Bajaj Electricals - Margins under pressure - Consumer appliances growth a silver lining - ITI Securities

BJE's Q4 FY12 Results was broadly in line with below our expectation which grew by 8% YoY at Rs 10,602mn. The operating margin however was marginally below our estimation remained at 8% a de growth of 200 bps YoY. The decline in the EBITDA margin was due to raw material cost as % of sales climbed to 78% from 75% QoQ.

We expect current rupee deprivation would impact margins as input costs rise and BJE will find it difficult to pass on the increased cost given the current demand scenario.

Along with that E& P BU continues to be a drag on the overall business as we see no significant improvement in the margins given that Q4 is the best quarter for the business. The segment reported an EBIT margins of 6% only 200bps improvement in QoQ. We were expecting around 300‐350 bps improvement.

We are confident about the top line growth of 13‐14% for the BJE, as the focus on Tier 1 and Tier II cities will help them fight the demand slowdown in urban areas for consumer appliances and Fans and also lighting business is expected to grow at 15‐20% range. BJE has a total order book size of Rs 610cr and another contract of Rs 650cr is expected to be added as they are the L1 bidder.

We retain Accumulate with a TP of Rs 195

Result Summary:

Consumer durable continues to show robust growth:

BJE's consumer durable segment for has grown by 10.4% YoY for Q4FY12,however EBITDA had declined by 200 bps from 11.4% to 9.5% mainly on account of higher import cost due to depreciating rupee. The performance of Consumer Durables has been impacted mainly because of the poor performance of the fans and coolers which are weakened, however some pick up is seen in the demand in the current quarter and management is confident of liquidation of fans inventory which will add up to their top line.

Few segments in consumer durables remain strong like Morphy Richards which grew by 49% YoY and segments like Mixer, Heaters, and Toasters Irons continues to show good traction growing over 25% YoY. We expect consumer durable business to continue robust growth 18% in FY13 and is expected to drive the top line.

Going forward company is focusing on rural India and Tier II cities as they expect larger demand coming from those areas. Along with this the company also plans to increase its sourcing from domestic vendors to reduce the foreign currency exposure. Although it will take time and for the short run management expects margins to remain under pressure.

Valuations

Based on the latest quarterly performance we are reducing our estimates our revised revenue growth is 19% CAGR over FY12‐FY14E. Our revised EPS growth is at 15% CAGR over FY21‐14E. We maintain our earning estimate for FY13E at Rs 15.Currently BJE is trading at 14x FY12 and 12x FY13E, We have arrived at our new price target of Rs 195, valued our stock at 13x times is FY13 earnings.

Source : Equity Bulls

Keywords