Institutional Equities India Research Household Appliances October 30, 2012 QUARTERLY REVIEW Bloomberg: BJE IN Reuters: BJEL.BO HOLD Engg. & Projects continues to be in red; Consumer Segment is gearing up for festive season; Maintain HOLD sales, adj. net income and net income grew by 5%, (91)% and 8% YoY respectively. Engineering & Projects in the red: Engineering & Projects top line de grew by 22% YoY to Rs. 1,327mn in Q2FY13, which is below our expectations. The segment posted a negative EBIT of Rs. 268mn (EBIT Margin 20.2%) in the quarter due to one off site expenses. The company has closed nine unviable sites and is planning to close nine more sites by end of FY13. Current order book of E&P is Rs. 8.9bn. We believe EBIT of E&P segment will be positive in H2FY13. Lighting s EBIT continues its Double digit Growth Path: Lighting segment, which includes Luminaires, sales grew by 7% YoY to Rs. 2,017 mn. The segment registered an EBIT of Rs. 130mn and a growth of 15% YoY. The segment has improved its margin by 50bps YoY. Decent growth in Consumer Durables: Consumer Durable segment s topline grew by 17% YoY to Rs. 3,987 mn in Q1FY13. Sales of Fans, Bajaj Appliances and Morphy Richards grew by 21%, 18% and 13% YoY respectively in the quarter. EBIT of the segment grew by 17% YoY to Rs. 369mn in Q2FY13. We believe the company will register strong Q3FY13 due to delayed festival season, earlier price hikes and stable rupee. Divestment of Stake in Bajaj Ventures: has divested its entire stake in Bajaj Ventures and realized a profit of Rs. 247mn in this quarter. The extraordinary gain resulted in 8% growth in reported net income. The extraordinary gain promoted the company to report higher losses in E&P and eventually register higher profit in the ensuing two quarters. Outlook & Valuation: At CMP of Rs. 197, the stock trades at 14.6x of FY13E and 11.1x of FY14E earnings, respectively. We maintain our HOLD recommendation and revised up our price target to Rs. 213, which has a potential upside of 8%. We believe in Indiaʹs consumption story and Bajaj Electricals, with 4,000 dealers and 55,000 retail outlets as part of its retail network, is in a better position to take advantage of the consumption story as it has wider retail network than most of its competitors. Key Financials Y/E Mar (Rs. mn) FY2010 FY2011 FY2012 FY2013E FY2014E Net Sales 22,286 27,408 30,990 34,875 39,673 EBIDTA 2,434 2,580 2,371 2,557 3,234 Net Profit 1,253 1,449 1,179 1,344 1,772 EPS (Rs) 12.6 14.5 11.8 13.5 17.8 PER (x) 15.7 13.6 16.7 14.6 11.1 EV/EBITDA (x) 8.5 7.9 8.9 8.2 6.5 Source: Company and Karvy Institutional Research Recommendation CMP: Rs197 Target Price: Rs213 Upside (%) 8% Stock Information Market Cap. (Rs bn / US$ mn) 20/366 52 week High/Low (Rs) 234/132 3m ADV (Rs mn /US$ mn) 27/0.5 Beta 0.9 Sensex/ Nifty 18,625/5,664 Share outstanding (mn) 100 Stock Performance (%) 1M 3M 12M YTD