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Bajaj Electricals: E&P troubles continue - Views on News from Equitymaster
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Bajaj Electricals: E&P troubles continue
Aug 6, 2013

Bajaj Electricals has announced its June quarter results. The company has reported an 18% growth in topline and 95% YoY fall in net profits for the quarter ended June 2013. Here is our analysis of the results.

Performance summary
  • Topline grows by 18% YoY during the quarter, led by 54% growth in Engg & Projects
  • Operating margins contract by 2.7% as raw material costs go up and this leads to 42% drop in operating profits.
  • Bottomline falls by 95% YoY on the back of a poor operating performance and fall in other income.

(Rs m) 1QFY13 1QFY14 Change
Net sales 6,666 7,835 17.5%
Expenditure 6,316 7,633 20.8%
Operating profit (EBDITA) 350 202 -42.1%
EBDITA margin (%) 5.2% 2.6%  
Other income 29 19 -34.7%
Interest (net) 164 164 -0.1%
Depreciation 32 40 25.2%
Profit before tax 183 17 -90.6%
Extraordinary items - -  
Tax 63 11 -83.1%
Profit after tax/(loss) 120 7 -94.5%
Net profit margin (%) 1.8% 0.1%  
No. of shares (m) 99.7 99.8  
Diluted earnings per share (Rs)*   4.0  
Price to earnings ratio (x)*   40.1  
(* on trailing twelve months earnings)

What has driven performance in 1QFY14?
  • Company's topline managed to grow by a strong 18% YoY during the quarter. The major contribution came from the Engineering & Projects segment, which recorded a very strong growth of 54% YoY. The growth was led on account of urgency by the company to close old and low profitability projects. It managed to close 7 old projects in the current quarter alone.

  • Consumer durables segment which accounts for more than half of the total revenues of the company, grew by a decent 12% YoY albeit lower by its own historical standards. However, this is not a problem as per the company as the coming quarters could see strong growth led by both volumes as well as higher price realizations. Here, while appliances grew by 17% YoY, Morphy Richards grew by 4% and fans by 8%.

  • Lighting, the other important segment of the company, grew by a tepid 3% YoY. However, even here, the management has expressed confidence that by the time the year draws to a close, the segment would have grown at higher double digits over the previous year

  • All in all, the company expects to achieve a turnover of Rs 42 bn for the full year, up by around 24% from FY13 levels

  • As far as segmental margins are concerned, while they came down heavily for the E&P segment, they were higher for both consumer durables as well as lighting. For the E&P segment, the company suffered operating losses as it continued to close low profitability and loss making projects. The company is hopeful that this trend should end by next quarter and for the full year; it should record a breakeven on the operating profits front for the segment.

    Segmental break up…
    Segment 1QFY13 1QFY14 Change
    Revenues 1,525 1,574 3.2%
    PBIT 74 77 4.2%
    PBIT margin 4.8% 4.9%  
    Consumer Durables
    Revenues 3,908 4,366 11.7%
    PBIT 328 403 22.8%
    PBIT margin 8.4% 9.2%  
    Engg & Projects 
    Revenues 1,232 1,893 53.6%
    PBIT (71) (259) n.a.
    PBIT margin -5.7% -13.7%  
    Revenues 2 2 33.3%
    PBIT (1) (0.9) -18.2%
    PBIT margin -73.3% -45.0%  

  • Apart from operating margins, what also affected the profitability was the less than proportionate fall in interest expenses as also higher depreciation charges. This led to a massive 95% fall in PAT for the company.

What to expect?

At the current price of Rs 160, the stock trades at a multiple of around 7 times our revised FY15 earnings per share. Although some legacy orders in the E&P segment are still to be completed, the company expects a much improved performance from this segment third quarter of FY14 onwards than in the past. Given the company's seriousness in achieving this and the continued strong growth prospects of its consumer durables and lightings business, we maintain our HOLD view on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation and that no single mid cap stock comprises more than 3-4% of your portfolio.

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