idirect bajajelectricals ic - share market | stock market

September 19, 2013

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Consumption to light up growth! Bajaj Electricals (BEL) is a dominant play in the consumer durable (CD) and lighting segments with over 4100 dealers and a 400,000 strong retail network for lighting and 86,000 and 45,000 respectively for fans and appliances across India. BEL recorded last six years sales CAGR of 25% and 17% in the CD and lighting categories, respectively, whereas the performance of the E&P category was dismal (last six year sales CAGR of 13%) with rising competition and cost overrun. Although BEL has a dominant presence in the small appliances market with market share ranging between 15% and 30% (organised market), its premium product (Morphy Richards) contributes ~15% to total CD sales. We believe sales and earning will see CAGR of ~18% and ~65% for FY13-15E led by strong performance of the CD & lighting segments while E&P segment will narrow down losses in FY14. We initiate coverage on the stock with a BUY rating.

CD, lighting segments to drive topline BEL is a strong brand in the appliances and lighting segments with revenue contribution of ~80% to the topline. With a strong dealer network, we believe the CD and lighting segments will record sales CAGR of ~18% and ~17%, respectively, for FY13-15E, supported by rapid urbanisation and a growing middle class. BEL has largely focused on dealer push strategy with lower advertisement expenditure unlike Havells India’s consumer pull strategy. We believe E&P sales will record a CAGR of ~19% in FY13-15E led by the company’s strategy to reduce the project execution cycle. Lower headwinds to aid in EBITDA as BEL exits lower margin projects BEL’s main concern is a higher working capital cycle (~7% of sales in FY13) compared to other branded players (Havells’ working capital cycle is ~4% of sales in FY13). Significant cost overrun coupled with almost flattish revenue growth in the E&P segment took its toll on overall EBITDA margins (declined ~430 bps YoY) in FY13. However, BEL has endeavoured to rationalise the working capital requirement (20% of sales in FY10 to ~7% of sales in FY13) by reducing debtors’ days. We believe the stretched working capital of BEL would relax, going forward, with an improvement in project execution cycle, finally resulting in EBITDA margin recovery. E&P turnaround to drive stock re-rating At CMP of | 165, BEL is trading at a PE multiple of 24x FY14E & 12x FY15E earnings. On EV/EBITDA multiple, it is trading at ~10x FY14E and ~6x FY15E EBITDA. We expect the E&P segment to narrow its losses in FY14 and start contributing to EBITDA in FY15 by executing high margin projects. It will help reduce working capital requirements with improving return ratios, going forward. Our SOTP valuation suggests a fair value of | 195. We initiate coverage on the stock with a BUY rating and target price of | 195.

Exhibit 1: Key financials (Year-end March) FY11 FY12 FY13 FY14E FY15ENet Sales (| crore) 2,739.4 3,094.2 3,380.9 4,038.0 4,737.4 EBITDA (| crore) 231.2 225.5 101.2 173.6 270.0 Net Profit (| crore) 143.8 117.9 51.2 68.6 138.6 EPS (|) 14.4 11.8 5.1 6.9 13.9 P/E (x) 12.4 14.5 53.6 24.0 11.9 Price / Book (x) 2.7 2.4 2.3 2.1 1.9 EV/EBITDA (x) 7.4 7.9 17.3 10.3 6.6 RoCE (%) 30.5 24.0 9.8 16.3 24.0 RoE (%) 23.5 16.8 7.0 8.9 15.7

Source: Company, ICICIdirect.com Research

Bajaj Electricals (BAJELE) | 165

Rating Matrix Rating : Buy

Target : | 195

Target Period : 12-15 months

Potential Upside : 18%

YoY Growth (%)

YoY Growth FY12 FY13 FY14E FY15ENet Sales 12.9 9.3 19.4 17.3EBITDA -2.5 -55.1 71.6 55.5Net Profit -18.0 -56.5 34.0 102.0

Current & target multiple FY12 FY13 FY14E FY15E

P/E (x) 14.5 53.6 24.0 11.9Target P/E (x) 17.1 63.2 28.3 14.0EV/EBITDA (x) 7.9 17.3 10.3 6.6Mcap/Sales (x) 0.5 0.5 0.4 0.3RoE (%) 16.8 7.0 8.9 15.7RoCE (%) 24.0 9.8 16.3 24.0

Stock Data Bloomberg/Reuters Code BJE.IN/BJEL.BOSensex 19962Average Volume 79117Market Cap (| crore) 1646.052 Week H/L 234/150Equity Capital (| crore) 20.0Face Value (|) 2Promoters Stake (%) 66.1FII Holding (%) 10.9DII Holding (%) 5.9

Comparative return matrix (%) 1M 3M 6M 12M

Bajaj Electricals 3.4 0.9 -8.2 -12.9Havells India 1.4 -17.5 -3.6 3.9V-Guard 12.0 2.6 -2.3 22.5

Price movement

0

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Sep-13Jun-13Mar-13Dec-12Oct-12

4,8005,0005,2005,4005,6005,8006,0006,2006,400

Price (R.H.S) Nifty (L.H.S)

Analyst’s name

Sanjay Manyal [email protected] Hitesh Taunk [email protected]


Company background Incorporated in 1938, Bajaj Electricals (BEL) was incorporated as Radio Lamp Works Ltd. It was later renamed Bajaj Electricals in 1960. The company is largely known for its consumer appliance business. BEL operates mainly in three business segments, namely, lighting & luminaries, consumer durables (CD) and engineering & project (E&P). The company follows an asset light model strategy wherein it largely outsources (revenue from outsourced product contributes ~95% in the topline) the manufacturing of its kitchen and home appliance products and lightings. Under its kitchen and home appliances, BEL offers a wide range of brown goods including water heaters, mixer grinder, food processors, steam & dry iron, air coolers and water purifiers. The CD segment contributes ~55% to the topline and recorded a CAGR of ~25% in FY08-13. Bajaj lighting & luminaries (contributes ~25% to the topline) recorded CAGR of 17% in FY08-13. This business unit markets a wide range of light sources and domestic luminaries. The range includes general lighting service (GLS), fluorescent tube lights (FTL), compact fluorescent lamps (CFL), special purpose lamps and consumer luminaries. Its luminaries product range covers commercial, industrial, flood lighting, street lighting and post-top lighting besides special luminaries for flame proof and increased safety applications. The E&P segment (contributes ~20% to topline) includes three sub segments viz. special projects, transmission line tower and high masts.

Exhibit 2: Business segments (revenue FY13)

Bajaj Electricals LtdSales FY13: | 3381 crore

Lighting & fixturesSales FY13: | 860 croreTopline Contribution:25%

Consumer durableSales FY13: | 1837 crore Topline Contribution: 55%

Engineering & ProjectsSales FY13: | 685 croreTopline Contribution:20%


Exhibit 3: Segment wise revenue contribution

13 12 12 12 13 15

17 16 12 12 12 11

26 26 26 28 31 36

18 17 17 19 1818

27 30 33 30 27 20

0

20

40

60

80

100

120

FY08 FY09 FY10 FY11 FY12 FY13

(%)

Lighting Luminaires Appliances Fans Engineering & Projects


Exhibit 4: Order book of engineering & project business

790

930

750 750

610

1070963

1107

0

200

400

600

800

1000

1200

FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E

(| c

rore

)


Shareholding pattern (Q1FY14)

Share Holding Pattern Holdings (%)Promoters 66.1Institutional Investors 16.8Others 17.2

Institutional holding trend (%)

10.7 11

.4

11.5

10.9

6.2

5.6

4.5 5.