Absolute (0.8) 14.2 (1) 29.7 Rel. to Sensex (0.7) 2.0 (8.1) 7.6 Performance 8,500 8,000 7,500 7,000 6,500 6,000 Nov 11 Dec 11 Jan 12 Feb 12 Apr 12 May 12 Jun 12 Aug 12 Sep 12 Oct 12 CNXMCAP (LHS) Source: Bloomberg 1 Year Forward EV/EBITDA (%) FY13E FY14E Revenue 2.1 3.4 EBITDA 8.5 6.2 PAT 4.3 5.4 Source: Karvy Institutional Research Analysts Contact Jagadishwar Pasunoori, CFA, FRM +91 40 44857912 jagadishwar.p@karvy.com 250 230 210 190 170 150 Bajaj Elect (RHS)
October 30, 2012 Exhibit 1: Segment wise Performance Revenue EBIT Parameter Q2FY12 Q1FY13 Q2FY13 QoQ(%) YoY(%) Q2FY12 Q1FY13 Q2FY13 QoQ(%) YoY(%) Lighting 1,892 1,524 2,017 32.3 6.6 113 74 130 76.9 15.2 Consumer Durables 3,394 3,904 3,987 2.1 17.5 315 328 369 12.5 17.4 Engineering & Projects 1,712 1,232 1,327 7.7 (22.5) 65 (71) (268) NA (513.4) Total 7,008 6,662 7,338 10.2 4.7 500 330 237 (28.3) (52.7) Exhibit 2: Variance from Our Earlier Estimates Previous Estimates Current Estimates Variance (%) Parameter FY13E FY14E FY13E FY14E FY13E FY14E Revenue 35,640 41,078 34,875 39,673 (2.1) (3.4) EBITDA 2,795 3,448 2,557 3,234 (8.5) (6.2) Net Income 1,289 1,681 1,344 1,772 4.3 5.4 EPS 12.9 16.9 13.5 17.8 4.6 5.2 ROCE (%) 17.5 18.0 17.0 18.9 (0.50) 0.87 ROE (%) 17.3 19.5 17.7 20.0 0.37 0.45 Exhibit 3: Quarterly Performance (Rs Mn) Q2FY12 Q1FY13 Q2FY13 QoQ (%) YoY (%) Total Op. Income 7,008 6,662 7,338 10.2 4.7 Operating Costs 6,483 6,316 7,095 12.3 9.4 EBIDTA 525 346 243 (29.6) (53.7) EBIDTA Margin (%) 7.5% 5.2% 3.3% (36.1) (55.7) Other Income 7 33 36 9.4 407.0 Interest 128 164 169 2.9 31.5 Depreciation 29 32 34 7.2 17.8 Profit Before Tax 375 183 76 (58.3) (79.7) Tax 125 63 54 (14.4) (57.0) Tax Rate (%) 33.3% 34.4% 70.6% 105.4 111.8 Adj. PAT 250 120 22 (81.3) (91.0) Extraordinary Income 246.80 Rep. PAT 250 120 269 124.7 7.7 2
October 30, 2012 Financials Exhibit 4: Profit & loss statement (Rs mn) FY10 FY11 FY12 FY13E FY14E Net revenues 22,286 27,408 30,990 34,875 39,673 % Growth 26.2 23.0 13.1 12.5 13.8 Raw Material 16,524 20,947 23,432 26,446 30,037 Staff 972 1,224 1,495 1,682 1,834 Operating Expenses 2,357 2,657 3,692 4,190 4,568 Operating expenses 19,852 24,828 28,619 32,318 36,439 EBIDTA 2,434 2,580 2,371 2,557 3,234 % Growth 35.4 6.0 (8.1) 7.8 26.5 EBIDTA margin (%) 10.9 9.4 7.7 7.3 8.2 Other income 29 57 144 158 172 Interest 314 291 631 567 602 Depreciation 92 108 125 141 160 Profit Before Tax 2,006 2,189 1,759 2,006 2,644 Provision for tax 754 740 581 662 873 Effective tax rate (%) 37.6 33.8 33.0 33.0 33.0 Adjusted Net Profit 1,253 1,449 1,179 1,344 1,772 % Growth 40.2 15.6 (18.6) 14.0 31.8 Reported Net Profit 1,203 1,399 1,179 1,591 1,772 Exhibit 5: Balance Sheet (Rs. mn) FY10 FY11 FY12 FY13E FY14E Equity capital 195 198 199 199 199 Reserves & surplus 4,747 5,913 6,799 8,013 9,348 Shareholders funds 4,942 6,111 6,999 8,212 9,547 Short term Loans 1,408 351 1,520 1,620 1,900 Long Term Loans 110 814 405 324 