Bajaj Electricals ltd - BUY Management Meet Note

Transcription

1 We met the management of Bajaj Electricals ltd. We believe its strong distribution network, launch of new products and robust demand growth from the domestic market will drive its volume growth going forward. On a conservative approach, we have valued the stock 16 times FY13 EPS of Rs 16.4 giving a target price of Rs 262 an upside potential of 32% from the current levels. Strong Distribution Network: The company has a strong distribution network with 19 branch offices besides having a chain of about 1000 distributors, 4000 authorized dealers, more than 450,000 retail outlets and over 282 customers care centers across India which ensures efficient rollout of goods and services to the end consumers. New Products: Launched new products such as pressure cookers, water purifier, water pumps, digi sets and LED lanterns which have received a fairly good initial response from the market. The company is optimistic about scaling up its volumes over the next two to three years and improve its product portfolio. Diversified Business Model: It has a diversified business model which caters to the direct consumers as well as focus on infrastructure. Thus, with presence in different consumer markets, it is able to generate stable flow of revenues by focusing on new business opportunities. Financials FY08 FY09 FY10 FY11 FY12E FY13E Revenue (Rs Cr) 1,374 1,771 2,254 2,741 3,183 3,689 Consumer Durables ,277 1,532 1,839 Engineering & Projects ,052 Lighting Net Income (Rs Cr) EBITDA Margin (%) Total Asset Turnover (x) Debt Equity Ratio (x) RoE (%) Adj EPS (Rs) Stock Code BSE Code BSE Group B Bloomberg BJE IN Reuters BJEL.BO Market Data CMP (Rs) 199 Target Price (Rs) 262 Potential Upside (%) 32% Market Cap (Rs Cr) 1, Wk High/Low (Rs) 336/160 Shareholding (%) Promoter 64.8 DII 11.3 FII 9.0 Public & others 15.0 Afshan Sayyad afshan.sayyad@mlrsecurities.com

2 Significant Market Share Bajaj Electrical commands substantial market share in its consumer appliances segment. Under the lighting segment the company s market position is third, with Philips (26%), Surya (12%) taking the top two positions. The other competitors are Wipro, Havells, etc under the lighting segment. The company s position is 2 nd under the Luminaires segment with 15-16% market share while Philips (26%) is the no. 1 in the luminaires segment. Under the Fans BU the company s market position is 3 rd with a market share of 15% while the top two competitors are Crompton Greaves and Orient Fans. Market Share Market Position Lighting 8% 3rd Luminaires 15-16% 2nd Appliances 15-25% -- Fans 15% 3rd Under the appliances segment the company commands 15-30% market share in various categories like Oven Toaster and Griller (30%), Irons (26%), Water Heaters (23%). Manufactured Outsourced High Masts, Poles & Towers Appliances Fans Lamps & Tubelights CFL Lamps Luminaires Mix of manufacturing and outsourcing model Bajaj Electricals adopt a mix of manufacturing and outsourcing model. For high masts, poles and towers the company has its own facility at Ranjangaon & Chakan in Pune. Appliances are outsourced to vendors in Noida, Delhi and Himachal Pradesh. Imports from China accounts for 20% of the products under the appliances SBU. For fans, the company adopts a mix of manufacturing and outsourcing model. It has its own plant in Chakan. It is also outsourced to dedicated vendors in Hyderabad and Himachal Pradesh. Imports from China accounts for 5%. Lamps and tubelights are manufactured by its sister concern Hind Lamps, which the company recently acquired. CFL Lamps are manufactured by its Nasik based sister concern Starlite lighting. Luminaires are outsourced to vendors in Daman and Himachal Pradesh. 2

3 Diversified Revenue Stream Bajaj Electricals has a diversified business model which caters to the direct consumers, industry and infrastructure. It commands substantial market share in the consumer durables segments which helps it to generate stable flow of revenues and expand its business by foraying into newer categories. Rs Cr 4,000 3,500 3,000 2,500 2,000 1,500 1, Revenue Mix , , ,532 1, FY08 FY09 FY10 FY11 FY12E FY13E Consumer Durables Engineering & Projects Lighting 3

4 Wide Distribution Network The company has a strong distribution network with 19 branch offices beside having a chain of about 1000 distributors, 4000 authorized dealers, more than 450,000 retails outlets and over 282 customers care centers across India. This ensures efficient rollout of goods and services to the end consumers. It plans to launch Bajaj Shopping stores across India. Recently, BJE opened its first Bajaj Shopping store at Dadar, Mumbai and plans to open around shops in FY12. Bajaj Shopping stores will sell Bajaj Electrical products & Morphy Richards products under one roof. Network Nos. Offices 19 Distributors 1,000 Authorized Dealers 4,000 Retail Outlets 450,000 Customer Care Centres 282+ Banking on Consumption Story BJE will be a major beneficiary of the robust demand growth from the domestic market. Over the last few years, all the segments where Bajaj Electricals India is present have grown at a CAGR of 8%-30% and hence we expect similar growth to continue in all segments. Further the rising disposable income and preference for better life style have helped the company to achieve 28% CAGR growth in its consumer segment. Risks Company s key raw materials are Copper, Zinc, Steel and Aluminum. Wild fluctuations in the prices of these metals will lead to volatility in margins. Bajaj Electricals operates in a highly fragmented industry, stiff competition might result in lower pricing power E&P segment is driven by large players and company could face margin pressures from established players Delay in investments in the T&D space owing to rising interest rates, environment clearances issues and land acquisition issues 4