9

02468

101214

Q2FY

13

Q3FY

13

Q4FY

13

Q1FY

14

(%)

FII DII

710927

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Exhibit 5: Company milestone

- Name changed to Bajaj Electricals Ltd (BEL)-Matchwell Electricals (India) Ltd, manufacturer of electric fans became a subsidiary of BEL

Commenced fan and die-cast component manufacturing unit at Chakan (Pune)

Incorporated in Lahore to manufacture electric fans, die cast components and marketing of electrical goods

-Amalgamated 'Matchwell' with BEL-JV with US' Black & Decker Corp to manufacture and market power tools, household appliances

Commenced fabrication unit and a galvanising plant at Ranjangaon (Pune) to manufacture high masts, lattice towers

Entered into a distribution agreement with Trilux Lenze of Germany for high end technical lighting

1938 1984-1994

Black & Decker Bajaj became a 100% subsidiary of BEL and was renamed as Bajaj Ventures Ltd

-Company divested 50% of its shareholding in Bajaj Venture Ltd-Technical collaboration and brand licensing agreement with Morphy Richards-Discontinued making of die-cast components

Acquired 32% of the share capital of Starlite Lighting Ltd, a company engaged in the manufacture of CFLs.

2012-2013

Completely divested stake and association with Black & Decker Corporation, US

20071960-1964 1998 1999-2000 2000-2001 2002-2003 2005


Exhibit 6: Business segments, products and tie-ups for various product categories Segment Product Assoication/JV/ Technical tie up Competitors

Lamps: GLS lamps, fluorescent tubelights, compact fluorescent lamps -Starlite Lighting (India)

Others: Domestic luminaires, ballasts & starters, LED torches -Hindustan Lamps (India)

Luminaires: Industrial, commercial, decorative, street light, floodlight, LED, lighting electronics, lighting control Trilux International (Germany)

HID Lamps: Mercury & sodium vapour lamps, halogen lamps, metal halide & fluorescent lamps Delta Control (Canada)

Appliances

Mixers grinders, juicers, food processors, water heaters, air coolers, iron, ovens toasters grillers (OTG), room heaters, toasters & S/W makers, hand blenders, water filters microwave ovens gas stove purifiers & filters, ovens, stoves, electric kettles, coffee/tea makers

Morphy Richards (UK), Nardi Elettrodomestici (Italy), Securiton

(Switzerland)

Philips, Kenstar, Usha, Maharaja, Preeti, Prestige,Kenwood

Domestic: Ceiling, table, pedestal & wall mounted fans, personal fans, Bajaj-Disney children’s fans Midea (China), Disney

Industrial: Industrial exhaust fans, commercial air industrial fans, circulators, cooler kits and pumps

Special Projects: Turnkey lighting projects, factory lighting, airport lighting, sports lighting, rural electrification, etc

Philips, GE, Crompton, IVRCL, NCCL, ICOMN, KBL, Kalpataru

High Mast & Poles: High mast lighting, signage, transmission lines, energy-efficient illumination

Phillips,Crompton, BP Projects, GE, Utkal Galvaniser

Towers: Design, supply, erection and commissioning of transmission lines and telecommunication towers, monopolies, etc.

KEC, Kalpataru, Jyoti, L&T

Abacus (sport lightings) (UK)

Philips, Crompton, Surya, Havells, Wipro, Osram

Phillips, Crompton, Wipro, Thorn

Crompton, Usha, Orient, Khaitan, Polar, Havells

Symphony, Kenstar

E&P

Fans

Luminaries

Lighting


710927

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Investment Rationale Dominant play in appliances and lighting segment BEL is a well established national brand in the kitchen & domestic appliances (KDA) and lighting segments. These two segments contribute ~80% to the topline recording sales CAGR of ~22% in FY08-13. The company has successfully leveraged its brand to create a huge retail network of 45,000 for appliances, 86,000 for fans and over 400,000 for lighting across India. In order to use its expertise in different product lines, BEL has entered into various JVs in the appliances and lighting segments (discussed in exhibit 6). Among major brands, Morphy Richards (leading brand in the UK) is a well accepted brand in India marketed by Bajaj. The JV started in 2003 mainly to tap the market for premium products. Revenues of Morphy products recorded CAGR of 32% in FY08-13 from | 46 crore to | 182 crore. The company outsources its lighting products domestically while luminaries are sourced from domestic and international vendors. With a strong dealer network, we believe the CD & lighting segment will witness sales CAGR of ~18% and ~17%, respectively, in FY13-15E, supported by an underpenetrated rural market, rapid urbanisation & a growing middle class.

Exhibit 7: Consumer durable still contributes over 55% to topline

Engineering & Project

20%

Consumer Durable

55%

Lighting25%


Exhibit 8: Annual sales of appliances (rural +urban)

3 4 6 8 10 12

29

40

57

7278

86

3 5 8 11 13 15

0102030405060708090

2006 2011 2016 2021 2026 2031

(in m

n)

Electric Water Heater Fans Air Cooler

Source: World bank 2008, ICICIdirect.com Research

Exhibit 9: Ownership of consumer durables (percentage of household)

46

80

53

88 89

56 54

34

128

38

6976

48

19 17 19

3

0102030405060708090

100

Refri

grat

ors

Pres

. coo

ker

Bicy

cle

Wris

t Wat

ch

Ceili

ng F

an

Mix

er/G

rinde

r

Colo

ur T

V

Mot

or C

ycle

Car

(%)

Urban Rural Lower penetration in rural India to be big opportunity for consumer durables

Source: CCI, ICICIdirect.com Research

Exhibit 10: India’s urbanisation rate (%)

28.328.6

28.929.2

29.629.9

30.330.6

30.931.3

26

27

28

29

30

31

32

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: World Bank, ICICIdirect.com Research

Bajaj’s appliances and lighting segments together

contribute ~80% to the topline. Bajaj has a strong retail

network of 30,000 for appliances, 86000 for fans and

400,000 for the lighting segment, respectively. We have

built in sales CAGR of ~18% and ~17% for CD and

lighting segments, respectively

710927

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Over the years, the company has forayed into new product categories as well as new geographies across India. We believe per capita spend on consumer durables is extremely low in India, especially in rural India, which throws up an opportunity for the company to grow at a more rapid pace in future. Besides, per capita electricity consumption has increased at a mere 4% CAGR to 813 kwhr (provisional) in the last 10 years, which is still lower compared to developed countries. In the long term, an improvement in per capita electricity consumption will help boost the consumption of electrical products in India. However, in the short-term, good monsoons during the year coupled with a rise in minimum support prices of agri commodities (ranges between 5% and 52% of various categories of kharif and rabi crops in FY13) would boost rural income levels. We believe BEL being the major player in the entry level CD product category would benefit from a rise in rural disposable income. This will also help to partially offset the slow growth in volume from urban India. We believe sales growth for the company will remain intact (CAGR of 18% for FY13-15E), supported by established product sales and launch of new products.

