Bajaj Electricals - Q3FY13 Result Update - SPA Securities

Bajaj Electricals (BJE) registered disappointing set of numbers in Q3FY13, weighed by yet again poor performance by E&P division. Company registered Q3FY13 sales of INR 8,730mn (up 10% YoY) and PAT of INR 120mn (down 64% YoY). EBIDTA margin at 4.11% was down by 404bps YoY. We have revised our 12months target price from INR 235 to INR 204 (11x FY14E EPS) and change our recommendation from BUY to HOLD.

Consumer segment remains sturdy

Consumer Durables: Consumer durable segment of BJE grew by 22% YoY to INR 5,044mn in Q3FY13 backed by strong growth in Bajaj appliances and Morphy Richards. EBIT margin registered an increase of 72bps YoY to 11.85% on the back of favourable product mix and softening in RM cost.

Lighting: Lighting segment of the company registered YoY sales growth of 11% to INR 2,215mn. EBIT margin expanded by 126bps YoY to 6.82% backed by improved performance in luminaire segment (~50% of total segment sales). We expect further improvement in margins going ahead on the back of softening in RM cost aided by appreciation in INR against USD.

Good consumer segment performance undone by E&P

E&P division of BJE registered disappointing set of numbers lagging far behind management's guidance. E&P segment's revenue declined by 18% YoY to 1,469mn, while EBIT registered a loss of INR 401mn. The higher losses at EBIT level came on the back of management's effort to complete old unprofitable projects at faster pace which have undergone cost-overruns and change in provisioning norms resulting in provision losses of ~INR 170mn. Transmission tower incurred major losses while margins in other sub-divisions i.e. high mast and special projects came down to lower levels owing to delay in execution. Losses are expected to continue in Q4 as well. However, company has taken new orders with better margins which would ease pressure at EBIT level in FY14.

Order Book: The current order book of the company stands at INR 11,800mn (special projects - INR 6,180mn, high mast - INR 800mn and transmission tower - INR 4,820mn). Out of this, ~INR 3,000mn orders are of old unviable projects that company expects to complete by H1FY14.

Change in estimates

We have adjusted our estimates for FY13 and FY14 on the back of lower revenue and EBIT margin in the E&P division.

Outlook & Valuation

Although, consumer division is expected to maintain its growth momentum, E&P division would remain under pressure till H1FY14 on the back of management's focus on aggressively cutting the number of old unviable projects having costoverruns. However, we expect E&P division's profitability to improve in FY14 on the back of new order book with stricter measures to ensure profitability. We have adjusted our estimates for FY13 and FY14 and arrived at 12months target price of INR 204 (11x FY14E EPS) and changed our recommendation from BUY to HOLD.

Source : Equity Bulls

Keywords