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Bajaj Electricals (Q4 FY13)

We expect strong growth in revenues for the consumer durable and lighting segment to continue and believe that performance of E&P segment will remain mediocre for the next four quarters

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs168, Target Rs145, Downside 13.2%

  • Net sales for Q4 FY13 at stood at Rs11.1bn, a modest growth of 5% on yoy basis. Robust 22% yoy growth in consumer durable segment was offset by 22% yoy decline in the E&P segment. Operating profit margin (OPM) for Q4 FY13 contracted by 694bps on yoy basis to paltry 1.2%.
  • Within segments, E&P business continued to report mediocre performance with revenue witnessing a sharp decline of 22.5% on yoy basis. At EBIT level E&P segment reported a loss of Rs507mn. Management attributed loss to the cost overruns incurred on closure of older sites outstanding, wherein the revenue recognition is negligible while costs are high. The current order book for the segment stands at Rs10bn of which Rs4bn is pertaining to slow moving loss incurring sites. However, performance for the segment to remain weak for the next 4 quarters and the company strives to break even in FY14.
  • Consumer durable reported strong performance with robust 22.4% yoy revenue growth led by robust growth in appliances and Morphy Richards. EBIT margin for the segment stood at 8%, 150bps contraction on yoy basis. Depreciation in rupee and slow moving inventory correction were the two major factors that impacted margins for the segment.
  • Revenues for the lighting in Q4 FY13 increased by 15% on yoy basis with strong 22% growth in lighting product getting offset by weak 2% growth in luminaire sales. The segment reported EBIT margin of 7.9%, contraction of 251bps yoy, for Q4 FY13.
  • We expect strong growth in revenues for the consumer durable and lighting segment to continue and believe that performance of E&P segment will remain mediocre for the next four quarters. The company is planning to undertake projects with minimum 6-8% profit margin going ahead. Management expects to break even in the E&P segment in FY14. Huge losses in the E&P segment for the past two quarters has resulted into poor visibility for the segments earnings for the next 2 years. We have lowered our estimates for the segments revenue growth and margin assumptions. Further we downgrade the valuation for the company on account of poor visibility and deteriorating fundamentals in the E&P segment. Based on our revised estimate, we arrive at a target price of Rs146and assign a SELL rating on the stock.
Results table
(Rs m) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Net sales 11,137 10,602 5.1 8,730 27.6
Material costs (933) (1,153) (19.1) (262) 256.3
Purchase of traded goods (8,214) (7,090) 15.8 (6,343) 29.5
Personnel costs (398) (380) 4.8 (396) 0.4
Other overheads (1,461) (1,117) 30.8 (1,370) 6.6
Operating profit 132 862 (84.7) 359 (63.2)
OPM (%) 1.2 8.1 (694) bps 4.1 (293) bps
Depreciation (43) (37) 16.7 (35) 20.3
Interest (161) (163) (1.3) (169) (4.7)
Other income 82 64 27.7 27 203.7
PBT 10 726 (98.6) 182 (94.4)
Tax (4) (236) (98.3) (57) (93.2)
Effective tax rate (%) 38.2 32.5 - 31.5 -
Reported PAT 6 490 (98.7) 124 (94.9)
PAT margin (%) 0.1 4.6 (456) bps 1.4 (137) bps
Ann. EPS (Rs) 0.3 19.7 (98.7) 5.0 (94.9)
Source: Company, India Infoline Research

Cost analysis
As a % of net sales Q4 FY13 Q4 FY12 bps yoy Q3 FY13 bps qoq
Material costs 8.4 10.9 (250) 3.0 538
Purchase of traded goods 73.7 66.9 687 72.7 110
Personnel Costs 3.6 3.6 (1) 4.5 (97)
Other overheads 13.1 10.5 258 15.7 (258)
Total costs 98.8 91.9 694 95.9 293
Source: Company, India Infoline Research

Segmented results
(Rs mn) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Revenues




Lighting 2,847 2,479 14.9 2,215 28.6
Consumer Durables 5,436 4,443 22.4 5,044 7.8
E&P 2,852 3,678 (22.5) 1,469 94.2
Total 11,135 10,600 5.1 8,730 27.5
EBIT




Lighting 224 257 (13) 151 48
Consumer Durables 438 424 3.2 598 (26.8)
E&P (507) 205 (346.6) (401) 26.5
Total 348 638 (45.4) 232 50.3
EBIT Margin (%)




Lighting 7.9 10.4 (251) bps 6.8 104 bps
Consumer Durables 8.0 9.5 (149) bps 11.8
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