Exhibit 11: Movement in one year forward price/earning (x) with major events

0

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20

25

30

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40

45

1-Ap

r-05

1-Au

g-05

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c-05

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g-06

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c-06

1-Ap

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r-12

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c-12

(x)

Launch of Morphy Richards products in India and start of TLT manufacturing unit at Ranjangoan

Inked distribution agmt with Trilux Lenze (Gmny) for high end technical lighting

Financial crisis coupled with margin erosion in engineering & project

Recorded strong sales CAGR of ~25% in FY09-11 led by strong performance by consumer durable (~30% CAGR) during same period

Margin contraction due to sharp losses in E&P segment. This led to sharp rise in working capital requirement and contraction in return ratios


710927

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Dominant play with over 15-30% market share in various CD categories The consumer durable segment includes appliances and fan divisions and contributes ~55% to the topline with sales CAGR of ~25% in FY08-13. BEL is one of the largest players in the small appliances market with a market share of over ~15-30% (organised category) in various kitchen and domestic appliances categories. In the appliances and fan segments, the appliances division recorded sales CAGR of 27.5% in FY08-13 while the fan division recorded CAGR of ~20% in the same period. Alongside, in 2002, BEL introduced UK’s Morphy Richards brand (part of the 66-year-old Glen Dimplex group) in the domestic home appliances market in the premium category. Sales from Morphy Richards products recorded CAGR of ~32% between FY08 and FY13. On the macro front, the private final consumption expenditure (PFCE) in refrigerator, cooking and washing appliances has registered 14% CAGR in the last 20 years supported by ~12% CAGR in per capita disposable income during the same period. The main driver for this consumption growth is low penetration of the home and kitchen appliances products in the rural India (see exhibit 9).

Exhibit 12: Appliances volume, realisation growth trend

40.228.7

22.4 18.0 20.0 25.918.0 18.0

-0.3 -1.9

2.8 12.2 3.92.2

2.1 2.1

-10

0

10

20

30

40

50


(%)

Volume Realisation


Exhibit 13: Appliances to record 20% sales CAGR in FY13-15E

364 46

0 578 76

5 954 12

28 1479

1783

0

500

1000

1500

2000


(| c

rore

)

CAGR 27.5%

CAGR 20%


Exhibit 14: Rise in per capita disposable income with population growth

0

200

400

600

800

1000

1200

1400

1992

-93

1995

-96

1998

-99

2001

-02

2004

-05

2007

-08

2010

-11

(Pop

ulat

ion

milli

on)

0

10000

20000

30000

40000

50000

60000

70000

(|)

Population (Million)Per capita/disposable income (|)

Source: RBI, ICICIdirect.com Research

Exhibit 15: Private final consumption expenditure

Refrigerator,Cooking, Washing Appliances

6073 8904

17518

46860

29670

10000

20000

30000

40000

50000

1990-91 1995-96 2000-01 2005-06 2010-11

(| c

rore

)

CAGR 14%

Source: CMIE, ICICIdirect.com Research

Products include kitchen and domestic appliances:

Mixers grinders, juicers, food processors, water heaters,

air coolers, iron, ovens toaster grillers (OTG), room

heaters, toasters & S/W makers, hand blenders, water

filters microwave ovens gas stoves purifiers & filters,

ovens, stoves, electric kettles, coffee/tea makers

710927

Rectangle


Fan segment: growth driven by volume BEL is one of the oldest branded fan manufacturers in India with a current market share of ~12% of | 5,000 crore fan market (includes unorganised) in India. The company’s fan manufacturing capacity is located in Chakan (near Pune) with a total installed capacity of 0.8 million fans/annum. BEL’s fan division has grown at ~20% CAGR in FY08-13 to ~| 611 crore driven by ~18% volume CAGR in the same period. The volume growth can largely be attributed to a shift to the branded category from the unorganised segment at affordable prices. This is coupled with sustained demand from rural India and partially from replacement demand. Bajaj fans are currently available in over 86,000 retail outlets (constitute ~55% of all fan selling counters in the country of which 25% are in rural areas and small towns with a population less than 50,000) against 40,000 outlets in 2008 across India. In the fan segment, BEL has close competition from other listed players like Crompton, Havells India and Orient fans. Earlier, the company was largely present in the economy segment but has recently entered the premium category by launching six new models in the domestic market. BEL has also entered into a joint venture with China’s leading fan and air conditioner manufacture GD Midea Holding Ltd in 2000. The company is also present in the air cooler segment with ~15% market share in the domestic market. We have modelled ~13% sales CAGR supported by volume growth at ~9% CAGR considering sustained demand from tier-II, tier-III cities. Our estimate of volume growth is below the Planning Commissions’ estimate of 11% volume growth in ceiling fan categories for 2007-20.

Exhibit 16: Fan volume growth expected at ~9% CAGR in FY13-15E

24.316.9

27.134.6

5.0 8.2 8.0 10.0

3.2

2.4

-0.1

1.0

1.63.5 3.5 3.5

-505

10152025303540


(%)

Volume Realisation

Source: Company, ICICIdirect.com Research,

Exhibit 17: Fan segment sales expected at ~13% CAGR in FY13-15E 24

7.5

296.

5 376.

4 511.

6

545.

6

611.

0

683.

0 777.

6

0100200300400500600700800900


(| c

rore

)

CAGR 19.8%

CAGR 12.8%


Exhibit 18: Twelfth Plan projections

2007 (Market size in mn)Expected annual growth rate (%)

(2007- 2020)Ceiling Fans (super -efficiency) 4 11Ceiling Fans (higher -efficiency) 6 11

Source: Planning commission, ICICIdirect.com Research

Exhibit 19: Market share of leading players in Indian fan industry (FY13) Company % Market share (in terms of value)Crompton Greaves 20.0Orient Fans 14.9Havells India 13.5Bajaj Electricals 12.2V-Guard 1.6


Product includes domestic and industrial fans:

Domestic: Ceiling, table, pedestal & wall mounted fans,

personal fans and Bajaj-Disney children’s fans

Industrial: Industrial exhaust fans commercial air

industrial fans, circulators, cooler kits and pumps


Lighting & luminaries: leveraging brand and strong dealer network The lighting business unit of BEL alone contributes ~15% to topline with CAGR of 23.5% over the last five years. The size of the domestic lighting industry (excluding luminaries includes high mast and solid state lighting and LED) is ~| 5500 crore wherein Bajaj Electrical holds ~9% of market share. The wide range of lighting product includes general lighting service lamps (GLS), fluorescent tube lights (FTL), compact fluorescent lamps (CFL) and special purpose lamps. Among all lighting categories, sales of BEL’s CFL recorded stunning CAGR of 33% in FY09-13 backed by various government initiatives to promote power efficient products in India. This along with rising affordability in rural India to buy efficient lighting products like CFL (due to saving on power cost compared to incandescent bulbs with longevity of the product) have boosted CFL sales volume (overall Industry) at 16% CAGR in FY09-12. The company outsource CFL and other lighting products from its sister concern in India, Starlite Lighting and Hindustan Lamp in which BEL holds a substantial stake of 50% and 32%, respectively. BEL has continuously improved its reach by expanding retail network to more than 400,000 outlets in FY13 (which increased from 225,000 in 2008) both in urban and rural areas. It has continued to strengthen distribution network to increase the reach in tier-III and tier-IV towns.

In order to leverage the strong retail network, the company has also forayed into the premium lighting segment with a new range of home decorative lighting and portable LED glow lanterns. We have built in lighting sales CAGR of ~22% in 2013-15E backed by volume growth at ~15% CAGR for the same period. We believe the CFL segment will register strong growth due to rising adoption of energy saving lamps.

