of around 7 times our revised FY14 earnings per share. While the company's topline growth is coming better than expectations, it is the margins that are playing spoilsport. However, we believe that the margin problem seems temporary in nature and hence, would like to wait for a couple of quarters more to see how the same pans out. Till such time, we maintain our HOLD view on the stock.

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