August 4, 2011

Bajaj Electricals Limited

Electric Components & Equipment Bajaj Electricals Limited (BJE) reported Q1FY2012 results. Standalone revenue came in at `5440.7mn as against `4836.9mn YoY, up 12% which was in line with our expectations. Net profit deteriorated by 51% to `110.6mn as against `225mn mainly due to below par performance from Engineering & Project segment and rise in input costs. EBITDA Margin stood at 5.5% in Q1FY12 as against 8.4% in Q1FY11. Engineering & project segment EBIT margin stood at (6.7%) mainly due to expenses incurred in closing some sites. The management intends to reduce the total project sites from 82 sites to ~50 sites by FY12. Management has guided E&P segment growth of 20% and EBITDA margin of ~8% which we believe is very optimistic considering the expected slowdown in the economy and rising interest rates. We have revised our EBITDA guidance for FY12E guidance from 9.6% to 9.0% & EPS from `17.9 to `15.6. We maintain our BUY rating on the stock; however lower our target price to `248/share from `337/share. Key Highlights: Room cooler sales declined 50% YoY from `150mn in Q1FY2012 to `300mn in Q1FY2011 mainly due to unseasonal rainfall which impacted sales adversely. Fan business was up 10% YoY; higher than fan industry has grown by 3% YoY as per IFMA figures. Morphy Richards posted growth of 39% YoY and succeeded in increasing their market share across all segments. Small appliances except room heater appliances were up 35% while water heater appliances were up 45%, mixer grinder by 23%, oven-toaster-grill by 15% and gas stove by 49%. Working capital increased mainly on the back of closure of some projects. Management plans to reduce number of working sites from 82 to ~50 sites by FY12E. Capex for FY12 is `50-`60cr (`21cr for purchase property, `10cr for IT and about `10-`15cr for machinery/equipment) Order book backlog stands at ~`730cr and management expects FY12 order book to be `1100cr. Management has already bid for projects worth `2250cr which would be disclosed in the coming quarters. Segment wise performance: Q1 FY12 revenue for the Lighting segment rose 16% YoY, consumer durables segment revenues grew 15% YoY and Engineering & project segment grew by 2%. EBIT stood at (`76.3mn) mainly on the back of unfavorable operating leverage (fixed cost up 25%). Management has guided E&P segment to post `10.3 bn top line with EBIT of 8.2%. We expect Lighting segment revenue to grow by 13%, Consumer segment to grow by 20-25% and have revised our growth prospects for E&P segment to be flat in FY12 . Financial Performance of the Company
(` in mn) Net Sales - Growth EBITDA Margins Adj. PAT EPS P/E EV/EBITDA FY09 17,641 27% 10.1% 891 51.6 4.0 2.7 FY10 22,272 26% 10.9% 1,171 12.0 17.0 8.4 FY11 27,394 23% 9.4% 1,438 14.5 14.0 8.0 FY12E 31,515 14% 9.0% 1,547 15.6 13.1 7.7 ` in Million FY13E 38,428 22% 9.6% 2,048 20.7 9.9 6.0

Q1FY12 Result Update BUY

BJEL.BO, BJE IN CMP: `204 Price Target: `248

Tushar Das
(91-22) 3028-4714 [email protected] ULJK Financial Services Private Limited Market Data Market Cap. (Rs Mn) Outstanding Shares (Mn) 52 Week High/Low (Rs) NSE Avg. Volume Face Value

20706 99.5 345/188 85735 2.00

Shareholding Promoter MF/ Banks/ Indian FIs FII/ NRIs/ OCB India Public/ Others

% 64.78 11.20 9.04 14.98

Nifty and Stock Movement

BJE Price 140 120 100 80 60 40 20 0
Dec-10 Mar-11 Nov-10 Sep-10 Apr-11 May-11 Oct-10 Feb-11 Aug-10 Jul-11 Aug-11 Jan-11 Jun-11

NIFTY

Please refer to the important disclosures and analyst certifications at the end of the document

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Bajaj Electricals Ltd.