Exhibit 20: Volume growth to remain intact due to sustained CFL demand

12.5 15.7 12.7 11.8

22.6 20.115.0 15.0

17.20.8

11.48.3

5.05.0

6.0 6.0

05

101520253035


(%)

Volume Growth Realisation Growth


Exhibit 21: Lighting segment to grow at 22% CAGR in FY13-15E

178 208 26

1 316 40

7 513 62

5

762

0100200300400500600700800900


(| c

rore

)

CAGR 23.5%

CAGR 22%


Exhibit 22: Lighting industry records 11% sales CAGR in 2010-12

44505516

0

1000

2000

3000

4000

5000

6000

2010 2012

(| c

rore

)

CAGR 11%

Source: ELCOMA, ICICIdirect.com Research

Exhibit 23: CFL volume contribution to rise ~47% by FY15E

7456

42

19

15

11

730

47

0

20

40

60

80

100

120

2005 2012 2015E*

(%)

Incandescent Lamps Fluorescent Lamps

Compact Fluorescent Lamps

Source: ELCOMA, ICICIdirect.com Research

BEL’s CFL sales recorded stunning sales CAGR of 33%

during FY09-13 backed by various government initiatives

to promote power efficient products in India. We have

built in lighting sales CAGR of ~22% in 2013-15E backed

by volume growth at ~15% CAGR for the same period


Luminaries: Slower construction activity hit translates into moderate growth BEL’s luminaries segment is divided into luminaries, high intensity discharge (HID) lamps and contributes ~11% to overall topline in FY13. The luminaires segment comprises consumer luminaires, indoor commercial luminaires, industrial luminaires & outdoor luminaires for street lighting and flood lighting. The HID lamp includes mercury & sodium vapour lamps, halogen lamps, metal halide lamps, etc. The segment has recorded ~10% CAGR in FY08-13 driven by 11% volume CAGR. However, rising competition & increased discount led to the pressure in realisation (decline of 1.7% in FY13 from peak of FY08) in the same period. The volume growth can largely be attributed to demand in sophisticated interior lighting devices in offices, homes, restaurants, hotels and various industrial purposes (includes street light, stadium, airports, etc). The size of the overall domestic luminaires industry is ~| 2500 crore (organised) with organised markets constituting ~65-70% in the pie and BEL holding ~15% market share in the organised category. We have built in luminaries segment revenue CAGR of ~9.2% in FY13-15E with volume, realisation CAGR of 6%, 3%, respectively. We believe the main growth drivers for the industry will be rapid urbanisation, growth in retail stores, shopping malls/showrooms, IT parks, leisure, hospitality and government spending on infrastructure.

Exhibit 24: Volume growth to remain muted

21.917.3

12.3 14.4 11.32.3 6.0 6.0

-2.1

3.1

-12.8

0.32.0

0.0

3.0 3.0

-15-10-505

10152025


(%)

Volume Growth Realisation Growth

Source: Company, ICICIdirect.com Research, Sales from outsourcing

Exhibit 25: Luminaries sales to grow at 9.2% CAGR

232 28

1

275 31

5 358

366 40

0 436

0

100

200

300

400

500


(| c

rore

)

CAGR 9.6%

CAGR 9.2%


Exhibit 26: Major clients in luminaries segments Industrial Patrons Government Clients IT/ITES clients Banks

Major clients

Tata Steel, Tata Motors, TEC, Religare, L&T, Aditya Birla group, Siemens ,Ranbaxy, etc

Airports Authority of India, Container Corporation of India, NTPC, municipal corporations & councils, naval dockyards, HUDA, etc

TCS, Infosys, Dell, Cognizant

SBI, Axis, PNB, BoB


Exhibit 27: Major overseas tie-ups to bring expertise in domestic market

Company SegmentTrilux Lenze (Germany) Premium technical lighting RUUD lighting (US) LED lightingsDisano, (Italy) Street lightSecuriton (Switzerland) Fire alarm systemsDelta Controls (Canada) Access controls & Building Management System

Tie ups


BEL holds ~15% market share (organised category) in

the luminaries categories. We have built in luminaries’

segment revenue CAGR of ~9.2% for FY13-15E with

volume, realisation CAGR of 6%, 3%, respectively


Engineering & project segment BEL entered lighting project services in 1960 with the aim of providing lighting packages for power plants and other industrial facilities. The division got its present name in 1994-95 with the emphasis shifting to design and execution of electrical projects. In 2001-02, BEL commenced its high mast and transmission line tower (TLT) manufacturing unit at Ranjangaon near Pune. The idea behind launching this business was to diversify the business from being a lighting and consumer durable player to a strong contender in the engineering and project segments to leverage the strong brand of Bajaj. The business unit is divided into three segments, namely high masts, TLT and special projects. The E&P segment revenue increased four fold from | 178 crore in FY05 to | 690 crore in FY13 while the segment contributes ~20% to the FY13 topline. The segment recorded revenue CAGR of ~13% in FY08-13 while a slowdown in the industrial business and stretched working capital cycle resulted in a decline in EBIT margin from 12.9% in FY08 to -18.1% in FY13. However, BEL’s order book size has increased 67% YoY in FY14 while it is also L1 bidder for orders worth | 500 crore. We believe this, coupled with the company’s plan to execute all low margin projects by Q2FY14 would help in expanding operating margins in H2FY14 onwards.

Exhibit 28: Engineering & project business segment and order book size by end of FY13

Engineering & projects (E&P)Order book: | 1071 crore

Special projectsOrder book: | 613 crore

Order book contribtion:58%

TLTOrder book: | 369 crore

Order book contribtion: 34%

High masts & poleOrder book: | 90 crore

Order book contribtion:8%

Turnkey illumination projects, industrial lighting, airport Lighting, sports lighting, Rural Electrification R-APDRD projects, sub-stations etc

Design, supply, erection and commissioning of transmission lines, and telecommunication towers, monopoles, etc

Design, supply, erection and commissioning of high-masts signages, street light poles, FRP and polysteel structures, etc


Exhibit 29: Segment wise revenue contribution

33% 37% 36% 36% 36% 37%

39% 26% 23% 24% 27% 29%

28% 37% 40% 40% 37% 34%

0%

20%

40%

60%

80%

100%

120%


Towers High Masts Spe Projects


Exhibit 30: E&P segment to grow at 19.3% CAGR in FY13-15E

381.

7 542.

4 736.

8

831.

4

829.

5

687.

9 850.

7 978.

4

0

200

400

600

800

1000

1200


(| c

rore

)

CAGR 12.5% CAGR 19.3%


The company has galvanising capacity of 40,000 MTPA

and fabrication capacity (including TLT) of 36000 MTPA. In

addition, BEL has high mast fabrication facility of 6000

masts/per annum and 60000 poles


Special projects

BEL’s special projects division competency exists in three major segments, namely power plant lightings, sports lightings and rural electrification programmes. The company commands ~70% market share in power plant lighting and sports lighting projects. Under the power plant lighting segment, BEL has executed large orders for major companies like NTPC and Bhel. For sports lighting projects, the company has executed some prominent projects, which includes lighting of Mumbai’s Wankhede stadium along with Bangalore’s Chinnaswamy stadium and Jaipur’s Sawai Man Singh (SMS) stadium. BEL has also tied up with UK’s Abacus for sport lightings. The company is also working with all leading consultants like MECON, TCE, MN Dastur, Howe India, EIL Design Ltd & P&D consultants.

This segment contributes ~57% of the total FY14 E&P order book (34% revenue contribution in FY13) and the company is largely focusing on the government’s flagship social programme of electricity to all rural households under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). This scheme was started in 2005 with the target of illuminating ~6 lakh villages (according to census 2001) with capital subsidy allocation of | 4500 crore in the Tenth Plan, | 25,413 crore in the Eleventh Plan and | 23,397 crore in the Twelfth Plan, respectively. In spite of intense competition from major players like GE, Crompton and Kalpataru in the projects business BEL’s special project revenue recorded 17% CAGR in FY08-13. We believe this segment continues to witness order book growth considering the government’s endeavour to electrify rural India and expenses towards modernisation of sport stadia in India.

