Bajaj Electricals - Consumer business shines; E&P disappoints - Ambit

Results overview: In 3QFY13, Bajaj Electricals' revenues increased by 10% YoY to Rs8.7bn, in line with consensus estimates of Rs8.9bn. Revenues of the consumer durables and lighting segments increased by 22% YoY and 11% YoY, respectively, but that of the engineering and projects (E&P) segment declined by 18% YoY. However, EBITDA margins at 4.1% in 3QFY13 vs 8.6% in 3QFY12 led to an EBITDA of Rs359mn (down 47% YoY). The primary reason for the margin decline was a 370bps YoY increase in other expenses. This was on account of the excess provisioning (~Rs170mn) created with respect to the E&P segment. Adjusting for this, the EBITDA margins were at 6.1% as compared to consensus estimates of 6.9%. Within the segments, whilst the EBIT margins for the lighting and consumer durables segments improved to 6.8% (vs 6.6% in 3QFY12) and 11.8% (vs 11.5% in 3QFY12), the margins for the E&P were disappointing at -27.3% as compared to 3.8% in 3QFY12. Consequently, adjusted profit before tax was at Rs344mn and adjusted profit after tax was at Rs287mn (adjusting for the Rs170mn provisioning).

Where do we go from here? Whilst the consumer and the lighting businesses continue to perform well, the E&P business continues to disappoint. EBIT loss in the current quarter for E&P was at Rs401mn as compared to a marginal profit of Rs68mn in 3QFY12. During the conference call, the management, however, highlighted that the losses were higher on account of extra provisions (of ~Rs170mn) being created on the Board's advice. Whilst they expect to report some provisions for the E&P business in 4Q as well, they remain hopeful of a turnaround from FY14 onwards, because only ~Rs3bn of old orders are likely to be carried forward to the next year. Order book for this segment stands at Rs9.6bn. Apart from this, the company also received an order of Rs2.2bn from PGCIL yesterday and is placed as the L1 bidder for another Rs7.7bn worth of orders.

In the consumer durables and lighting segments, the company continued to record strong revenue growth and EBIT margin expansion. The management highlighted that whilst the sales for fans did not increase in the quarter on a YoY basis owing to the winter season, they expect sales to pick up in the current quarter. Further, higher sales were seen in both the induction cooktops and the water heater segment during the quarter. Furthermore, they highlighted that they currently have 30 'Bajaj World' stores across India and expect to increase this to about 100 stores by next year. At CMP, the stock is trading at 11x FY14 P/E as compared to 17x FY14 P/E of Havells and 14.5x FY14 P/E of V-Guard. We do not have a rating on the stock.

Source : Equity Bulls

Keywords