Valuation: We expect the company to post a top-line CAGR of 18% over FY201113E. However, the company has been reporting depressed OPMs mainly on the back of weak E&P segment. Accordingly we have revised our earning for E&P segment going forward. At current price of `204, stock is trading at 13.1x and 9.9x P/E and 7.7x and 6.0x EV/EBITDA multiple for FY12E and FY13E respectively. We recommend to BUY the stock with a target of `248 (12x FY13E EPS). Q1FY2012 Results Analysis
Particulars Net Sales EBITDA EBITDA Margin Interest & Fin. Charges PBDT (Ops) Depreciation PBT (Ops) Other Income PBT (Before Ext. Items) Extraordinary items - Prov. for Irrecoverable portion of Loans PBT Tax Provisions Profit after Tax Exceptional Items: Prior Period adjustment/(profits)/provision for loans given to companies Taxes in respect of earlier years Adj PAT Q1 FY2012 5,441 300 5.5% 107 193 31 162 7 171 Q1 FY2011 4,837 405 8.4% 57 348 24 324 14 340 YoY (%) 12% -26% 88% -44% 31% -50% -52% -50% Q4 FY2011 9,794 1,015 10.4% 65 950 34 916 23 941 50 891 306 585 0.9 9.6 575 QoQ (%) -44% -70% 64% -80% -10% -82% -71% -82% N/A -81% -80% -81% -100% -100% -81%

171 60 111 111

340 115 225 225

-50% -48% -51% 0% 0% -51%

Particulars Segmental Revenue Lighting Consumer durables Engineering & Projects Others Net Sales / Income from Operation Segment Result (Profit (+)/ Loss (-)) Lighting Consumer durables Engineering & Projects Others Sub-Total Less Interest Other un-allocable expenditure Operating Profit before Tax PBIT Margin Lighting Consumer durables Engineering & Projects

Q1 FY2012 1,274 3,031 1,136 2 5,443

Q1 FY2011 1,100 2,630 1,107 2 4,839

YoY (%) 16% 15% 3% 0% 12%

Q4 FY2011 2,013 4,022 3,759 2 9,796

QoQ (%) -37% -25% -70% -14% -44%

62 291 (76) (1) 276 107 (2) 171

22 251 114 (0) 386 57 (11) 340

183% 16% -167% 900% -29% 88% -84% -50%

161 446 396 (1) 1,001 65 45 891

-61% -35% -119% -23% -72% 64% -104% -81%

5% 10% -7%

2% 10% 10%

144% 1% -166%

8% 11% 11%

-39% -13% -164%

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Bajaj Electricals Ltd. Financial Statements

Profit & Loss Statement Net Sales - Growth PBDIT (Ops) (% of Total Net Sales) Interest & Fin. Charges PBDT (Ops) Depreciation PBT (Ops) Other Income PBT (Before Ext. Items) Extraordinary items PBT Tax Provisions Profit after Tax Prior Period Expenses Prov. for Tax in respect of perv. years EO Adj PAT PAT Margin FY2009 17,641 1,782 10.1% 370 1,412 85 1,327 57 1,400 1,400 507 893 (2) 891 5.1% FY2010 22,272 26% 2,419 10.9% 314 2,105 92 2,013 29 2,056 50 2,006 754 1,253 (5) (76) 1,171 5.3% FY2011 27,394 23% 2,566 9.4% 291 2,276 108 2,168 57 2,239 50 2,189 740 1,449 3 (2) 10 1,438 5.2% FY2012E 31,515 15% 2,842 9.0% 472 2,370 123 2,247 82 2,343 2,343 797 1,547 1,547 4.9% FY2013E 38,428 22% 3,671 9.6% 543 3,127 134 2,993 95 3,103 3,103 1,055 2,048 2,048 5.3%