Exhibit 31: Capital subsidy provided by Government of India under RGGV schemes

15003000 3913

5500 5000 50006000

23397

0

5000

10000

15000

20000

25000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-17E

Capital subsidy of | 25,413 crore relased by govt under 11th Five Year Plan

Capital subsidy of | 4500 crore relased by govt under 10th Five Year Plan

Capital subsidy of | 23397 crore planned by govt under 12th Five Year Plan

Source: MoP, ICICIdirect.com Research

Exhibit 32: Highlight of major special projects


The company commands ~70% market share for power

plant lighting and sports lighting projects. Under the power

plant lighting segment, BEL’s major clients are NTPC and

Bhel. For sports lighting projects, BEL has executed

projects for Mumbai’s Wankhede stadium along with

Bangalore’s Chinnaswamy stadium and Jaipur’s SMS

stadium


Transmission line tower business BEL has entered the transmission line tower (TLT) business in the year 2002 and accepts turnkey projects, which include design, supply, erection and commissioning of transmission lines and telecommunication towers. The plant manufactures a range of towers of 110, 132, 220, 400, 765 kilovolt (kv) single/double circuit power transmission lines. BEL has executed various projects for Power Grid Corporation of India (PGCIL) (see exhibit 32). The TLT business contributes ~37% to the E&P topline with 15%revenue CAGR in FY08-13. In this segment, BEL faces intense competition from various established players like KEC, Kalpataru, Jyoti and L&T. We believe the government’s endeavour to add ~17683 ckm of transmission line under the Twelfth Plan with Power Grid’s capex plan of | 22500 crore by the end of FY16 will help in driving BEL’s topline for FY14E-15E.

Exhibit 33: Transmission line towers growth

5203

4

7945

5

1157

42

1463

71 1903

51 2427

99

2604

82

0

50000

100000

150000

200000

250000

300000

6th plan 7th plan 8th plan 9th plan 10thplan

11thplan

12thplan

(Ckm

s)

Source: CEA, ICICIdirect.com Research

Exhibit 34: PGCIL capex plans

20037

2215022450 22500 22550

18500190001950020000205002100021500220002250023000

FY13 FY14E FY15E FY16E FY17E

(| c

rore

)

Source: PGCIL, ICICIdirect.com Research

High masts & poles division The high masts & pole division includes turnkey projects of design, development, manufacturing and site erection of high masts & signage boards. The company is the market leader in the segment executing major projects such as street light project on the Western Express Highway (for Reliance Infrastructure) and Bandra Worli Sea Link Mumbai and NH-45 in Tamil Nadu. High masts projects are for RIL, Jamnagar, BORL Bina- Bina refinery and signages for HPCL, BPCL, and IOCL. The high masts and pole division recorded 6% CAGR over FY08-13. We believe the company will benefit from the government’s social spending (like JNNURM) in developing road and rural infrastructure (street lighting and signage board).

Exhibit 35: Number of projects and approved cost under JNNURM

SectorNumber of

Projects Approved cost (| crore)Number of

ProjectsApproved cost (|

crore)

Water Supply 158 20562 453 8901

Sewerage 112 14993 89 2833

Drainage 73 8404 67 790Solid Waste Management 45 2092 56 342

Roads & Fly overs 101 8482 120 1082

MRTS 21 5212 - -

Others 44 2508 22 73

Total 554 62253 807 14021

UIG UIDSSMT

Source: JNNURM, ICICIdirect.com Research

As on June 2012, 554 projects at a total cost of | 62253

crore have been sanctioned under Urban Infrastructure

and Governance (UIG) with | 14021 crore under urban

infrastructure development for small and medium towns

scheme (UIDSSMT) for total 807 projects


Exhibit 36: E&P segment details

Projects Major customers Brand Position Major Orders CompetitorsPower plant lighting: More than 20 power plants of NTPC, Bhel, Reliance Infra, BSES Dahanu, etc.Sports Lightings: National Games-2009 at Ranchi, Balewadi-Common wealth youth games,Cricket stadium: Chennaswamy stadium- Bangalore, Green park stadium- Kanpur, SMS Stadium- Jaipur, National Games 2002- Hyderabad, National Games 2007 Guwahati

Rural Electrification: Rajiv Gandhi Vidyutikaran Yojana

High mast & polesStreet light: PWD Delhi, MACD-Nagpur, Cidco Mumbai, NH45 Tamil Nadu, Reliance Infra-Western Express Highway Mumbai

High masts/area lighting: BORL Bina- Bina refinery, Bhilai steel plant, REL Krishnapatanam, RIL Jamnagar

Signages: HPCL, BPCL, Indian oil, Reliance etc

For TLT-PGCIL, Tata, SEBs, etc

For TCT- GTL, Ericson, Nortel, Bharti, BSNL, Reliance

Philips, Crompton, BP Projects, GE, Utkal

Galvaniser

Reliance Group, Siemens, BPCL, HPCL, IOCL, NHAI, PWD, CPWD, municipal corporations, port trusts, L&T

Leader in high masts lightings

TowersNew entrant in this segment

PGCIL- Almati, PGCIL-400 kv, Koldam, PGCIL-765 kv PK-A5, PGCIL-765 kv PK-A7, MSETCL PK- 801 A, MSETCL PK- 801 B,

KEC, Kalpataru, Jyoti, L&T

NTPC, Bhel, SEBs, AAISpecial Projects

Leader in sports lighting projects and power plant lighting (70% by BEL)

Philips, GE, Crompton, IVRCL, NCCL, ICOMN,

KBL, Kalpataru


Pan-India presence through strong dealer network Bajaj Electricals, being one of the oldest consumer durable companies in the country has a pan-India presence through a strong dealer and retail network. The company has 2200+ distributors and 4100+ dealers across India. Further, Bajaj’s lighting solutions are available in over 400,000 retail stores while fans and appliances are available at over 86,000 and 45,000 retail stores across India. In order to leverage its strong brand, BEL has taken an initiative to reach directly to the consumer through opening retail chain ‘Bajaj World’ (pure franchise model) for appliances and lighting products. Currently, the company has 40 exclusive Bajaj showrooms i.e. Bajaj World across major cities in India. BEL plans to increase the number of stores to over 75 by the end of FY14. The company also plans to go international through franchise agreements. BEL has recently opened one store in Nepal and plans to open Bajaj World in Ghana, Nigeria, Sri Lanka and South Africa in the coming future.

Exhibit 37: Strong dealer network across India

Distribution Network 2009 2013Branches 19 19Distributors 600 2200Dealers - 4100Service Centres 240 250Retailers Lighting 400000Retailers Appliances 45000Retailers Fans 86000

300000



Lower advertisement expenses compared to competitors BEL’s advertisement expenses (excluding E&P segment) over the years remained lower as compared to its close competitors like Havells India and V-Guard Industries. The lower advertisement expenditure can largely be attributed to the company’s focus on maintaining its EBITDA margin (since the company is largely into the trading business) through managing variable cost. We believe the near competitor (considering the scale of business) Havells India’s standalone advertisement expenses have recorded a CAGR of ~29% during FY07-13 against BEL’s advertisement expense of ~16% CAGR during the same period. However, in order to improve visibility, the company has decided to increase the advertisement allocation by 74% YoY to | 75 crore for FY14 on the occasion of 75th anniversary. We believe higher advertisement expenditure would be partially offset by an improvement in earnings from E&P.

