Buy Bharat Bijlee: Emkay Global Financial Services

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Buy Bharat Bijlee: Emkay Global Financial Services

Emkay Global Financial Services is bullish on Bharat Bijlee and has recommended buy rating on the stock with a target of Rs 1350 in its October 28, 2010 research report.

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Emkay Global Financial Services is bullish on Bharat Bijlee and has recommended buy rating on the stock with a target of Rs 1350 in its October 28, 2010 research report.

"Bharat Bijlee reported 8% yoy growth in revenues to Rs 1.8 billion, slightly below estimates of Rs 1.9 billion. The EBITDA margin improved to 13.8% (our estimate - 12.2%) from 12.4% in Q2FY10 (+140bps yoy). The improvement is driven by (1) better transformers margins on low base and (2) ~ 20% volume growth in motors business driven by improvement in industrial capex. The volumes in transformers business remained largely flat. The realizations improved by ~ 3% in both the businesses which is also visible from the fact that raw material cost to sales dropped from 72.2% in Q2FY10 to 69.3% in Q2FY11. As a result of 140bps improvement in EBITDA margins, EBITDA and PAT grew by 21% and 22% yoy to Rs 255 million and Rs 151 million (our expectations Rs 235 million and Rs 129 million respectively)."

"For H1FY11, BBL has reported earnings of Rs 37.1 per share (up 27% yoy). We see improvement in numbers to continue through FY11E due to - (1) higher commodity prices yoy driving absolute EBITDA in the transformer business, (2) pick up in the motors business & (3) overall low base in FY10 (EBITDA margins of 10.7%). We expect Q3FY11 to look much better led by very low margins in Q3FY10 (8.6%). We believe the execution and deliveries is likely to pick up in Q3FY11 which will drive operational leverage and further improve the margins. We maintain earnings estimate of Rs 96.1/116.4 for FY11E/12E."

"BBL has a long-term investment in Siemens (2.8mn shares) and HDFC (0.10mn shares). After according 50% discount to current market price of the above securities, per share investment value for BBL works out to Rs 245 per share. To value BBL, we have removed the above value (Rs 245 per share) from the CMP of Rs 1087 per share. The stock is trading (ex investment value) at attractive valuations of 7.2xFY12E earnings, 3.8xFY12E EBITDA and 1.6xFY12E Book Value. The valuations are also cheap on relative basis at 20% discount to peers. On the back of (1) low base driving earnings CAGR of 26% in FY10-12E, (2) cheap valuations and (3) performance track record, we upgrade the stock to 'Buy' ratings. Bharat Bijlee is our top pick in the transformers pack. We have valued BBL at Rs 1350 per share, based on average EV/EBITDA (5.1x) of the industry," says Emkay Global Financial Services research report.

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To read the full report click on the attachment