4QFY2016 Result Update | Cons. Durables

June 1, 2016

Bajaj Electricals

BUY

CMP

`228

Performance highlights

Target Price

`268

Y/E March (` cr)

4QFY16 4QFY15

% yoy 3QFY15

% qoq

Investment Period

12 months

Net sales

1,357

1,316

3.1

1,130

20.1

EBITDA

(2.9)

(5.4)

Stock Info

EBITDA Margin (%)

5.5

5.8

(34)

7.0

(148)

Sector

Consumer durables

Adjusted PAT

(26.0)

18.4

Market Cap (` cr)

2,303

Source: Company, Angel Research

Net Debt

93.4

For 4QFY2016, Bajaj Electricals (BEL)’ top-line and bottom-line have come in

Beta

1.0

below our estimates, owing to the poor performance of its Consumer durables

52 Week High / Low

310 / 155

business. The top-line growth was dampened by the poor performance of the

Avg. Daily Volume

70,956

Consumer durables and E&P segments. On the bottom-line front, the company

reported a de-growth due to lower revenue growth, poor operating performance

Face Value (`)

and higher taxes.

BSE Sensex

26,714

Nifty

8,180

Top-line grows ~3% yoy: The top-line for the quarter rose by a mere ~3% yoy to

~`1,357cr due to decline in the E&P and Consumer durables segments. The E&P

Reuters Code

BJEL.BO

segment de-grew by ~1.5% yoy to ~`486cr while the Consumer durables

Bloomberg Code

BJE.IN

segment de-grew by ~0.4% yoy to ~`544cr. However, the Lighting segment

reported a strong growth of ~18% yoy to `327cr which pulled up overall

Shareholding Pattern (%)

revenues and led the company to post a top-line growth for the quarter.

Promoters

63.6

Poor operating performance dragged the overall profitability: For the quarter, the

MF / Banks / Indian Fls

5.9

company’s bottom-line declined by 26% yoy to ~`35cr (vs `47cr in 4QFY2015)

FII / NRIs / OCBs

9.5

owing to a poor operating performance (margin contraction of 34bp yoy) and

Indian Public / Others

21.0

higher taxes.

Outlook and valuation: With expectation of timely execution of new projects in the

E&P segment and with the Lighting and Consumer Durables segments expected to

Abs.(%)

3m 1yr 3yr

benefit from an improvement in consumer sentiments going forward, we expect

Sensex

12.3

(4.1)

36.5

the company’s top-line to grow at a CAGR of ~15% to `6,098cr and bottom-line

BEL

38.0

(20.6)

30.7

to grow at CAGR of 29% to `159cr over FY2016-FY2018E. We retain our Buy

rating on the stock with a revised target price of `268.

3-Year Daily Price Chart

Key financials

400

Y/E March (` cr)

FY2015

FY2016

FY2017E

FY2018E

350

300

Net Sales

4,258

4,612

5,351

6,098

250

200

% chg

5.7

8.3

16.0

14.0

150

Net Profit

(14)

125

159

100

% chg

(14.0)

95.6

124.8

158.9

EBITDA Margin (%)

2.1

5.6

5.7

5.9

FDEPS (`)

(1.4)

9.5

12.4

15.7

P/E (x)

(165.0)

24.1

18.4

14.5

Source: Company, Angel Research

P/BV (x)

3.4

3.0

2.7

2.3

RoE (%)

6.2

23.7

25.9

27.8

RoCE (%)

10.6

32.5

34.5

37.1

Amarjeet S maurya

EV/Sales (x)

0.6

0.5

0.4

+91 22 3935 7800 Ext: 6831

EV/EBITDA (x)

18.0

6.9

5.9

5.0

[email protected]

Source: Company, Angel Research; Note: CMP as of June 1, 2016

Please refer to important disclosures at the end of this report

Bajaj Electricals | 4QFY2016 Result Update

Exhibit 1: 4QFY2016 performance highlights

Y/E March (` cr)

4QFY16

4QFY15

% yoy

3QFY15

% qoq

FY2016

FY2015

% chg

Net Sales

1,357

1,316

3.1

1,130

20.1

4,612

4,263

8.2

Consumption of RM

829

872

(4.9)

762

8.7

3,082

3,060

0.7

(% of Sales)