Exhibit 38: Lower advertisement expenditure (excluding E&P segment) compared to peer

2.02.6

2.3

3.6

2.53.1 3.4

2.4 2.1 1.9 2.2 1.9 1.8 1.6

5.45.7

5.1 5.1

3.8 4.14.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

FY07 FY08 FY09 FY10 FY11 FY12 FY13

(%)

Havells (Standalone) Bajaj Electricals V-Guard


Asset light model: outsourcing manufacturing BEL follows an asset light model strategy through outsourcing more than ~95% of its consumer and lighting products (both categories together contribute ~80% to total topline) from either domestic or international markets (China). Under the imported products category, Bajaj imports 40% of MRL’s revenue, ~20% of appliances’ revenue and ~10% each of fan and lighting’s revenue. However, the company’s international outsourcing of fan has declined from 60% last year to 30% current year. Further, BEL plans to allocate a significant chunk (~65%) of total capex (| 60-65 crore) into R&D expenses to introduce new product categories such as induction LED products, cook top, invertors, stabilisers and pumps along with generator. With low capex, outsourced categories earn much higher RoCE. Going forward, it does not have any major plans to add to its own capacities (FY15 capex | 20-25 crore). This would help the company to maintain overall return ratios of the company in future.

Exhibit 39: BEL’s sourcing destinations Segments Own Outsourced Outsourcing destinationsFans √ √ Hyderabad, Himachal Pradesh, ChinaAppliances - √ Noida, Delhi, Himachal Pradesh, ChinaElectrical lamps & tubes* - √ Uttar PradeshCFL* - √ NashikLuminaires - √ Daman, Himachal Pradesh, ChinaHigh Masts, Poles & Towers √ - -

Source: Company, ICICIdirect.com Research, *manufactured by sister concern,

In order to improve visibility, the company has decided to

increase the advertisement allocation by 74% YoY to | 75

crore for FY14 on the occasion of 75th anniversary

BEL follows an asset light model strategy through

outsourcing more than ~95% of its consumer and lighting

products. The company outsources majority of its products

from domestic markets. Import contributes ~13-14% to the

overall topline in FY13


E&P segment shadows working capital BEL’s main concern is a higher working capital cycle (~7% of sales in FY13) compared to other branded players (Havells’ working capital cycle is ~4% of sales in FY13). Slower project execution cycle, cost overruns coupled with almost flattish revenue growth in the E&P segment (due to a slowdown in the transmission and distribution industry) took a toll on overall EBITDA margins (declined ~430 bps YoY) of FY13. However, BEL has put in place efforts to rationalise the working capital requirement (20% of sales in FY10 to ~7% of sales in FY13) by reducing debtors’ days (from 123 days in FY11 to 101 days in FY13). We believe the stretched working capital of BEL would get eased, going forward, with an improvement in the project execution cycle, which will finally result in a recovery in the EBITDA margin.

Exhibit 40: Net working capital as percentage of sales

11.3

6.3

2.0 1.9 2.44.3

16.214.1

22.1

27.7

19.3 20.219.6

15.8

20.0

8.49.9

6.8

0

5

10

15

20

25

30


(%)

Havells V-Guard Bajaj Electricals


By the end of FY13, BEL’s order book stood at | 1071 crore for 89 projects. These 89 projects include 15 old projects (of FY13), which are low margin or loss making projects. BEL believes it will complete ~76 projects (including old projects) by the end of FY14E (including old projects), which also includes higher margin projects from PGCL. We believe the company’s EBIT loss will get minimised in FY14 as losses from old projects (constitutes ~40% of order book) would be partially offset by gains from good margin projects (constitutes ~60% of order book).

Exhibit 41: Order book position by end of FY12

High Masts21%

TLT30%

Special Projects49%


Exhibit 42: Order book position by end of FY13

Special Projects58%

TLT34%

High Masts8%


BEL’s main concern is higher working capital cycle mainly

due to higher debtor days in the E&P segment. However,

the company is aiming to improve its working capital cycle

by exiting lower margin projects, which would help in

reducing debtor days

710927

Rectangle


Key Financials Consumer segment growth intact, E&P to drive topline BEL has recorded strong sales CAGR of 19.7% in FY08-13 led by 24.6% revenue CAGR in the consumer durables segment followed by lighting business CAGR of 16.5% during the same period. The E&P segment revenue recorded sales CAGR of 12.5% during FY08-13, lower than the other two segments largely due to lower project execution rate and increased competition. We have modelled lighting segment sales CAGR of 16.8% for FY13-15E largely driven by sustained demand for energy saving products like CFL. Under the consumer durables segment, we have built in segment revenue CAGR of ~18%, supported by demand from tier-III cities and rural India. For the E&P segment we have modelled sales revenue CAGR of ~19% for FY13-15 (higher than historical growth of 12.5% during FY08-13) backed by the company’s plan to improve its execution cycle by completing old pending projects by the end of Q2FY14.

Exhibit 43: Net sales to grow at ~18% CAGR in FY13-15E

1373

.2

1764

.1 2227

.2 2739

.4

3094

.2

3380

.9 4038

.0 4737

.4

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000


(| c

rore

) CAGR 19.7

CAGR 18.4


Exhibit 44: Company’s leading segment performance and future growth projection

(| crore) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E CAGR FY08-13 CAGR FY13-15ELighting 410.2 488.4 535.9 631.1 764.6 879.1 1025.0 1198.7 16.5 16.8Consumer Durable 611.4 756.0 954.4 1276.9 1500.1 1838.5 2162.3 2560.4 24.6 18.0Engineering & Project 381.7 542.4 736.8 831.4 829.5 687.9 850.7 978.4 12.5 19.3


The topline is expected to grow at a CAGR of 18% during

FY13-15E to | 4737 crore in FY15E from | 3381 crore

during FY13 led by growth in the CD segment

710927

Rectangle


E&P performance to aid in revival of depressed margin EBITDA margins plunged sharply in FY13 to ~3% largely due to losses in the E&P segment. The company recorded an EBIT loss of | 124 crore in the E&P segment during FY13. In addition, purchase of traded goods increased sharply by 17% YoY during FY13 (increased ~500 bps YoY as percentage of sales). We believe sustained growth in revenue from consumer durable and lighting segment will maintain the margin while recovery in E&P segment (due to timely execution of new projects) will aid margins. We have modelled EBITDA margin of 4.3% and 5.7% for FY14E, FY15E, respectively, considering improved project execution cycle and focus of higher margin projects going forward. However, our margin estimates are still below FY12 level, considering BEL’s plan to increase advertisement outlay in FY14E-15E.

Exhibit 45: Exiting lower margin projects to help drive margins

10.510.0 10.1

8.47.3

3.0

4.3

5.7

0

2

4

6

8

10

12


(%)


Recovery in margin leads to growth in profit We believe the sharp dip in PAT by ~57% during FY13 can largely be attributed to a reduction in margin on account of BEL’s E&P business. However, a recovery in margin coupled with a leash on interest outgo (due to reducing working capital requirement) for FY14E and FY15E would help drive BEL’s bottomline, going forward. We believe the bottomline of the company will grow at ~34% YoY in FY14E and ~102% YoY in FY15E, respectively.

Exhibit 46: Net profit to grow at ~6% CAGR in FY12-15E

73.1

89.4

117.

1

143.

8

117.

9

51.2

68.6

138.

