1
May 24, 2018
Bajaj Electricals Ltd
India Research - Stock Broking
BUY
Recommendation (Rs.)
CMP (as on May 24, 2018) 567
Target Price 670
Previous Target Price 623
Upside (%) 18
Stock Information
Mkt Cap (Rs.mn/US$ mn) 57850 / 846
52-wk High/Low (Rs.) 706 / 295
3M Avg. daily volume (mn)
0.9
Beta (x) 1.1
Sensex/Nifty 34684 / 10514
O/S Shares(mn) 102.0
Face Value (Rs.) 2.0
Shareholding Pattern (%)
Promoters 62.9
FIIs 9.7
DIIs 5.8
Others 21.5
Stock Performance (%)
1M 3M 6M 12M
Absolute (15) 12 20 73
Relative to Sensex (15) 10 16 51
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 available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 46267 42983 47164 53129 61792
EBITDA 2642 2445 2934 3719 4634
EBITDA Margin (%) 5.7 5.7 6.2 7.0 7.5
Net Prot 1103 1093 1730 2038 2717
EPS (Rs.) 10.9 10.8 17.1 20.1 26.8
RoE (%) 14.6 12.5 18.3 18.7 20.1
PE (x) 17.4 28.8 29.9 28.0 21.0
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
EPC Segment to be the Next Phase of Growth
The completion of RREP (Rural Reach Expansion Program) model for consumer
durables segment has made the segment to grow by 5.5% YoY. The major revenue
growth driver was EPC business showing a strong growth of 44.1% YoY. The overall
revenues have shown a growth of 25.7% with EBITDA margins improvement of
262 bps. The PAT has been lower by 80% YoY due to impairment of investments in
Starlite Lighting Limited (JV). The demand for CFL is continuously deteriorating as
an impact of LED business growth. If the extraordinary item is adjusted, the EPS for
Q4FY18 comes to Rs. 8.63.
Consumer products segment: The RREP program backed consumer product
segment to grow at 5.5% YoY. The major focus after covering the entire segment with
RREP model is to regain the lost market share by focusing on secondary sales. The
margins came in at 5.8% showing a good growth of 179 bps. There was a volume
growth across the products under consumer durables segment. For full year consumer
durable segment revenue has shown a de-growth of 3.5% but the volumes were higher
by 6%. The company has made the provision for investments and loans in Starlite
Lighting Ltd to the tune of Rs. 894 mn for its CFL business. The company expects the
margins improvement in durable business as economies of scale to improve.
Robust Order book and Strong performance by Engineering and Projects
Segment: EPC segment has shown an excellent performance with a sales growth
of 44.1% YoY on the back of timely execution of the projects. The company has
a robust order book of Rs. 89340 mn of which about Rs. 40000 mn of orders are
short term orders. The company’s order book has grown signicantly giving a
strong picture of sales in the coming quarters. The EBIT margins have reached
11.2% during Q4FY18 representing a strong growth of 349 bps. The provisions
were written back which boosted the margins to 11.2%. The management guided
the sustainable margins to be around 7-8%.
Valuation and Risks
The major focus to gain the lost market share in consumer durable business and
strong EPC order book gives us a cushion for the revenues to grow at a CAGR of
14% over FY18-20E. We expect the product mix to dier with 60% contribution
from EPC business. The stock currently trades at 21.0x to FY20 EPS. We value the
stock for a target price of Rs. 670 on a 25x (3 years average) of FY20E EPS for a
“BUY” rating.
Earnings Revision (%)
YE Mar FY19E FY20E
Sales (%) 7.3 8.0
EBITDA (%) 7.3 8.0
PAT (%) 6.4 7.9
Source: Karvy Research
L
L
L
L
L
L
Company Update
Bloomberg Code: ____ IN
Consumer Discretionary - Home & Office Products
Bajaj Electricals Ltd
Bloomberg Code: BJE IN
80
130
180
230
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb
-
18
Mar
-
18
Apr-18
May-18
Bajaj Electr icals Ltd
Sensex
2
May 24, 2018
Bajaj Electricals Ltd
Key takeaways from quarterly earnings
Company has made a one time provision of Rs. 89.36 Cr with respect to its
investments in its associate company, Starlite Lighting Ltd, in view of losses incurred
by it due to steep fall in demand for CFL bulbs, impacting the PAT to be down by
almost 80%.
