SPA Research is bullish on Bajaj Electricals (BJE) and has recommended buy rating on the stock with a target of Rs 235 in its July 27, 2012 research report.
"Bajaj Electricals (BJE) Q1FY13 sales at INR 6,662mn (up 22.41% YoY) is slightly higher than our expectations, backed by strong growth in consumer segment (durables and lighting). However, E&P division maintained its disappointing streak and continued to weigh on the overall EBIDTA margin of the company which declined by 35bps YoY and 294bps QoQ to 5.19%. PAT at INR 120mn was up 8.32% YoY. We expect consumer segment to continue to perform well but management’s ability to improve margins in E&P division would be critical for overall performance of the company. We continue to recommend BUY, valuing the company at 11x FY14E EPS.
Consumer durables (appliances and fans) division of the company grew by 28.81% majorly led by strong growth in appliances (~37% in Bajaj appliances and ~29% in Morphy Richards). Demand for fans increased by 13% compared to 5% in FY12 due to extended summer. Lighting division also grew by 19.62% YoY led by strong growth in energy efficient CFLs. However, EBIT margin in consumer durables division came under pressure, down 120bps YoY, owing to depreciating INR. We expect consumer segment (~73% of revenues) to maintain good growth run-rate and see improvement in margins on the back of stability in exchange rate and price hikes taken by the company (~5-10% in beginning of July and another price hike expected in beginning of August).
E&P division maintained its disappointing performance in Q1FY13 dragging the overall company’s performance. Although revenues in E&P division registered a YoY growth of 8.47%, EBIT margins slipped to - 5.73%. The loss at EBIT level was on the back of escalating cost due to delay in projects execution. Company has directed its focus on securing profitability ahead of revenues in the division. However, we remain cautious on company’s ability to improve E&P performance at EBIT level and expect it to show improvement in Q3FY13. Company currently has order book of INR 4.5bn and expects order book of ~INR 7-8bn by the end of second quarter.
Other Key Highlights
- BJE has opened 15 Bajaj World outlets that showcase all Bajaj products, and is on target to scale it to 75-80 in FY13. The stores are mostly opened in rural markets
- Company has done exports of ~INR 130mn and expects full year exports of INR 650-750mn
- Company plans to offload its 50% stake in Bajaj Ventures (book value ~INR 150mn) and expects the deal to materialize in Q2FY13
Outlook & Valuation: Consumer segment performance of BJE has been very encouraging and is expected to continue its growth momentum leveraging company’s strong brand and wide distribution network. It is expected to be less affected by overall economic slowdown owing to small ticket size of durables and lighting products. We remain cautious on the performance of E&P division and expect it to improve in Q3FY13. We retain BUY recommendation on the stock with 18 months target price of INR 235, valuing the company at 11x FY14E EPS," says SPA Research report.
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Bajaj-Electricals_SPA_280712.pdf