6

0

20

40

60

80

100

120

140

160


(| c

rore

)


We expect operating margins to have bottomed out in

FY13 and expect the EBITDA margin to recover in FY14E-

15E. However, the recovery in margin would be below its

five year average margin (FY08-12)

We expect the net profit to grow at a CAGR of 6% in

FY12-FY15E


Improved operating cash flow to drive return ratio BEL’s return ratios remained under pressure post FY10 due to higher working capital requirement for the E&P business. We believe the company’s return ratios have bottomed out in FY13, when the company took major steps to complete the project by taking a hit in earnings. Further, capex funding through internal accrual with improvement in cash flow from operation would help keep BEL’s debt requirement low.

Exhibit 47: Strong return ratio on the back of sustained earning growth

33.2 33.530.5

24.0

9.8

16.3

24.0

41.9

23.7 23.5

16.8

7.0 8.9

15.7

36.6

36.5

05

1015202530354045


(%)

RoCE RoNW


Exhibit 48: D/E at comfort level

1.4

0.9

0.30.2

0.3 0.2 0.2 0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6


(x)

BEL raised | 161 crore through QIP route and entire amount have been utilized in repayment of debts


We believe the improved free cash flow for the company

would result in higher dividend payout. In turn, this would

improve the return ratios of the company

BEL’s debt/equity declined significantly during FY10 after

company raised ~| 161 crore through QIP route to de-

leverage the balance sheet. Henceforth, company

managed to keep its debt/equity at comfort zone despite

muted performance by E&P segment


Risk & concerns Highly competitive industry Although Bajaj Electrical has remained a strong brand in the consumer durable segment for the last 75 years, the industry has faced regular competition from the unorganised sector due to a low entry barrier. Further, BEL’s entry into newer segments, which are highly competitive in nature, poses a risk of overcapacity. This could lead to a contraction in margins, going forward.

Currency risk The company’s imports content contributes ~13% to the topline, which includes 40% of Morphy Richards, 20% of appliances, 10% each of lighting and fans. Rupee depreciation over an extended duration could put pressure on margins in the near term.

Slowdown in E&P business A slowdown in the power transmission and distribution industry and slower rate of project execution has hit the company’s segment revenue. This led to stretched working capital requirement and finally hit margin. However, the company is expected to complete loss making projects by the end of Q2FY14. There is also stiff competition in the segment due to the presence of major players like Kalpataru Power and Jyoti Structures. We believe any cut in government expenditure under RGGVY and transmission line towers would hurt the company’s performance.

Exhibit 49: Net working capital days

45

3036

4248

36

0

10

20

30

40

50

60


(day

s)


Exhibit 50: Free cash flow (| crore)

47.7

100.7

-31.3

90.7

22.3

115.0

-40

-20

0

20

40

60

80

100

120

140


(day

s)


710927

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Valuation Bajaj Electricals, despite being a dominant play in the lighting and consumer durable segment (contributes ~80% of topline) with a strong dealer network, has paid the price for poor execution in the E&P business. The slowdown in the E&P segment has hit margins, which have shrunk from their peak of 10.5% in FY08 to 3% in FY13 in the last five years. Poor EBITDA margins with rising working capital requirement (due to a delay in execution of E&P projects) resulted in a sharp multiple contraction. Compared to its close competitor like Havells, BEL is trading at ~30% discount (~12x of FY15E earnings) to its earnings. This is on account of the company’s large presence in the economic product category and focus on distribution push strategy than consumer pull strategy. The stock has traded at a mean earning multiple of 14x one year forward in the last eight years. At the current price, the stock has been trading at a PE multiple of 24x FY14E and 12x FY15E earnings. On EV/EBITDA multiple, it is trading at ~10x FY14E and ~7x FY15E EBITDA. We believe the stock is trading at attractive multiples considering the strong performance of the consumer durable & lighting business and recovery in the E&P segment. We have valued the company on a sum of the parts (SOTP) basis by valuing the lighting, CD and E&P business separately. The company has successfully leveraged its brand to create a huge retail network of 45,000 for appliances, 86,000 for fans and over 400,000 for lighting across India. Hence, we have valued the consumer durable business at 10x FY15E EBITDA, at ~20% discount to Havells’ CD segment and lighting business at 4x FY15E EBITDA at ~30% discount to Havells lighting business. On the E&P front, we believe BEL will narrow its losses to ~| 138 crore and | 50 crore in FY14E and FY15E, respectively, by executing high margin projects. This will help reduce the company’s working capital requirement with an improvement in return ratios, going forward. We have valued the E&P business at 3x FY15EV/EBITDA, at ~15% discount to Jyoti Structure. We are initiating coverage on the stock with a BUY rating.

Exhibit 51: SOTP valuation

(| crore) EBITDA EV/EBITDA EV

Lighting 66.3 4 232.1

Consumer Durable 190.2 10 1807.2

EPC 13.5 3 40.5

Enterprise Value 2079.7

Debt 160.0

Cash 28.8

MCAP 1948.5

No of shares 10.0

Target price/share 195

CMP 165

Upside/(Downside) (%) 18 Source: Company, ICICIdirect.com Research

Exhibit 52: Competitor’s valuation matrix (in | crore)

FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15EBajaj Elec 1646 3094 3381 4038 4737 225.5 101 174 270 118 51 69 139 14 32 24 12 8 17 10 7 17 7 9 16V Guard 1483 994 1360 1655 2006 94 110 145 176 51 63 83 105 29 24 18 14 17 15 11 9 24 24 25 26Havells 8061 6518 7248 7736 8690 657 669 744 874 370 581 436 547 27 22 14 18 15 13 13 11 39 40 25 27Jyoti Str 181 2592 2802 3125 3522 280 283 315 334 86 66 73 75 2 3 2 2 3 3 3 4 13 9 9 9Kalpataru Pow 967 3019 3286 3952 4247 329 322 383 420 165 137 165 197 6 7 6 5 4 5 4 4 9 7 8 9

ROEEBITDA Net Profit PE EV/EBITDAPeer group

Mcap (in crore)

Sales

Source: Bloomberg, ICICIdirect.com Research


Exhibit 53: One-year forward P/E (x)

0

50

100

150

200

250

300

350

26-M

ar-0

4

26-S

ep-0

4

26-M

ar-0

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ep-0

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26-M

ar-0

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26-S

ep-0

6

26-M

ar-0

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26-S

ep-0

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ar-0

8

26-S

ep-0

8

26-M

ar-0

9

26-S

ep-0

9

26-M

ar-1

0

26-S

ep-1

0

26-M

ar-1

1

26-S

ep-1

1

26-M

ar-1

2

26-S

ep-1

2

26-M

ar-1

3

(Pric

e) 25x

20x15x

10x


Exhibit 54: One-year forward EV/EBITDA (x)

0

500

1000

1500

2000

2500

3000

3500

4000

Apr-0

9

Jul-0

9

Oct-0

9

Jan-

10

Apr-1

0

Jul-1

0

Oct-1

0

Jan-

11

Apr-1

1

Jul-1

1

Oct-1

1

Jan-

12

Apr-1

2

Jul-1

2

Oct-1

2

Jan-

13

Apr-1

3

Jul-1

3

Oct-1

3

Jan-

14

10x

8x

6x

4x


Exhibit 55: One year average P/E

05

1015202530354045

1-Ap

r-05

1-Oc

t-05

1-Ap

r-06

1-Oc

t-06

1-Ap

r-07

1-Oc

t-07

1-Ap

r-08

1-Oc

t-08

1-Ap

r-09

1-Oc

t-09

1-Ap

r-10

1-Oc

t-10

1-Ap

r-11

1-Oc

t-11

1-Ap

r-12

1-Oc

t-12

(x)

