1
Nov 21, 2017
Bajaj Electricals Ltd
India Research - Stock Broking
BUY
Bloomberg Code: ____ IN
Recommendation (Rs.)
CMP (as on Nov 20, 2017) 408
Target Price 468
Previous Target Price 377
Upside (%) 15
Stock Information
Mkt Cap (Rs.mn/US$ mn) 41487 / 637
52-wk High/Low (Rs.) 428 / 202
3M Avg. daily volume (mn) 353658
Beta (x) 1.2
Sensex/Nifty 33360 / 10299
O/S Shares(mn) 101.7
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 63.3
FIIs 9.8
DIIs 4.8
Others 22.2
Stock Performance (%)
1M 3M 6M 12M
Absolute (0) 24 21 90
Relative to Sensex (3) 17 11 49
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Ankit Soni
040 - 3321 6274
soni.ankit@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>,
Thomson Publishers & Reuters
Exhibit 1: Valuation Summary (Rs. Mn)
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 42581 46267 42983 44503 49521
EBITDA 890 2642 2445 2670 3466
EBITDA Margin (%) 2.1 5.7 5.7 6.0 7.0
Adj. Net Prot (140) 1103 1093 1335 1916
EPS (Rs.) (1.4) 10.9 10.8 13.2 18.9
RoE (%) (2.0) 14.6 12.5 12.4 14.5
PE (x) NM 17.4 28.8 30.8 21.4
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Company Update
Consumer Discretionary - Home & Office Products
Bajaj Electricals Ltd
Bloomberg Code: BJE IN
Consumer Business to Lead the Growth
The revenues were at at Rs.19650 Mn YoY. The consumer segment has fallen by
11.7% and EPC segment has grown by 15.3% in H1FY18. The absolute EBITDA
has fallen by 11.5% to reach Rs.900 Mn with EBITDA margins at 4.6% falling over
59bps in H1FY18. PAT has reached Rs. 413 Mn showing a growth of 4.4% majorly
due to reduction in nance cost which has fallen over by 32.1%. PAT margins are at
2.1% showing a marginal improvement of 9bps.
Segmental information: In Q2FY18, Consumer products segment posted
revenue of Rs.5141 Mn which was lower by 9.2% YoY compared to previous
year, majorly due to their Range and Reach Expansion Programme (RREP) and
GST roll out. Due to negative sales growth in the month of July, the volumes for
whole quarter did not turned up showing a degrowth of 9.2% YoY. EBIT margins
of consumer segment have shown a very healthy performance by growing
356 bps YoY to reach 5.6%. The margins have expanded on the back of successful
implementation of RREP program. As per management, secondary sales under
RREP program contributes 81.0% of total consumer durable sales. The sudden
jump in EBIT margins is due to additional credit on the inventory lying under pre-GST
regime. The real improvement in margins is just 100-150 bps which is sustainable.
The management has not increased the prices of products and looks to take hit of
excess cost due to increase in GST rate. The management guided that there would
be good growth in volume of products but realizations would be down by 8% which
can bring the nal growth of 2%-3%. The company announced that 60% of the
supply chain system is under RREP model now; and all these regions have shown
a growth of more than 20%. The company expects to cover entire supply chain
under RREP by March 2018E. The company expects a good boost to the revenues
and margins in coming quarters and in FY19E.
Valuation and Outlook
We expect the RREP plan and Theory of Constraints (ToC) based distribution model
will make the consumer segment to grow exponentially. We expect Engineering,
Procurement, and Construction (EPC) segment to ourish well in FY18E as
management is looking to execute xed price contracts with healthy margins. We
expect the revenues to grow at a CAGR of 7.3% during FY17-19E. We value the
company at 24.7x on FY19E EPS for an upwardly revised target price of Rs 468
representing an upside potential of 15%.
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Bajaj Electr ical s Ltd
Sensex
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Nov 21, 2017
Bajaj Electricals Ltd
Exhibit 2: Q2FY18
YE Mar (Rs. Mn) Q2FY18 Q1FY18 QoQ (%) Q1FY17 YoY (%) H1FY18 H1FY17 YoY(%)
Turnover 9356 10294 (9.1) 10058 (7.0) 19650 19651 (0.0)
Op. Expenditure 8908 9842 (9.5) 9598 (7.2) 18750 18635 0.6
EBITDA 447 452 (1.1) 460 (2.7) 900 1016 (11.5)
Depreciation 88 80 9.9 71 24.4 168 137 22.1
Interest 141 150 (6.1) 210 (33.0) 291 428 (32.1)
Other Income 106 105 0.6 77 37.4 210 175 20.4
PBT 325 328 (0.9) 256 26.7 652 626 4.2
Tax (net) 117 123 (4.7) 92 27.1 239 230 3.9
PAT 208 205 1.4 164 26.5 413 395 4.4
EBITDA Margin (%) 4.8 4.4 39 bps 4.6 21 bps 4.6 5.2 (59) bps
EBIT Margin (%) 5.0 4.6 33 bps 4.6 34 bps 4.8 5.4 (57) bps
Net Prot Margin (%) 2.2 2.0 23 bps 1.6 59 bps 2.1 2.0 9 bps
Source: Company, Karvy Research
Exhibit 3: Segmental Financials
(Rs. Mn) Q2FY18 Q1FY18 QoQ (%) Q1FY17 YoY (%) H1FY18 H1FY17 YoY(%)
Segment-wise revenues
Consumer products 5141 4695 9.5 5661 (9.2) 9836 11139 (11.7)
EPC 4213 5598 (24.7) 4393 (4.1) 9812 8507 15.3
Segment-wise EBIT
Consumer products 287 33 774.4 115 150.5 320 366 (12.7)
EPC 146 398 (63.3) 330 (55.8) 544 639 (14.9)
Segment-wise EBIT Margin (%)
Consumer products 5.6 0.7 488 bps 2.0 356 bps 3.2 3.3 (4) bps
EPC 3.5 7.1 (364) bps 7.5 (405) bps 5.5 7.5 (197) bps
Source: Company, Karvy Research
Key Takeaways of Management Interaction:
GST Eect: Due to GST, consumer durable sales were down but margins have shown an improvement on the back of
additional credit on the unsold inventory which is considered to be a one time event. The management guides the margins
improvement of 100-150bps to be sustainable.
