Hold Bajaj Electricals; target Rs 231: Nirmal Bang

“Bajaj Electricals, net Sales for Q2FY12 increased by 19% to Rs. 698.62 crs as compared to Rs. 587.17 crores in Q2FY11 and was up by 28.4% from Rs. 544.07 crores in Q1FY12. The revenue was up YoY due to the good growth recorded in the Lighting (25% YoY growth), Consumer Durables (21.3% YoY growth), Engineering Projects (E&P) (9.5% YoY Growth) and Others (70.5% YoY growth). Lighting EBIT margins grew to 6% (4.5% in Q2FY11). There was a fall in EBIT margin of Consumer Durables to 9.3% (11.3% in Q2FY11) whereas; E&P posted a positive EBIT as compared to Q1FY12 and reported a margin of 3.8% (3.1% in Q2FY11). EBITDA increased by 16.7% to Rs. 52.53 crores in Q2FY12 compared to Rs. 45 crores in Q2FY11 and was up by 74.2% from Rs. 30.16 crores in Q1FY12. The EBITDA margin was down by 20bps YoY due to the jump in employee expenses (23.5% YoY) and other expenses (32.3% YoY). The margins were up QoQ by 200bps due to better segmental margins and E&P business turning EBIT positive.”

“Adj. PAT for Q2FY12 went up by 7.5% to Rs. 24.99 crores as compared to Rs. 23.24 crores in Q2FY11. BEL reported a PAT margin of 3.6% in Q2FY12, as compared to 4% in Q2FY11 and 2% in Q1FY12. The margins were under pressure due to higher interest cost YoY as higher fund utilization and higher interest rates. Shrinking order book in E&P business is a major concern. Currently, the order book stands at Rs. 742 crores. BEL has achieved Rs. 300 crores revenue in the last two quarters and management have targeted to achieve Rs. 950 crores by FY12E. The management is confident of achieveing the said target due to the strong pipeline of projects and is awaiting awards. We have projected Rs. 934 crores in FY12E and have taken a muted growth in FY13E due to non-clarity in the order book position for FY13E.”

“At CMP of Rs. 197, the stock is trading at a PE of 12.2x in FY12E and 10.6x in FY13E. The E&P reported losses in Q1FY12 because of seasonally weak quarter (Q1) coupled with closure of some old projects by the company resulted into the cost pressure. To bring back the E&P business to EBIT positive, the company has taken several initiatives like closure of several old/stuck projects, etc. We believe the recent decline in copper price and improved performance in the E&P business should boost the margins going forward. We have recommended the stock on 22/09/2011 at a price of Rs. 186 per share. The stock has appreciated 12.4% since than. The outlook continue to remain positive; we recommend to HOLD the stock with a revised target price of Rs 231 per share,” says Nirmal Bang research report.

Public holding more than 90% in Indian cos

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