38x

14x

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Exhibit 56: Income statement (| Crore)

(Year-end March) FY11 FY12 FY13 FY14E FY15ENet Sales 2,739.4 3,094.2 3,380.9 4,038.0 4,737.4 ExpensesRaw Material Expenses 173.6 222.4 169.2 173.6 208.4 (Increase)/Decrease in stocks (77.2) (47.7) (45.5) - - Purchase of traded goods 1,996.9 2,175.3 2,544.2 2,947.8 3,458.3 Employee Expenses 124.6 149.5 167.3 201.9 232.1 Marketing Expenses 60.4 85.3 93.8 161.5 142.1 Other expenses 230.0 284.0 350.7 379.6 426.4 Total Operating Expenditure 2,508.2 2,868.7 3,279.7 3,864.4 4,467.4 EBITDA 231.2 225.5 101.2 173.6 270.0 Other Income 18.0 19.2 23.6 18.3 23.6 Interest 36.6 63.1 69.0 71.6 66.3 PBDT 212.6 181.6 55.8 120.4 227.3 Depreciation 10.8 12.5 14.5 17.9 20.4 PBT before Exceptional Items 201.8 169.1 41.4 102.4 206.9 Less: Exceptional Items (16.8) (6.8) (27.6) - - PBT 218.6 175.9 69.0 102.4 206.9 Total Tax 74.8 58.1 17.8 33.8 68.3 PAT 143.8 117.9 51.2 68.6 138.6 EPS 14.4 11.8 5.1 6.9 13.9


Exhibit 57: Balance sheet

X

(| Crore)

(Year-end March) FY11 FY12 FY13 FY14E FY15EEquity Capital 19.8 19.9 20.0 20.0 20.0 Reserve and Surplus 591.3 679.9 708.7 754.4 860.3 Total Shareholders funds 611.1 699.8 728.6 774.4 880.3 Total Debt 112.2 187.2 160.0 180.0 160.0 Liability side total 723.3 887.1 888.7 954.5 1,040.4 AssetTotal Gross Block 227.5 270.9 323.5 393.5 423.5 Less Total Accumulated Depreciation 74.3 86.9 97.0 114.9 135.4 Net Block 153.1 184.0 226.4 278.5 288.1 Total CWIP 0.2 3.0 5.9 5.9 5.9 Total Fixed Assets 153.3 187.0 232.3 284.4 294.0 Other Investments 36.6 44.1 29.8 34.8 44.8 Inventory 294.6 355.2 421.2 503.1 590.6 Debtors 911.2 921.8 937.9 1,051.0 1,233.0 Loans and Advances 67.9 92.4 140.6 167.9 197.0 Cash 48.5 53.7 50.1 40.7 28.8 Total Current Assets 1,322.2 1,423.2 1,549.8 1,762.7 2,049.3 Creditors 770.0 832.6 982.3 1,173.2 1,376.5 Provisions 73.1 79.7 78.2 81.0 95.0 Total Current Liabilities 1,042.4 1,064.5 1,268.6 1,502.8 1,763.1 Net Current Assets 279.8 358.7 281.2 259.9 286.2 Deferred Tax Assets 2.0 1.9 7.9 7.9 7.9 Assets side total 723.3 887.1 888.7 954.5 1,040.4


The topline of the company is expected to grow at a

CAGR of ~18% during FY13-15E to | 4737 crore in FY15E

from | 3381 crore during FY13 supported by the CD and

lighting segment

We expect operating margins to have bottomed out in

FY13 and EBITDA margin to recover in FY14E-15E.

However, the recovery in margin would be below its five

year average margin (FY08-12)

BEL plans to allocate a significant chunk (~65%) of total

capex (| 60-65 crore) into R&D expenses to introduce

new product categories such as induction LED products,

cook top, invertors, stabilisers, pumps and generators


Exhibit 58: Cash flow statement

(| Crore)(Year-end March) FY11 FY12 FY13 FY14E FY15EProfit after Tax 143.8 117.9 51.2 68.6 138.6Depreciation 10.8 12.5 14.5 17.9 20.4CF bef working capital changes 191.2 193.4 134.6 158.1 225.3

Net Increase in Current Assets (135.9) (95.7) (130.3) (222.3) (298.6)Net Increase in Current Liabilities 350.8 22.1 204.1 234.2 260.3Net CF from operating activities 406.1 119.8 208.5 170.1 187.1

(Purchase)/Sale of Fixed Assets (59.8) (46.2) (59.8) (70.0) (30.0)Long term loans and advances (97.2) (11.8) 36.4 10.0 10.0Other non current assets (154.4) (32.0) (78.5) (40.0) (50.0)Other Investments (0.0) (7.5) 14.3 (5.0) (10.0)Deferred Tax Assets (1.5) 0.1 (6.0) 0.0 0.0Net Cash flow from Investing Activities (315.5) (97.4) (93.5) (105.0) (80.0)

Inc / (Dec) in Equity Capital 0.3 0.2 0.0 0.0 0.0Inc / (Dec) in Loan Funds (39.7) 75.0 (27.2) 20.0 (20.0)Total Outflow on account of div (32.3) (32.7) (23.4) (23.4) (32.7)Net CF from financing activities (103.4) (17.2) (118.5) (74.5) (119.0)

Net Cash flow (12.7) 5.2 (3.6) (9.4) (12.0)Cash & Cash Equi at the beg. 61.2 48.5 53.7 50.1 40.7Closing Cash/ Cash Equi 48.5 53.7 50.1 40.7 28.8


Exhibit 59: Ratio analysis

(Year-end March) FY11 FY12 FY13 FY14E FY15EPer Share DataEPS 14.4 11.8 5.1 6.9 13.9 Cash EPS 15.5 13.1 6.6 8.7 15.9 BV 61.3 70.2 73.1 77.6 88.2 DPS 2.8 2.8 2.0 2.0 2.8

Operating RatiosEBITDA Margin 8.4 7.3 3.0 4.3 5.7 PAT Margin 5.2 3.8 1.5 1.7 2.9

Return RatiosRoE 23.5 16.8 7.0 8.9 15.7 RoCE 30.5 24.0 9.8 16.3 24.0 RoIC 52.3 39.7 17.6 28.9 41.9

Valuation RatiosEV / EBITDA 7.4 7.9 17.3 10.3 6.6 P/E 12.4 14.5 53.6 24.0 11.9 EV / Net Sales 0.6 0.6 0.5 0.4 0.4 Sales / Equity 4.5 4.4 4.6 5.2 5.4 Market Cap / Sales 0.6 0.5 0.5 0.4 0.3 Price to Book Value 2.7 2.4 2.3 2.1 1.9

Turnover RatiosAsset turnover 4.0 3.8 3.8 4.4 4.7 Debtors Turnover Ratio 3.0 3.4 3.6 3.8 3.8

Creditors Turnover Ratio 3.6 3.7 3.4 3.4 3.4

Solvency RatiosDebt / Equity 0.2 0.3 0.2 0.2 0.2 Current Ratio 1.3 1.3 1.2 1.2 1.2 Quick Ratio 1.0 1.0 0.9 0.8 0.8


We believe the improved free cash flow for the company

would result in higher dividend payout. In turn, this would

improve the return ratios of the company

We believe execution of low margin businesses during

FY14 would reduce the working capital requirement and,

hence, help in improving return ratios, going forward

idirect bajajelectricals ic - share market | stock market

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