X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Bajaj Electricals: Margin shocker - Views on News from Equitymaster
MidCapSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Bajaj Electricals: Margin shocker
Oct 27, 2010

Bajaj Electricals has announced its September quarter results. The company has reported a 16% growth in topline and a 20% fall in bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • Topline grows by 16% YoY during the quarter.
  • Contraction in operating margins leads to an 18% fall in operating profits.
  • Bottomline suffers a fall of 20% YoY on account of lower operating margins and slightly higher taxes
  • Net profit for the nine month period remains flat on the back of a 24% YoY growth in topline.

(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 5,057 5,878   8,638 10,717 24.1%
Expenditure 4,512 5,432 20.4% 7,734 9,863 27.5%
Operating profit (EBDITA) 546 446 -18.3% 903 854 -5.5%
EBDITA margin (%) 10.8% 7.6%   10.5% 8.0%  
Other income 8 15 98.7% 9 28 219.8%
Interest (net) 85 76 -10.6% 171 133  
Depreciation 24 23 -1.3% 46 47 3.1%
Profit before tax 444 361 -18.7% 696 701 0.8%
Extraordinary items - (1)   (1) (2)  
Tax 153 128 -16.4% 240 242 1.0%
Profit after tax/(loss) 292 232 -20.4% 455 457 0.4%
Net profit margin (%) 5.8% 4.0%   5.3% 4.3%  
No. of shares (m) 87.2 98.2   87.2 98.2  
Diluted earnings per share (Rs)*         11.9  
Price to earnings ratio (x)*         23.9  
* on trailing twelve months earnings

What has driven performance in 2QFY11?

    Segmental break up...
    Segment 2QFY10 2QFY11 % change
    Lighting      
    Revenues 1,375 1,514 10.1%
    PBIT ††† 101 ††††68 -33.0%
    PBIT margin 7.3% 4.5%  
    Consumer Durables      
    Revenues 2,118 2,798 32.1%
    PBIT † 250 ††317 27.1%
    PBIT margin 11.8% 11.3%  
    †Engg & Projects†      
    Revenues 1,556 1,560 0.3%
    PBIT 174.4 †48.0 -72.5%
    PBIT margin 11.2% 3.1%  
    Others      
    Revenues 7 ††††††6 -17.6%
    PBIT 7 ††††††4 -45.5%
    PBIT margin 89.2% 59.0%  

  • The 16% growth in quarterly revenues was driven by its consumer durables business, which managed a growth of 32% YoY. Lighting business also did well, boosting revenues by 10% YoY. However, it was the engineering and projects division that by putting in a flattish performance spoiled the revenue show of the company to some extent. As per the company, it was amongst the most difficult quarters in recent years for this particular division, not made any better by the stiff deadline put in place for the CWG games and also the prolonged monsoons. However, the company is confident of putting up a much better show in this division for the rest of the year. Infact, it expects to clock revenues in second half which are more than double the divisionís revenues in the first half. As for other divisions, they are expected to continue growing at the current rate.

  • Margin wise also it was one of the weakest quarters for companies in recent times. Operating margins were down 3.2% over same quarter last year and this led to operating profits declining by 18%. As per the company, tremendous volatility in prices of key raw materials like copper, aluminium and zinc played havoc with cost structure and hence, impacted margins. Segmental margins for the engineering and projects business took a big hit on account of the company being at an adverse point on the project execution cost curve. A good thing about this is that there are strong chances that the divisionís margins register strong improvement going forward as quite a few projects come with cost escalation clauses. The company has done well to not let the margins of its consumer durables segment fall off the cliff too much.

    Cost break-up...
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Raw materials 3,654 4,444 21.6% 6,259 8,143 30.1%
    % sales 72.2% 75.6%   72.5% 76.0%  
    Staff cost ††††306 ††††375 22.7% †505 †614 21.5%
    % sales 6.0% 6.4%   5.8% 5.7%  
    Other expenditure ††††552 ††††613 11.0% †970 1,106 14.0%
    % sales 10.9% 10.4%   11.2% 10.3%  

  • Margin wise also it was one of the weakest quarters for companies in recent times. Operating margins were down 3.2% over same quarter last year and this led to operating profits declining by 18%. As per the company, tremendous volatility in prices of key raw materials like copper, aluminium and zinc played havoc with cost structure and hence, impacted margins. Segmental margins for the engineering and projects business took a big hit on account of the company being at an adverse point on the project execution cost curve. A good thing about this is that there are strong chances that the division's margins register strong improvement going forward as quite a few projects come with cost escalation clauses. The company has done well to not let the margins of its consumer durables segment fall off the cliff too much.

  • Company's bottomline suffered a fall of 20% YoY, meaning there were no more nasty surprises in store for it. While its other income doubled, its low share in the overall income and less than proportionate fall in interest and depreciation expense ensured that profits do not receive any further reprieve. The company closed half year with almost flattish growth in net profits

What to expect?
At the current price of Rs 278, the stock trades at around 10 times its projected FY13 earnings per share. Normally, a performance of this type would have set off alarm bells for investors. However, the company's management has expressed confidence that the current quarter was a one off thing and things should start looking good second half onwards. In view of this, we maintain our BUY view on the stock.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

BAJAJ ELECTRICALS SHARE PRICE


Feb 23, 2018 (Close)

TRACK BAJAJ ELECTRICALS

  • Track your investment in BAJAJ ELECTRICALS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON BAJAJ ELECTRICALS

BAJAJ ELECTRICALS 5-YR ANALYSIS

COMPARE BAJAJ ELECTRICALS WITH

MARKET STATS