5 Business Segments Appliances Company s Appliance SBU markets various household range of products in appliances division. They are one of the leading players for products such as irons, OTGs, water heaters, toasters and sandwich makers and air coolers. In FY11, the company launched water purifiers and pressure cookers in few markets. It plans to take these products at a pan India level in the current fiscal. 2,000 1,500 Appliances & Fans Division 1,532 1,277 1,839 The BU achieved a turnover of Rs 683 Cr with a growth of 32% and CAGR of 30% during the year. We expect the growth momentum to continue on the back of the new products and due to its wide distribution network. Rs Cr 1, Fans The Fans BU has a wide range of ceiling, portable, fresh air & industrial air circulators and exhaust fans. Apart from this, the Fans BU has taken new initiatives by entering into water lifting pumps and power generators market. The BU has done exceedingly well by achieving a turnover of about Rs.522 Cr with a growth of 37% and a CAGR of 35% with a market share of about 16%. BJE Fan SBU is growing by 35% YoY mainly due to strong presence in the fans market, introduction of new models in premium segment, increase in purchasing power of Indian middle class and rapid urbanization and change in consumer behavior, preferring branded products over unbranded ones. - FY08 FY09 FY10 FY11 FY12E FY13E Revenue 5

6 1,200 1,000 Rs Cr Engineering & Projects Division 1, FY08 FY09 FY10 FY11 FY12E FY13E Revenue Order Book (Rs Cr) Engineering & Project Division E&P business segment has three main divisions viz. High Mast and Street Lighting Division, Special Projects and Transmission Line Towers. Special projects: It undertakes turnkey lighting assignments, fibre optic lighting, factory lighting, air-port lighting, sports lighting and rural electrification projects, among others. High masts and street lighting: Design, supply, erection and commissioning of high masts, signages and poles. Transmission Line tower: Design, supply, erection and commissioning of transmission lines, telecommunication towers and monopoles, and other related products and services. Order Book T&D Segment s order book as of 1QFY12 stands at Rs 730 Cr providing revenue visibility for next years. Transmission Line Towers account for 40% of the total E&P order book. Special Projects account for 42% and High Mast share is 18%. The company has bid for close to Rs 2,300 Cr worth of projects. Under the transmission line towers the company has bid for Rs 1,500 Cr worth of projects, Rs 400 Cr for High Mast Division and Rs 400 Cr for Special Projects. 130 Transmission Lines High Mast Special Projects Outlook The E&P division reported losses in Q1FY12 because of seasonally weak quarter coupled with closure of some old projects by the company resulting into the cost pressure. The company is taking several initiatives to bring back the E&P business on track. For this, the company is bringing down the number of projects from 82 levels to ~ 50 projects by the end of the year. The company has guided the completion of the cleaning process by Q2FY12 and the improvement in margins thereafter. 6

7 Lighting The lighting BU markets a wide range of light sources and domestic luminaires. The light sources include General Lighting Service (GLS) lamps, Fluorescent Tube Lights (FTL), Compact Fluorescent Lamps (CFL) and special purpose lamps. T The Lighting BU has done well despite intense competition and rapidly changing market dynamics. It has achieved a turnover of Rs. 327 Cr with a growth of 21% and a CAGR of 25%. Luminaires The Luminaires BU markets luminaires (light fittings) covering, commercial, industrial, flood lighting, street lighting, post-top lighting luminaires besides special luminaires for flame proof and increased safety applications. Rs Cr 1, Lighting & Luminaires Division The Luminaries BU has achieved a turnover of Rs.315 Cr with a Growth of 15%. The BU maintains No. 2 position in Luminaire industry in India. The BU has signed an agreement with Ruud Lighting Inc. of USA for distributing their LED range of products in SAARC countries and has also acquired rights to manufacture the Ruud Lighting ( BETA LED ) range of products in India. This will be an important part of the strategy for LED products. BJE concluded an agreement with Leviton, o-usa in early Feb 2011 to promote their latest Lighting control system products in India for modern work space, Retail and Hospitality industry. - FY08 FY09 FY10 FY11 FY12E FY13E Revenue 7

8 Income Statement (Rs Cr) FY09 FY10 FY11 FY12e FY13e Revenue 1, , , , ,689.0 Operating Expense 1, , , , ,393.9 EBITDA Other Income Dep & Amo Interest Tax Adjusted Net Income Balance Sheet (Rs Cr) FY09 FY10 FY11 FY12e FY13e Share Capital Reserve Total Equity Loan Fund Total Capital ,019.9 Fixed Asset Investment Cash Inventory Other Current Asset , , ,317.5 Total Current Liabilitiy , Net Current Asset Total Asset ,019.9 Ratio Analysis FY09 FY10 FY11 FY12e FY13e Revenue Growth (%) EBITDA Margin (%) EBITDA Growth (%) Adj Net Inc Margin (%) Adj Net Inc Growth (%) Total Asset Turnover (x) Debt Equity Ratio (x) RoE (%) EV/EBITDA (x) BVPS (INR) P/BV (x) Adj EPS (INR) Adj P/E (x)

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