61.1

66.2

67.4

66.8

71.8

Staff Costs

55.5

18.3

284

226

25.4

(% of Sales)

5.9

3.9

6.0

6.2

5.3

Other Expenses

374

316

18.2

221

68.8

987.16

888.34

11.1

(% of Sales)

27.5

24.0

19.6

21.4

20.8

Total Expenditure

1,283

1,239

3.5

1,052

22.0

4,353

4,174

4.3

Operating Profit

(2.9)

(5.4)

259

193.6

OPM

5.5

5.8

7.0

5.6

2.1

Interest

(17.5)

(25.1)

101

104

(2.9)

Depreciation

5.5

(2.1)

(6.2)

Other Income

(16.1)

59.0

(5.9)

PBT (excl. Ext Items)

1.0

13.1

154

(21)

(837.7)

Ext (Income)/Expense

PBT (incl. Ext Items)

1.0

13.1

154

(21)

(837.7)

(% of Sales)

3.9

4.0

4.2

3.3

(0.5)

Provision for Taxation

(7)

(944.0)

(% of PBT)

34.8

11.0

37.8

Reported PAT

(26.0)

18.4

(14)

(785.4)

PATM

2.6

3.6

2.6

2.1

(0.3)

Minority Interest After NP

Extra-ordinary Items

Reported PAT

(26.0)

18.4

(14)

(785.4)

Equity shares (cr)

FDEPS (`)

3.4

4.6

(26.0)

2.9

18.4

9.5

(1.4)

(785.4)

Source: Company, Angel Research

Exhibit 2: Segment-wise performance

Y/E Mar (` cr)

4QFY16

4QFY15

% chg (yoy)

3QFY16

% chg (qoq)

Total Revenue

A) Lighting

327

276

18.2

277

18.1

B) Cons Durables

544

546

(0.4)

535

1.7

C) E&P

486

494

(1.5)

319

52.7

EBIT

A) Lighting

100.3

20.72

12.9

B) Cons Durables

(50.1)

26.85

(30.2)

C) E&P

39.1

26.85

20.3

EBIT Margin (%)

A) Lighting

7.2

4.2

7.5

B) Cons Durables

3.4

6.9

5.0

C) E&P

6.6

4.7

8.4

Source: Company, Angel Research

June 1, 2016

Bajaj Electricals | 4QFY2016 Result Update

Flat top-line growth due to lower sales in E&P and

Consumer durables segments

The company’s top-line for the quarter rose by a mere ~3% yoy to ~`1,357cr due

to decline in the E&P and Consumer durables segments’ revenues. The E&P

segment de-grew by ~1.5% yoy to ~`486cr while the Consumer durables

segment de-grew by ~0.4% yoy to ~`544cr. However, the Lighting segment

reported a strong growth of ~18% yoy to `327cr which pulled up overall revenues

and led the company to post a top-line growth for the quarter.

Exhibit 3: Lighting boosts top-line...

Exhibit 4: Operating performance

1,600

100

1,400

1,200

1,000

800

600

(10)

400

(20)

200

(30)

(40)

(20)

(2)

(40)

(60)

(4)

Net Sales (LHS)

qon growth (RHS)

Operating Profit (LHS)

Margin (RHS)

Source: Company, Angel Research

Operating margin contracts by 34bp yoy, impacts bottom-line

For the quarter, the company’s bottom-line declined by 26% yoy to ~`35cr

(vs

`47cr in 4QFY2015) owing to a poor operating performance (margin

contraction of 34bp yoy) and higher taxes.

June 1, 2016

Bajaj Electricals | 4QFY2016 Result Update

Investment Rationale

Strong brands, leading market position and successful

implementation of its replenishment strategy - the key drivers

BEL has a strong brand positioning and a well-spread distribution network in

comparison to its peers. It has collaborated with known global brands in each of

its segments which has enabled it to grow at a robust pace over the years. BEL has

a leading position in consumer durables - mixers, water heaters, fans, toasters,

OTG and mixers.

