Accumulate Bharat Bijlee; target of Rs 836: Emkay

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Accumulate Bharat Bijlee; target of Rs 836: Emkay

Emkay Global Financial Services is bullish on Bharat Bijlee and has recommended accumulate rating on the stock with a target of Rs 836 in its October 21, 2011 research report.

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Emkay Global Financial Services is bullish on Bharat Bijlee and has recommended accumulate rating on the stock with a target of Rs 836 in its October 21, 2011 research report.

"Bharat Bijlee (BBL)'s 2Q PAT at Rs60mn is ahead of estimates (Rs55mn) mainly due to higher than expected revenues especially in the motors business. Motors business revenues grew by 42% to Rs730mn vs. estimate of Rs576mn. Also motors business margins (EBIT) improved by 580bps yoy to 16.8%. Transformers business continues to disappoint with revenue decline of 16% yoy and EBIT margins of just 1.8% in 2Q12 vs. 20.2% in 2Q11. However, important to note is that margins improved qoq (1Q - negative margins in transformers), mainly due to more than doubling of volumes. Overall revenues were flat yoy, EBITDA declined by 61% yoy and PAT declined by 60% yoy."

"It's been third qtr of subdued performance in transformers business. We believe the pressure on transformers will continue with gradual improvement starting 4QFY12 (low base; expect ordering to improve resulting in better numbers in subsequent qtrs). We expect the motors business to continue to perform well, though we highlight that the base here is now becoming higher. We maintain our earnings of Rs39/57 in FY12/13E. Considering that net cash (Rs600mn) and market value of investments (Rs2.1bn) is almost 65% of the current market cap of Rs4.1bn, we do not see significant downside in the stock. Though we believe that BBL valuations (ex Siemens investment at 25% discount to mkt value) at 0.8xFY13E book do not leave significant downside, but for any meaningful upside, clarity has to emerge on the transformers business (we expect some clarity in 4Q12). We maintain accumulate rating with a revised price target of Rs 836 per share (Valuing at 1x Book and Siemens stake at 25% discount to market price)," says Emkay Global Financial Services research report.    

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