Research report on Bajaj Electricals Ltd

Research report on Bajaj Electricals Ltd BUY

CMP Rs270, Target Rs320, Upside 18.50%

- BJE order book rises 50% YTD
- E&P business to turnaround from H2 FY15
- Core business performance to improve

BJE order book rises 50% YTD

Bajaj Electricals (BJE) has bagged large orders in the last one quarter from
power distribution and transmission space. Order inflow for the company has
been quite strong over the last few months as spending in power
infrastructure have intensified. Order book has increased ~50% since the start
of the year to Rs34bn. On the back of strong order book, the company
expects to register +25% yoy revenue growth over the next two years. For the
rest of the year, the company expects momentum to pick up, registering
quarterly revenues of Rs3bn, Rs4bn and Rs6bn linearly. We estimate revenue
from E&P business to increase from Rs11.5bn in FY14 to Rs14.4bn in FY15,
Rs18.7bn in FY16 and Rs24.2bn in FY17 led by strong order book, faster
execution and increased domestic infrastructure spending.

E&P business to turnaround from H2 FY15

Engineering and Projects (E&P) business performance has been below par on
account of (1) aggressive bidding (2) execution slippages (3) inefficient
monitoring and (4) slowdown in domestic order inflows. In FY14, BEL closed
most old sites and indicated that most of the provision regarding receivables
and cost escalations is already provided for in FY14. Given the closure of most
of the old sites and new order book gained at a minimum threshold margin,
the segment is expected to report a turnaround at EBIT level from H2 FY15.
Expansion in margins would also be aided by the strong growth in revenue.
We estimate EBIT margin to remain at 3% in FY15 (lower than management
guidance of 5‐6%) and to improve to 5.5% in FY16 and 6.5% in FY17.

Core business performance to improve

Consumer and lighting segment witnessed lower growth due to weak
demand in some products and demand slowdown. The company expects
most of the segments except CFL to register strong growth going forward led
by expanding its product reach into semi urban markets and higher
advertisement spending. BEL also plans to revamp its Morphy Richards
product portfolio to boost sales with new models in the premium segment.
We expect both the division performance to improve from current levels and
witnesses an EBIT CAGR of 20% over FY14‐17E. At the CMP, the company is
trading at 12.1x FY16 earnings, quite lower than its peers Havells and V‐Guard
and attractive considering the strong growth in earnings.