Exhibit 5: Strong brand associations

Products

Brand

Luminaries

Trilux Lenze (Germany)

Street Lights

CREE Lighting (USA), Disano (Italy)

Building management systems

Delta Controls (Canada)

LED

Rudd (US)

Appliances

Morphy Richards (UK), Nardi (Italy)

Fans

Disney (USA), Media (China)

Fire alarm system

Securiton (Switzerland)

Source: Company

BEL has revamped its product portfolio by discarding the non-performing products

and introducing new products with better quality in addition to introduction of

premium range products across categories. Though in the near term, there might

be some pressure in terms of demand due to slackness in the market, but the

outlook is positive post FY2017 as is being expected by most industry players. With

per capita income on the rise for the urban population, discretionary spends are

expected to increase, which will drive growth for the Consumer durables segment.

Its high-end products also have a growing acceptance with consistent performance

from brands like Morphy Richards.

Further, the government’s ambitious plan to build smart cities will require smart

lighting solutions, and this will resultantly drive growth for the company’s Lighting

segment considering its well established position. Also, increasing focus on the LED

division would ensure that decline in CFL due to switch of consumer preference

would be addressed appropriately.

June 1, 2016

Bajaj Electricals | 4QFY2016 Result Update

Outlook and Valuation

With expectation of timely execution of the new projects in the E&P segment and

with Lighting and Consumer durables segments expected to benefit from an

improvement in consumer sentiments going forward, we expect the company’s

top-line to grow at a CAGR of ~15% to `6,098cr and bottom-line to grow at a

CAGR of 29% to `159cr over FY2016-FY2018E. We retain our Buy rating on the

stock with a revised target price of `268.

Company Background

BEL is a diversified company with interests in Lighting, Luminaries, Appliances,

Fans, and Engineering & Projects. It has a strong network of more than 1,000

distributors and 5,000 dealers.

Key Concerns

 Currency fluctuation: BEL has a substantial part of its products imported from

various associate foreign brands which pose a risk of currency fluctuation,

thereby impacting profitability.

 Inflation: Inflationary pressure would resist volume pick up.

June 1, 2016

Bajaj Electricals | 4QFY2016 Result Update

Profit and loss statement

Y/E March (` cr)

FY13

FY14

FY15

FY16

FY17E

FY18E

Total operating income

3,377

4,030

4,258

4,612

5,351

6,098

% chg

9.0

19.3

5.7

8.3

16.0

14.0

Total Expenditure

3,223

3,884

4,113

4,353

5,048

5,736

Cost of Materials

2,655

2,959

3,082

3,637

4,157

Personnel

167

186

226

284

348

427

Others Expenses

401

739

804

987

1,063

1,152

EBITDA

154

145

146

259

303

361

% chg

(44.7)

(5.5)

0.0

78.2

16.7

19.4

(% of Net Sales)

4.6

3.6

3.4

5.6

5.7

5.9

Depreciation& Amortisation

EBIT

140

121

117

232

268

324

% chg

(47.5)

(13.5)

(3.5)

99.3

15.5

20.8

(% of Net Sales)

4.1

3.0

2.7

5.0

5.3

Interest & other Charges

105

101

105

110

Other Income

(% of PBT)

37.0

26.3

68.0

14.9

12.4

9.7

Share in profit of Associates

Recurring PBT

112

154

186

237

% chg

(48.4)

(48.6)

(38.0)

330.1

21.2

27.3

Prior Period & Extraord. Exp./(Inc.)

PBT (reported)

112

154

186

237

Tax

(1)

(7)

(% of PBT)

15.8

(1.1)

(19.2)

37.7

33.0

PAT (reported)

125

159

Add: Share of earnings of asso.

ADJ. PAT

125

159

% chg

32.9

(5.3)

(14.0)

95.6

124.8

158.9

(% of Net Sales)

2.8

1.4

1.0

2.1

2.3

2.6

Basic EPS (`)

3.3

(0.5)

(1.4)

9.5

12.4

15.7

Fully Diluted EPS (`)

3.3

(0.5)

(1.4)

9.5

12.4

15.7

% chg

(72.1)

(116.2)

162.7

(785.4)

30.6

27.3

June 1, 2016

Bajaj Electricals | 4QFY2016 Result Update

Balance sheet

Y/E March (` cr)

