Bajaj Electricals (Q1 FY13)

India Infoline News Service | Mumbai |

Operating profit margin (OPM) for Q1 FY13 contracted by 35bps on yoy basis to 5.2%. It is the lowest OPM reported by the company in the past 20 quarters.

CMP Rs173, Target Rs223, Upside 29%
  • Net sales for Q1 FY13 at stood at Rs6.6bn, a jump of 22.4% on yoy basis led by robust growth of 29% in the consumer durable segment. On a sequential basis revenues witness sharp decline of 37.2% with Q4 being seasonally strongest quarter for the company. Operating profit margin (OPM) for Q1 FY13 contracted by 35bps on yoy basis to 5.2%. It is the lowest OPM reported by the company in the past 20 quarters.
  • Within segments, E&P business continues to report mediocre performance with paltry 8.5% yoy revenue growth despite lower base of Q1 FY12. At EBIT level E&P segment reported loss of Rs71mn. Management attributed loss to the cost overruns incurred on closure of older sites outstanding, wherein the revenue recognition is negligible while costs are high. At the beginning of FY13 24 such sites were outstanding. During the year the management expects to close down 18 sites leading to substantial reduction of cost over-runs. However, performance for the segment to remain weak for the next quarter and the company strives to improve profitability thereafter. Additionally, the company has ventured into international markets in the E&P segment, where the margins are healthy with better working capital cycle and limited competition. 
  • Consumer durable reported stellar performance with robust 28.8% yoy revenue growth led by a) 13% growth in the fan segment, b) 29% surge in sales of Morphy Richards brand and c) 32% jump in sales for Bajaj Appliances. Price hike taken during the quarter accounted for ~8-10% revenue growth, while the remaining growth came from increase in volumes. EBIT margin for the segment stood at 8.4%, contraction of 120bps on yoy basis. Inability to pass on the entire cost increase on account rupee depreciation for the imported product translated into lower EBIT margin. The company has guided for 20% revenue growth and 10.5% EBIT margin for FY13.
  • Revenues for the lighting in Q1 FY13 surged by 19.6% on yoy basis backed by strong growth in volumes. The segment reported flattish EBIT margin at 4.8% for Q1 FY13. Management has guided for 20% revenue growth with 7.5% EBIT margin for FY13.
  • We expect strong growth in revenues for the consumer durable and lighting segment to continue and believe that revenue growth in the E&P segment will be subdued (3%-5%) for the next two years. The company plans to take various initiatives to improve margins across the segments. Some of these includes a) curb on higher guarantee cost for CFLs, b) implementation of Theory of constraints, c) Indigenization of products which are currently imported like water heaters. Successful implementation of these initiatives is expected to result into gradual expansion of 220bps in OPM over the next two years. At current level, we believe valuations are attractive and recommend BUY rating with the 9-month target price of Rs223. 
Results table
(Rs m) Q1 FY13 Q1 FY12 % yoy Q4 FY12 % qoq
Net sales 6,662 5,443 22.4 10,602 (37.2)
Material costs 151 374 (59.7) (1,153) (113.1)
Purchase of traded goods (5,299) (4,485) 18.1 (7,090) (25.3)
Personnel costs (352) (315) 11.6 (380) (7.4)
Other overheads (816) (715) 14.2 (1,117) (26.9)
Operating profit 346 302 14.8 862 (59.8)
OPM (%) 5.2 5.5 (35) bps 8.1 (293) bps
Depreciation (32) (31) 4.6 (37) (12.1)
Interest (164) (107) 53.8 (163) 0.6
Other income 33 7 391.0 64 (48.6)
PBT 183 171 7.0 726 (74.8)
Tax (63) (60) 4.5 (236) (73.5)
Effective tax rate (%) 34.3 35.1 - 32.5 -
Reported PAT 120 111 8.3 490 (75.5)
PAT margin (%) 1.8 2.0 (23) bps 4.6 (282) bps
Ann. EPS (Rs) 4.8 4.5 8.3 19.7 (75.5)
Source: Company, India Infoline Research

Cost analysis
As a % of net sales Q1 FY13 Q1 FY12 bps yoy Q4 FY12 bps qoq
Material costs (2.3) (6.9) 461 10.9 (1,314)
Purchase of traded goods 79.5 82.4 (287) 66.9 1,266
Personnel Costs 5.3 5.8 (51) 3.6 169
Other overheads 12.3 13.1 (88) 10.5 172
Total costs 94.8 94.5 35 91.9 293
Source: Company, India Infoline Research

Segmental results
(Rs mn) Q1 FY13 Q1 FY12 % yoy Q4 FY12 % qoq
Revenues




Lighting 1,524 1,274 19.6 2,479 (38.5)
Consumer Durables 3,904 3,031 28.8 4,443 (12.1)
E&P 1,232 1,136 8.5 3,678 (66.5)
Total 6,660 5,443 22.4 10,600 (37.2)
EBIT




Lighting 74 62 19 257 (71)
Consumer Durables 328 291 12.7 424 (22.5)
E&P (71) (76) (7.5) 205 (134.4)
Total 331 276 20.1 886 (62.6)
EBIT Margin (%)




Lighting 4.8 4.9 (4) bps 10.4 (555) bps
Consumer Durables 8.4 9.6 (120) bps 9.5 (113) bps
E&P (5.7) (6.7) 99 bps 5.6 (1132) bps
Blended 5.0 5.1 (10) bps
BSE 491.80 10.10 (2.10%)
NSE 491.25 9.05 (1.88%)

***Note: This is a NSE Chart

 

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