Sep 12, 2011, 12.21 PM | Source: Moneycontrol.com
Nirmal Bang is bullish on Bajaj Electricals (BEL) and has recommended buy rating on the stock in its September 08, 2011 research report.
, Nirmal Bang |
“Over the past seven decades, BEL has established strong presence in ‘value for money’ segment of consumer durable products. To strengthen its product portfolio, BEL strategically entered the premium segment through tie - ups with global premium brands. BEL also launched its own brand “Bajaj Platini” to bridge the gap between the value and premium brands. We believe that consumer durables market is highly fragmented with stiff competition from regional and national players. Thus, to beat the competition BEL has created a strong presence in pan India with network of 19 branch offices besides being supported by a chain of about 1000 distributors, 4000 authorized dealers, over 4,00,000 retail outlets and over 282 Customer Care centers.
E&P business strained: Expected to improve in Q3FY12: BEL registered 2.5% revenue growth in the E&P business during Q1FY12 due to slower execution. Though the project was not of low margin but due to the extended time in closure of the project resulted into additional cost pressure.
BEL has started the cleaning process by bringing down the projects from the current 82 level to ~ 50 projects by the end of the year. This cleaning activity is expected to continue through Q2FY12 and will improve margins thereafter. Vendor driven outsourcing model: BEL attributed huge benefit through vendor driven outsourcing model. This approach provides flexibility in operation and competitive pricing. BEL sources consumer appliances from its dedicated vendors in northern India (Noida, Delhi and Himachal) and some products are imported from China. With such kind of set - up, BEL has more time and resources in its core competency of R&D and marketing & distribution.
Raw - Material Hedging - Maintain EBIT margins: BEL consumes aluminum, copper, zinc and steel. BEL has a committee to hedge commodity on quarterly basis. The hedge ratio varies according to the projected price pressure. BEL being a market leader in most of the segment it operates can easily pass on the increase in cost to its consumers. Recently, the company has increased prices of its various products which in our view will benefit the company going forward as the prices of commodities have declined in the current quarter. BEL can be purchased at current price of Rs. 180. Stock is trading at ~11x FY12E earnings which look very attractive. It can give 15 - 20% returns in near term, ”says Nirmal Bang research report.
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