FY13

FY14

FY15

FY16E

FY17E

FY18E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

709

689

667

747

847

966

Shareholders Funds

729

709

687

767

867

987

Minority Interest

Total Loans

166

348

409

212

200

Deferred Tax Liability

Total Liabilities

912

1,074

1,109

992

1,080

1,199

APPLICATION OF FUNDS

Gross Block

326

372

432

472

512

552

Less: Acc. Depreciation

120

152

179

213

251

Net Block

229

252

280

293

299

301

Capital Work-in-Progress

Investments

Current Assets

1,887

2,341

2,441

2,333

2,507

2,737

Inventories

421

447

475

505

586

652

Sundry Debtors

938

1,235

1,290

1,365

1,583

1,737

Cash

Loans & Advances

142

137

167

Other Assets

336

467

471

349

214

244

Current liabilities

1,263

1,627

1,734

1,758

1,850

1,964

Net Current Assets

625

714

707

575

657

774

Deferred Tax Asset

Mis. Exp. not written off

Total Assets

912

1,074

1,109

992

1,080

1,199

June 1, 2016

Bajaj Electricals | 4QFY2016 Result Update

Cash Flow Statement

Y/E March (` cr)

FY13

FY14

FY15

FY16E

FY17E

FY18E

Profit before tax

(6)

(21)

154

186

237

Depreciation

Change in Working Capital

(130)

(42)

153

(82)

(132)

Interest / Dividend (Net)

100

101

105

110

Direct taxes paid

(40)

(58)

(61)

(78)

Others

Cash Flow from Operations

141

(7)

378

182

174

(Inc.)/ Dec. in Fixed Assets

(114)

(41)

(40)

(Inc.)/ Dec. in Investments

(38)

Cash Flow from Investing

(0)

(76)

(49)

(40)

Issue of Equity

Inc./(Dec.) in loans

(197)

(12)

Dividend Paid (Incl. Tax)

(28)

(20)

(15)

(25)

(40)

Interest / Dividend (Net)

(116)

106

(51)

(104)

(105)

(110)

Cash Flow from Financing

(142)

(53)

(316)

(142)

(150)

Inc./(Dec.) in Cash

(2)

(14)

(16)

Opening Cash balances

Closing Cash balances

June 1, 2016

Bajaj Electricals | 4QFY2016 Result Update

Key Ratios

Y/E March

FY13

FY14

FY15

FY16E FY17E FY18E

Valuation Ratio (x)

P/E (on FDEPS)

70.0

(433.5)

(165.0)

24.1

18.4

14.5

P/CEPS

35.1

118.4

152.6

18.7

14.5

11.7

P/BV

3.2

3.4

3.0

2.7

2.3

Dividend yield (%)

0.9

0.7

1.1

1.7

EV/Sales

0.7

0.6

0.5

0.4

EV/EBITDA

15.5

17.4

18.0

6.9

5.9

5.0

EV / Total Assets

1.1

0.9

0.8

Per Share Data (`)

EPS (Basic)

3.3

(0.5)

(1.4)

9.5

12.4

15.7

EPS (fully diluted)

3.3

(0.5)

(1.4)

9.5

12.4

15.7

Cash EPS

6.5

1.9

1.5

12.2

15.8

19.4

DPS

2.0

1.5

2.5

3.9

Book Value

72.2

70.2

68.1

76.0

85.9

97.7

Returns (%)

ROCE

15.6

11.4

10.6

32.5

34.5

37.1

Angel ROIC (Pre-tax)

17.1

12.9

11.7

37.0

38.8

40.6

ROE

12.9

8.2

6.2

23.7

25.9

27.8

Turnover ratios (x)

Asset Turnover (Gross Block)

10.4

10.8

9.9

9.8

10.5

11.0

Inventory / Sales (days)

Receivables (days)

101

112

111

108

104

Payables (days)

WC cycle (ex-cash) (days)

103

102

June 1, 2016

Bajaj Electricals | 4QFY2016 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER

Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,

Bombay Stock Exchange Limited and MCX Stock Exchange Limited. It is also registered as a Depository Participant with CDSL and

Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a

registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number

INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing

/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial

ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /

managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst

has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity

of the company covered by Analyst.

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should

make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the

companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine

the merits and risks of such an investment.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

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document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way

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latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may

have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement

Bajaj Electricals

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15)

June 1, 2016