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Bajaj Electricals: Topline saves the day
Jul 29, 2010

Bajaj Electricals has reported its 1QFY11 results. The company has reported 35% and 37% YoY growth in topline and net profits respectively. Here is our analysis of the results

Performance summary
  • Topline grows by 35% YoY during the quarter
  • Company reports a margin contraction of 1.6% and as a consequence, operating profit growth is restricted to 14%
  • Bottomline grows by 37% YoY on the back of the strong topline show and a huge drop in interest expenses


Financial picture
Rs m 1QFY10 1QFY11 Change
Net sales 3,580 4,839 35.2%
Expenditure 3,222 4,431 37.5%
Operating profit 358 408 14.0%
Operating margins (%) 10.0% 8.4%  
Other Income 1 12 1140.0%
Interest (net) 86 57 -33.5%
Depreciation 22 24 7.8%
Profit before Tax 251 340 35.2%
Extraordinary item - (0)
Tax 87 115 31.6%
Profit after Tax/(Loss) 164 225 37.1%
Net profit margin (%) 4.6% 4.7%  
No. of Shares (m) 86.5 97.9  
Diluted Earnings per share (Rs)*   12.6  
Price to earnings ratio (x)*   20.0  

What has driven performance in 1QFY11?
  • The company has three major segments viz. lighting, consumer durables and engineering and projects. Topline growth during the quarter was primarily driven by the first two segments. As shown below, while revenues from lighting went up by 53% YoY, those from the consumer durables were up by 44% YoY. The company has attributed the growth to certain onetime factors and expects the growth in this segment to come down to a lower but nonetheless impressive rate of 25%-30% in the near to medium term. Revenues from engineering and projects grew quite tepidly and were up a modest 8%. However, the division should improve its performance going forward as it has a strong order book on hand.

    Segmental break-up...
    (Rs m) 1QFY10 1QFY11 Change
    Lighting      
    Revenues 721 1,100 52.5%
    PBIT 5 22 386.7%
    PBIT margins 0.6% 2.0%  
    Consumer durables      
    Revenues 1,828 2,630 43.9%
    PBIT 232 251 8.1%
    PBIT margins 12.7% 9.5%  
    Engineering and projects      
    Revenues 1,029 1,107 7.6%
    PBIT 100 114 13.3%
    PBIT margins 9.7% 10.2%  
    Others      
    Revenues 2 2 -14.3%
    PBIT (1) (0)  
    PBIT margins -57.1% -5.6%  

  • As far as operating margins are concerned, the same were down by 1.6%. Margins for the consumer durables segment came in much lower than last year and were the major contributor to the overall margin fall. The company has mentioned that it operated under a very benign cost environment during same quarter last year. Thus, with cost pressures coming back, margins have taken a hit. However, it is hopeful that the same should improve a bit as we progress further into the year.

  • Despite the 14% fall in operating profits, net profit growth has come in at an impressive rate of 37% YoY. This was mainly due to the 34% fall in interest expenses as the company managed to pare down debt. A slight lowering of the tax rate has also helped matters.

What to expect?
At the current price of Rs 252, the stock trades at 8.6x its expected FY13 earnings. Strong traction in the lighting and consumer durables segment and good amount of visibility in the engineering and projects division augurs well for the topline growth of the company over the next few quarters. While margins could come under pressure, we donít think there is going to be significant erosion in the same on account of the companyís strong competitive advantage. We maintain our positive view on the stock.

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