The company has recently received a large order for rural electrication in the state
of Uttar Pradesh under Pradhan Mantri Sahaj Bijli Har Ghar Yojna — Saubhagya,
aggregating to Rs. 5,9620 Mn. This large order has enlarged the order book to Rs
89340 mn representing healthy positive revenues in the coming quarters.
The consumer durable business has shown a de-growth of 3.5% for FY18 but the
volumes were higher by 6%.
The company’s major focus is to regain its market share in durable business by
increasing the focus on secondary sales.
Management indicated that the company has gained market share in fans segment.
The company will be increasing its debt to the tune of Rs. 5000 mn in order to
complete the EPC orders in time.
The sustainable margins level in EPC business is around 7-8%.
The company expects revenue of Rs. 35000 mn from EPC business and
Rs. 25000 mn from consumer durable business in FY19E.
The revenue growth was
on the back of excellent
performance of EPC
segment.
Exceptional item includes
impairment of investments
in Starlite Lighting Ltd.
A large order from UP
boosted the order book of
EPC segment.
EPC outperformed by
growing 44% with margins
improvement of 349 bps.
The sustainable margins
shall be around 7-8%.
Exhibit 2: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Turnover 16063 11451 40.3 12780 25.7
Op. Expenditure 14713 10748 36.9 12041 22.2
EBITDA 1350 703 92.0 739 82.7
Depreciation 89 83 6.4 84 6.0
Interest 155 144 7.7 166 (7.1)
Other Income 226 96 134.9 114 98.0
PBT 1332 572 132.8 603 121.1
Tax (net) 365 204 79.2 219 66.8
Exceptional Item 894
PAT 73 368 (80.2) 384 (80.9)
EBITDA Margin (%) 8.4 6.1 226 bps 5.8 262 bps
EBIT Margin (%) 9.3 6.2 301 bps 6.0 324 bps
Net Prot Margin (%) 0.5 3.2 (276) bps 3.0 (255) bps
Source: Company, Karvy Research
Exhibit 3: Segmental Financials
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Segment-wise revenues
Consumer products 6446 6002 7.4 6108 5.5
EPC 9615 5449 76.4 6672 44.1
Segment-wise EBIT
Consumer products 376 391 (3.7) 247 52.3
EPC 1082 321 237.4 518 108.8
Segment-wise EBIT Margin (%)
Consumer products 5.8 6.5 (68) bps 4.0 179 bps
EPC 11.2 5.9 537 bps 7.8 349 bps
Source: Company, Karvy Research
3
May 24, 2018
Bajaj Electricals Ltd
Exhibit 4: Revenue segmentation - FY18
Source: Company, Karvy Research
Exhibit 5: Revenue segmentation - FY17
Source: Company, Karvy Research
Exhibit 7: 5yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 6: Change in Earnings Estimates
YE Mar - Standalone (Rs. Mn)
FY19E FY20E
Comments
Old New % Change Old New % Change
Net Sales 49521 53129 7.3 57202 61792 8.0
We expect the EPC segment to lead
from front in the growth of company.
EBITDA 3466 3719 7.3 4290 4634 8.0
We maintain the margins as
expected earlier.
