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Bajaj Electricals Q3 FY12 results update by Nirmal Bang

Contributed by Nirmal Bang

Quarterly Analysis

Bajaj Electricals has reported a dismal performance where the EBIDTA margin was down by 210bps YoY to 8.2% in Q3FY12 as against 10.3% in Q3FY11 led by the slump in Engineer & Project division (E&P) which reported a decline in margins by 580bps YoY to the tune of 3.6% in Q3FY12. The company reported a jump in net revenue by 15% YoY and by 13.5% QoQ to Rs. 792.86 crores. The margin in the Consumer Durable division increased by 180bps QoQ to 11.1% though there was a decline of 190bps YoY basis. The company reported a PAT of Rs. 32.84 crores in Q3FY12; a decline of 18.9% YoY and a jump of 31.3% QoQ.

Key Highlight:

- The EBIT margin in the consumer durable was up by 180bsp QoQ at 11.1% though it was down by 190bps YoY. The margin was impacted YoY due to the EBIT margin of fan declined by 1.2% led by higher competition and commodity prices. The lighting and fixture division reported a decline in EBIT margin by 40bps QoQ and up by 120bps YoY at 5.6% in Q3FY12.

- E&P business has a current order book of Rs. 783 crores. E&P business register a slump in revenue growth by 5% YoY to Rs. 179.3 crores. The EBIT margins were further declined due to the project cost-overrun on back of slower execution. The management expects to conclude significant cleansing activity by Q4FY12 though margin is expected to remain under pressure. According to the management, E&P business will register revenue of Rs. 850+ crores in FY12E and Rs. 1000 crores for FY13E. We have projected revenue of 848 crores in FY12E and Rs. 900 crores in FY13E from the earlier projection of Rs. 934 crores for both FY12E and FY13E.

- Management expects an EBIT of Rs. 40 crores and sales of Rs. 375 crores in E&P in Q4FY12E which will be flattish on YoY but compared to QoQ, the sales will be up by 109% and margin will be 10.7% which is up by 710bps.

- The interest cost was up by 63.9% YoY to Rs. 15.18 crores further squeezed out the PAT margins at 4.1% in Q3FY12.

Valuation & Recommendation

At CMP of Rs. 171, the stock is trading at a PE of 13x in FY12E and 9.8x in FY13E. We feel that E&P business is the major concern for the company where, the delay in closure of old projects, delay in clearance of projects by the government and lower EBIT margin projects has resulted into the dismal quarter for the company for the straight three quarters. The management on the other hand sounds positive where it is on the verge of closer of old projects and consciously decided to bid for projects having higher margins which in our view will improve the overall margins for the company going forward. Though we are bit cautious about the slow order intake and low margin in E&P division. We believe consumer durable business to post strong growth on account of launch of new products and entry in newer segments will boost the product portfolio. We recommend to BUY the stock and revised our target price of Rs. 210 per share (Rs.231).