259 Total Loans 1,518 1,165 1,924 1,944 2,159 Deferred tax liability (5) (20) (19) (19) (19) Total Liabilities and Equity 6,457 7,256 8,903 10,136 11,687 Gross block 1,700 2,302 2,721 3,418 4,006 Depreciation 683 769 881 1,021 1,182 Net block 1,016 1,533 1,840 2,397 2,825 Capital WIP 1 258 60 72 Investments 366 366 440 443 429 LT Loans and Advances 862 970 1,104 Inventory 2,094 2,946 3,552 3,930 4,404 Debtors 7,507 10,654 11,082 12,123 13,394 Cash & Bank Balance 544 481 536 605 658 Current Assets 11,990 15,749 16,096 17,702 19,641 Sundry Creditors 2,984 4,370 3,820 4,047 4,296 Other current liabilities 3,932 6,022 6,773 7,389 8,088 Current Liabilities 6,916 10,392 10,593 11,436 12,384 Net current assets 5,074 5,357 5,503 6,265 7,257 Total Assets 6,457 7,256 8,904 10,136 11,687 3
October 30, 2012 Exhibit 6: Cash Flow Statement (Rs mn) FY10 FY11 FY12 FY13E FY14E EBIT 2,342 2,472 2,246 2,416 3,073 (Inc.)/Dec in working capital (1,645) (345) (953) (802) (1,072) Cash flow from operations 697 2,126 1,293 1,614 2,001 Other income 29 57 144 158 172 Depreciation 92 108 125 141 160 Interest paid ( ) (314) (291) (631) (567) (602) Tax paid ( ) (754) (740) (581) (662) (873) Dividends paid ( ) (273) (323) (324) (377) (436) Deferred Tax Liability (37) (15) 1 Extra ordinaries (50) (50) 20 247 Net cash from operations (609) 872 47 553 423 Capital expenditure ( ) (131) (601) (677) (500) (600) Net cash after capex (740) 271 (629) 53 (177) Inc./(Dec.) in short term borrowing (412) (1,058) 1,169 100 280 Inc./(dec.) in long term borrowing (208) 704 (410) (81) (65) Inc./(dec.) in borrowings (620) (354) 760 19 215 (Inc.)/Dec. in investments (50) (0) (75) (3) 14 Equity issue/(buyback) 1,626 57 38 Cash from Financial Activities 955 (297) 723 17 230 Others (119) 0 0 Opening cash 448 544 481 536 605 Closing cash 544 481 536 605 658 Change in cash 96 (62) 55 69 53 Exhibit 7: Key Ratios FY2010 FY2011 FY2012 FY2013E FY2014E Raw Material Cost / Sales (%) 74.1 76.4 75.6 75.8 75.7 Manpower Cost / Sales (%) 4.4 4.5 4.8 4.8 4.6 Operating & Other cost / Sales (%) 10.6 9.7 11.9 12.0 11.5 Revenue Growth (%) 26.2 23.0 13.1 12.5 13.8 EBIDTA Margins (%) 10.9 9.4 7.7 7.3 8.2 Net Income Margins (%) 5.4 5.1 3.8 4.6 4.5 ROCE (%) 26.4 23.9 18.6 17.0 18.9 ROE (%) 34.0 26.2 18.0 17.7 20.0 Exhibit 8: Valuation Parameters FY2010 FY2011 FY2012 FY2013E FY2014E EPS (Rs) 12.6 14.5 11.8 13.5 17.8 P/E (x) 15.7 13.6 16.7 14.6 11.1 BV (Rs) 49.6 61.3 70.2 82.4 95.8 P/BV (x) 4.0 3.2 2.8 2.4 2.1 EV/EBIDTA (x) 8.5 7.9 8.9 8.2 6.5 Fixed assets turnover ratio (x) 22.7 21.5 18.4 16.5 15.2 Debt/Equity (x) 0.31 0.19 0.27 0.24 0.23 EV/Sales (x) 0.9 0.7 0.7 0.6 0.5 4