The company is in mood to increase the prices of the products and would like to reduce the cost of the product keeping the
margins intact.
The borrowings have come down to Rs.700mn from Rs.1000mn and expects to reduce further to Rs.500mn.
The company expects to gain market share in the coming quarters and in FY19E, due to increased contribution from its
secondary sales. Currently, secondary sales contributes 81.0% of total consumer durable sales.
Decent performance by Engineering and Projects Segment:
In H1FY18, EPC has registered a good performance registering 15.3% growth in the revenue from operations. EBIT has shown
a degrowth of 14.9% with margins at 5.5% degrading by 197bps YoY. The margins have been impacted due to one time provision
of Rs.140mn and on account of a rise in GST rate on xed price contracts. The segment also has a very strong and healthy order
book and expects the execution to be in the faster pace in the coming quarters.
Key Risks
Unorganised market.
Intense competition in consumer durables segment.
Over-dependence on vendors.
E&P segment’s volatile performance.
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Nov 21, 2017
Bajaj Electricals Ltd
Financials
Exhibit 4: Income Statement
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Revenues 42581 46267 42983 44503 49521
Growth (%) 5.7 8.0 (7.1) 3.5 11.3
Operating Expenses 41691 43625 40538 41833 46054
EBITDA 890 2642 2445 2670 3466
Growth (%) 8.8 196.9 (7.6) 9.2 29.8
Depreciation & Amortization 290 274 299 305 311
Other Income 243 481 356 391 431
EBIT 600 2368 2146 2366 3156
Interest Expenses 1051 1081 804 764 726
PBT (208) 1768 1698 1993 2860
Tax (69) 665 605 658 944
Adjusted PAT (140) 1103 1093 1335 1916
Growth (%) NM NM (0.9) 22.2 43.5
Source: Company, Karvy Research
Exhibit 5: Balance Sheet
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Cash & Equivalents 377 555 653 2505 3669
Sundry Debtors 12896 16711 16538 17350 17637
Inventory 4746 5067 5712 5944 6512
Loans & Advances 1971 2556 2919 3016 3118
Investments 594 822 829 829 829
Net Block 2777 2765 3101 4601 5601
CWIP 32 207 79 79 79
Miscellaneous 4416 398 387 395 402
Total Assets 27808 29080 30164 34720 37848
Current Liabilities & Provisions 17008 12861 15672 18582 20045
Debt 3869 8209 5455 4918 3959
Other Liabilities 62 435 323 480 588
Total Liabilities 20938 21505 21450 23980 24592
Shareholders Equity 202 202 202 202 202
Reserves & Surplus 6668 7361 8512 10536 13054
Total Networth 6870 7563 8714 10738 13256
Total Networth & Liabilities 27808 29080 30164 34720 37848
Source: Company, Karvy Research
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Nov 21, 2017
Bajaj Electricals Ltd
Exhibit 6: Cash Flow Statement
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
PBT (208) 1768 1698 1993 2860
Depreciation 290 274 299 305 311
Interest 999 1081 804 764 726
Inc/dec in Net WC (420) 467 1834 1836 606
Other non cash items 221 (541) (252) (1049) (1374)
Cash ow from operating activities 882 3048 4383 3849 3128
Inc/dec in capital expenditure (624) (458) (457) (361) (368)
Inc/dec in investments 122 (37) (15) 0 0
Others 12 215 (119) 391 431
Cash ow from investing activities (491) (279) (591) 31 63
Inc/dec in borrowings 373 (972) (2951) (537) (960)
Issuance of equity 127 32 59 0 0
Dividend paid (175) (340) 0 (341) (341)
Interest paid (888) 0 0 (764) (726)
Cash ow from nancing activities (562) (1281) (2892) (1643) (2027)
Net change in cash (171) 1488 900 2237 1164
Source: Company, Karvy Research
Exhibit 7: Key Ratios
YE Mar FY15 FY16 FY17 FY18E FY19E
EBITDA Margin (%) 2.1 5.7 5.7 6.0 7.0
EBIT Margin (%) 1.4 5.1 5.0 5.3 6.4
Net Prot Margin (%) (0.3) 2.4 2.5 3.0 3.9
Dividend Payout Ratio (%) NM 25.7 25.9 21.2 14.8
Net Debt/Equity (x) 0.5 1.0 0.6 0.2 0.0
RoE (%) (2.0) 14.6 12.5 12.4 14.5
RoCE (%) (1.3) 7.0 7.7 8.5 11.1
Source: Company, Karvy Research
Exhibit 8: Valuation Parameters
YE Mar FY15 FY16 FY17 FY18E FY19E
EPS (Rs.) (1.4) 10.9 10.8 13.2 18.9
DPS (Rs.) 1.5 2.8 2.8 2.8 2.8
BVPS (Rs.) 69.3 74.8 80.5 96.5 53.3
PE (x) NM 17.4 28.8 30.8 21.4
P/BV (x) 3.3 2.5 3.9 4.2 7.7
EV/EBITDA (x) 30.1 10.1 14.9 16.3 11.9
EV/Sales (x) 0.6 0.6 0.8 1.0 0.8
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
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Nov 21, 2017
Bajaj Electricals Ltd
Stock Ratings
Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
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