EBITDA Margin (%) 7.0 7.0 0 bps 7.5 7.5 0 bps
Adj. PAT 1916 2038 6.4 2517 2717 7.9
EPS (Rs.) 18.9 20.1 6.6 24.9 26.8 7.8
Source: Karvy Research
Lighting and
Consumer
durables
40.1%
Engineering
& projects
59.9%
Lighting and
Consumer
durables
47.8%
Engineering
& projects
52.2%
15
20
25
30
35
40
Mar-16
Mar-18
P/E
1STD
-1STD
Exhibit 8: 5yr PE Band Nifty Consumption Sector
Source: Bloomberg, Karvy Research
0
2000
4000
6000
0
30
60
90
120
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Average PE
1SD
-1STD
Price (Rs.) (RHS)
4
May 24, 2018
Bajaj Electricals Ltd
Financials
Exhibit 9: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Revenues 46267 42983 47164 53129 61792
Growth (%) 8.0 (7.1) 9.7 12.6 16.3
Operating Expenses 43625 40538 44230 49410 57158
EBITDA 2642 2445 2934 3719 4634
Growth (%) 196.9 (7.6) 20.0 26.7 24.6
Depreciation & Amortization 274 299 339 346 353
Other Income 481 356 532 585 644
EBIT 2368 2146 2595 3373 4281
Interest Expenses 1081 804 589 916 870
PBT 1768 1698 2538 3042 4055
Tax 665 605 809 1004 1338
Adjusted PAT 1103 1093 1730 2038 2717
Growth (%) NM (0.9) 58.3 17.8 33.3
Source: Company, Karvy Research
Exhibit 10: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Cash & Equivalents 555 653 257 4879 3786
Sundry Debtors 16711 16538 20121 20378 23701
Inventory 5067 5712 5792 6335 7195
Loans & Advances 2556 2919 4059 4177 4300
Investments 822 829 145 145 145
Net Block 2765 3101 3187 3587 3887
CWIP 207 79 35 35 35
Miscellaneous 398 387 395 402 411
Total Assets 29080 30164 33993 39939 43460
Current Liabilities & Provisions 12861 15672 17314 17839 19267
Debt 8209 5455 7176 11170 10612
Other Liabilities 435 323 52 49 88
Total Liabilities 21505 21450 24543 29059 29967
Shareholders Equity 202 202 204 204 204
Reserves & Surplus 7361 8512 9243 10675 13287
Total Networth 7563 8714 9447 10879 13492
Total Networth & Liabilities 29080 30164 33991 39939 43460
Source: Company, Karvy Research
Revenues to grow at a
CAGR of 14% on the back
of execution of EPC orders.
The interest expense could
shoot up due to increased
borrowings.
5
May 24, 2018
Bajaj Electricals Ltd
Exhibit 11: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
PBT 1768 1698 2538 3042 4055
Depreciation 274 299 339 346 353
Interest 1081 804 589 916 870
Inc/dec in Net WC 467 1834 (3756) (404) (2847)
Other non cash items (541) (252) (1340) (1589) (1982)
Cash ow from operating activities 3048 4383 (1630) 2312 449
Inc/dec in capital expenditure (458) (457) (86) (400) (300)
Inc/dec in investments (37) (15) 0 0 0
Others 215 (119) 532 585 644
Cash ow from investing activities (279) (591) 446 185 344
Inc/dec in borrowings (972) (2951) 1721 3994 (559)
Issuance of equity 32 59 3 0 0
Dividend paid (340) 0 (457) (457) (457)
Interest paid 0 0 (589) (916) (870)
Cash ow from nancing activities (1281) (2892) 678 2621 (1886)
Net change in cash 1488 900 (506) 5118 (1093)
Source: Company, Karvy Research
Exhibit 12: Key Ratios
YE Mar FY16 FY17 FY18 FY19E FY20E
EBITDA Margin (%) 5.7 5.7 6.2 7.0 7.5
EBIT Margin (%) 5.1 5.0 5.5 6.3 6.9
Net Prot Margin (%) 2.4 2.5 3.7 3.8 4.4
Dividend Payout Ratio (%) 25.7 25.9 16.4 13.9 10.4
Net Debt/Equity (x) 1.0 0.6 0.7 0.6 0.5
RoE (%) 14.6 12.5 18.3 18.7 20.1
RoCE (%) 7.0 7.7 10.4 9.2 11.3
Source: Company, Karvy Research
Exhibit 13: Valuation Parameters
YE Mar FY16 FY17 FY18 FY19E FY20E
EPS (Rs.) 10.9 10.8 17.1 20.1 26.8
DPS (Rs.) 2.8 2.8 2.8 2.8 2.8
BVPS (Rs.) 74.8 80.8 90.1 100.9 120.9
PE (x) 17.4 28.8 29.9 28.0 21.0
P/BV (x) 2.5 3.9 5.7 5.6 4.7
EV/EBITDA (x) 10.1 14.9 20.0 17.1 13.8
EV/Sales (x) 0.6 0.8 1.2 1.2 1.0
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
6
May 24, 2018
Bajaj Electricals Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
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