` in Million
Cash Flow statement FY2009 FY2010 FY2011 FY2012E FY2013E PBT 1,400 2,006 2,189 2,343 3,103 Operating profit before W.C Change 2,000 2,530 2,662 2,939 3,780 Trade & Other Receivables (1,434) (2,389) (3,417) (2,125) (908) Inventories (155) (317) (852) (335) (720) Loans & Advances (66) (342) Trade Payable 1,644 1,142 3,441 85 393 Increase/(Decrease) in provision 169 15 Cash generated from operations 2,055 966 1,834 668 2,219 Direct Taxes (542) (912) (806) (797) (1,055) Cash flow before Extraordinary items 1,512 54 1,028 (129) 1,164 EXTRA-ORDINARY ITEMS: Prior Period Items (2) (5) (3) Net cash from operating activities 1,510 48 1,025 (129) 1,164 Cash used in investing activities (421) (384) (207) (500) (300) Net Cash used in financing activity (871) 410 (949) 766 (677) Net increase in cash & cash equivalent Cash & Cash equivalents (Op Bal) Closing Cash balance 219 320 538 74 538 612 (131) 612 481 137 481 618 186 618 804

Balance Sheet SOURCE OF FUNDS Equity capital ESOPs Reserves & surplus Shareholder's funds Total debt Deferred tax Total liabilities APPLICATION OF FUNDS Net block Capital WIP Investment Deferred Tax Assets Total current assets Total current liabilities Net current assets Total Assets
Source: Company, ULJK Research

FY2009 173 28 2,249 2,450 2,139 31 4,620

FY2010 195 2 4,747 4,944 1,518 6,462

FY2011 198 0 5,913 6,111 1,165 7,276

FY2012E 198 7,082 7,280 2,778 10,058

FY2013E 198 8,752 8,950 3,019 11,969

Ratio Leverage Ratios Debt Equity (X) Interest Coverage Ratio Du- Pont Analysis PAT/PBT (Tax Efficiency) PBT/EBIT (Interest Burden) EBIT/Sales (OPM) Sales/Total Assets (Asset Turnover) TA/NW (Financial Leverage) ROE Valuation Parameters P/E P/CEPS P/BV EV/EBITDA EV/SALES

FY2009 FY2010 FY2011 FY2012E FY2013E 0.9 4.8 0.3 7.7 0.2 8.8 0.4 6.0 0.3 6.8

946 25 316 9,038 5,704 3,334 4,620

1,016 1 366 5 11,990 6,916 5,074 6,462

1,533 366 20 15,749 10,392 5,357 7,276

1,907 366 20 18,411 10,646 7,765 10,058

2,070 366 20 20,567 11,054 9,513 11,969

0.6 0.8 0.1 3.8 1.9 36%

0.6 0.8 0.1 3.4 1.3 25%

0.7 0.9 0.1 3.8 1.2 24%

0.7 0.8 0.1 3.1 1.4 21%

0.7 0.8 0.1 3.2 1.3 23%

4.0 3.6 1.4 2.7 0.3

17.0 15.8 4.0 8.4 0.9

14.0 13.1 3.3 8.0 0.7

13.1 12.1 2.8 7.7 0.7

9.9 9.3 2.3 6.0 0.6

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Bajaj Electricals Ltd.

Research Desk Institutional Sales Desk Disclosure Appendix

Tel: 022 - 3028 4719 Tel: 022 - 2272 1687

ULJK Financial Services Pvt Ltd: (Time range 12 months) BUY: Returns>20%; ACCUMULATE: 5%<Returns<20% ; HOLD: -5%<Returns<5%, REDUCE -20%<Returns<-5% and SELL: Returns<-20% Analyst(s) holding in the Stock : Nil Analyst Certification The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and no part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. General Disclaimer This report has been prepared by the research department of ULJK Financial Service Pvt Ltd. is for information purposes only. This report is not construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time. Prospective investors are cautioned that any forward looking statement are not predictions and are subject to change without prior notice. ULJK Group or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. ULJK Group or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. ULJK Group and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by any person in any locality, state and country or other jurisdiction where such distribution, publication or use would be contrary to the law or regulation or would subject to ULJK Group or any of its affiliates to any registration or licensing requirement within such jurisdiction.

Corporate Office: # 1802, Stock Exchange Towers, Dalal Street, Fort, Mumbai - 400001 Telephone: 3028 4702/03, 2272 1687/88 Fax:022 -2272 1686 Website: www.uljk.in
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