Rangachari Muralikrishnan Institutional Equities Team Head Institutional Equities / Research / Strategy +91 22 61844301 muralikrishnan@karvy.com Shridhar Iyer Head Institutional Sales +91 22 61844302 shridhar.iyer@karvy.com K. Anant Rao Head Sales Trading & Derivatives +91 22 61844303 k.anantrao@karvy.com Uday Raval Karvy Inc. USA +1 212 2674334 udayr@karvy.com INSTITUTIONAL RESEARCH Analysts Industry / Sector Desk Phone Email ID Dwaipayan Poddar Chief Technical Strategist +91 22 61844372 dwaipayan.poddar@karvy.com Hatim Broachwala, CFA Banking +91 22 61844329 hatim.broachwala@karvy.com Jagadishwar Pasunoori, CFA, FRM MidCap +91 40 44857912 jagadishwar.p@karvy.com Manoj Kumar Manish Derivatives and Quant Analyst +91 22 61844327 manojkumar.m@karvy.com Maruti Kadam Automobiles / Metals & Mining +91 22 61844326 maruti.kadam@karvy.com Mitul Shah Automobiles +91 22 61844312 mitul.shah@karvy.com Nishith Sanghvi Pharmaceuticals +91 22 61844325 nishith.s@karvy.com Naveen Trivedi FMCG +91 22 61844316 naveen.trivedi@karvy.com Pallav Agarwal Metals & Mining +91 22 61844317 agarwal.pallav@karvy.com Paresh Jain BFSI +91 22 61844324 paresh.jain@karvy.com Parikshit Kandpal Infra / Real Estate / Strategy +91 22 61844311 parikshit.kandpal@karvy.com Rahul Sharma Pharmaceuticals +91 22 61844310 rahul.sharma@karvy.com Rahul Singh MidCap +91 40 44857911 rahulsingh@karvy.com Rajesh Kumar Ravi Cement & Logistics +91 22 61844313 rajesh.ravi@karvy.com Rupesh Sankhe Power/Capital Goods +91 22 61844315 rupesh.sankhe@karvy.com Vinay Nair Oil & Gas +91 22 61844319 vinaynair@karvy.com INSTITUTIONAL SALES Dinesh Bajaj Sales +91 22 61844341 dinesh.bajaj@karvy.com R. Sriram Sales +91 22 61844340 sriram.rangarajan@karvy.com Shabbir Dahodwala Sales (USA) +1 212 2674334 shabbir@karvy.com Tejash Gandhi Sales +91 22 61844345 tejash.gandhi@karvy.com INSTITUTIONAL SALES TRADING & DEALING Bhavesh Gandhi Institutional Dealer +91 22 61844368 /69 bhavesh.gandhi@karvy.com Prashant Oza Institutional Dealer +91 22 61844370 /71 prashant.oza@karvy.com Parag Shah Sales Trader +91 22 61844364 /65 parag.shah@karvy.com Sriram Jagdish Sales Trader +91 22 61844366 /67 sriram.jagdish@karvy.com Gurdarshan Singh Kharbanda Sales Trader +91 22 61844368 / 69 gurdarshansingh.k@karvy.com PRODUCTION Asim Kumar Mohapatra Editor +91 22 61844318 asim.mohapatra@karvy.com Vishal Randive Database Analyst +91 22 61844321 vishal.randive@karvy.com Vijayalaxmi Moolya Production +91 22 61844328 vijayalaxmi.m@karvy.com
Stock Ratings Absolute Returns Buy : > 15% Hold : 5 15% Sell : < 5% For further enquiries please contact: research@karvy.com Tel: +91 22 6184 4300 Disclosures Appendix Analyst certification The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Stock Broking nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures nor other derivatives related to such securities. Karvy Stock Broking Limited Institutional Equities Office No. 702, 7 th Floor, Hallmark Business Plaza, Opp. Gurunanak Hospital, Mumbai 400 051 Regd Off : 46, Road No 4, Street No 1, Banjara Hills, Hyderabad 500 034. Karvy Stock Broking Research is also available on: Bloomberg KRVY <GO>, Thomson Publisher & Reuters.