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Bajaj Electricals: E&P spoils the show

Nov 13, 2013 | Updated on Oct 30, 2019

Bajaj Electricals has announced its September quarter results. The company has reported a 31% growth in topline and a loss of Rs 154 m for the quarter ended September 2013 . Here is our analysis of the results.

Performance summary
  • Topline grows by 31% YoY during the quarter, led by 92% growth in Engg & Projects.
  • Operating margins contract by 3.5% as raw material costs go up and this leads to a small loss at the operating level.
  • Bottomline suffers a loss of Rs 154 m on the back of a poor operating performance and high interest expenses.
  • For the half year, bottomline reports a loss of Rs 147 m on the back of a 25% growth in topline.

(Rsm) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 7,341 9,602 30.8% 14,006 17,437 24.5%
Expenditure 7,095 9,617 35.6% 13,411 17,250 28.6%
Operating profit (EBDITA) 246 (16)   595 187 -68.6%
EBDITA margin (%) 3.3% -0.2%   4.3% 1.1%  
Other income 34 20 -39.7% 63 39 -37.5%
Interest (net) 169 196 16.1% 333 360 8.1%
Depreciation 34 39 14.0% 67 79 19.4%
Profit before tax 76 (231)   259 (213) -182.5%
Extraordinary items 247 -   247    
Tax 54 (77) -243.6% 116 (67) -157.1%
Profit after tax/(loss) 269 (154) -157.0% 389 (147) -137.8%
Net profit margin (%) 3.7% -1.6%   2.8% -0.8%  
No. of shares (m) 99.7 99.8   99.7 99.8  
Diluted earnings per share (Rs)*         (0.2)  
Price to earnings ratio (x)*         n.a.  
(* on trailing twelve months earnings)

What has driven performance in 2QFY14?
  • Company's topline managed to grow by a strong 31% YoY during the quarter. The major contribution came from the Engineering & Projects segment, which recorded a very strong growth of 92% YoY. The growth was led on account of urgency by the company to close old and low profitability projects.

  • Consumer durables segment which accounts for nearly half of the total revenues of the company, grew by a decent 14% YoY. While this was slightly better than growth witnessed in the first quarter, it was still below the robust growth witnessed in recent years. However, the company is not too concerned and is hopeful that growth will go higher in the coming quarters.

  • Lighting, the other important segment of the company, took good strides and grew by a strong 24% YoY. This was on account of price hikes taken in recent quarters as also change in product mix with a tilt towards high value, high margin products.

  • All in all, the company seems well on its way towards achieving 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 the lighting segment. 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 soon and it returns to earning margins of around 8% on a sustainable basis.

    Cost break-up
    Segment 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Revenues 2,018 2,509 24.4% 3,542 4,083 15.3%
    PBIT 130 191 47.0% 204 268 31.6%
    PBIT margin 6.5% 7.6%   5.8% 6.6%  
    Consumer Durables
    Revenues 3,988 4,539 13.8% 7,896 8,906 12.8%
    PBIT 369 386 4.6% 698 790 13.2%
    PBIT margin 9.3% 8.5%   8.8% 8.9%  
    Engg & Projects
    Revenues 1,327 2,545 91.8% 2,559 4,438 73.4%
    PBIT (268) (433) 61.6% (339) (692) n.a.
    PBIT margin -20.2% -17.0%   -13.2% -15.6%  
    Revenues 8 8 7.7% 9 10 13.0%
    PBIT 5 5.9 15.7% 4 5 25.0%
    PBIT margin 65.4% 70.2%   43.5% 48.1%  

  • Apart from operating margins, what also affected the profitability was the growth in interest and depreciation charges. This led to a loss of Rs 154 m at the bottomline level.
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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Jun 22, 2021 (Close)


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