Almondz Bajaj Electricals Initiating Coverage 18Mar11

8/6/2019 Almondz Bajaj Electricals Initiating Coverage 18Mar11

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18 March 2011 1

BAJAJ ELECTRICALSBUY

NITIATINGCOVERAGE

P

Exhibit 1: Financials & Valuation metrics (Rs mn)

Y/E March FY09 FY10 FY11E FY12E FY13E

Net sales 17,705 22,286 26,023 30,961 36,754

Growth (%) 28.8 25.9 16.8 19.0 18.7

EBITDA 1,798 2,384 2,772 3,287 4,090

OPM (%) 10.2 10.7 10.7 10.6 11.1

Growth (%) 25.6 32.6 16.3 18.6 24.4

PAT 893 1,176 1,533 1,858 2,367Growth (%) 22.2 31.7 30.4 21.1 27.4

FD EPS (Rs) 10.3 12.1 15.7 19.0 24.3

Growth (%) 22.2 16.7 30.4 21.1 27.4

BV(Rs) 30 53 65 81 102

P/E (x) 22.1 19.0 14.5 12.0 9.4

P/B (x) 7.6 4.3 3.5 2.8 2.2

EV/EBITDA (x) 13.3 10.0 8.6 7.3 5.8

Dividend yield (%) 0.9 1.1 1.1 1.3 1.3

RoE (%) 42.9 31.8 27.5 26.7 27.2

RoCE (%) 25.9 24.6 24.2 23.8 24.4

D/E (x) 0.9 0.3 0.3 0.2 0.2

Source: Company, Almondz Research

Returns Electrified CMP: Rs228Target Price: Rs298

52wk H/L: Rs 347/ Rs 190

Bajaj Electricals (BJE) is a seven-decade old company in the consumer durables segment

with a burgeoning pan-India presence of more than 400k retail outlets. It also has a

strong engineering & projects (E&P) business. BJE is well positioned in the brown goodsmarkets with leading market share in small appliances (15%), Fans (16.5%), Lighting (8%)

and Luminaires (17%). BJEs continued network expansion, especially in semi-urban and

rural regions, its new product launches, a flourishing E&P business and robust return

parameters are expected to yield 24% earnings CAGR over FY11-13E.

Consumer Durables BJEs bulwark

BJE is the largest player in small appliances with market share of 15-30% in various

categories. BJEs expanding foothold with 40k/50k retail outlets in appliances/fans

segments, along with new product launches and international collaborations has led to an

impressive revenue CAGR of 33/28% CAGR in appliances/fans segment over FY05-FY10. We

believe the success of new product launches and venturing into new markets, coupled with

higher disposable income at the bottom of the pyramid, would drive revenue growth of the

consumer durable segment to 30/25% over FY11-FY13E.

Lighting and Luminaires In good lightBJEs Lighting and Luminaires portfolio is akin to Philips in price and range and has clocked a

revenue CAGR of 19/18% over FY05-FY10 led by evolution of the organized retail format,

increased infrastructure spend, and rapid urbanization. We expect revenue CAGR of

10/20% over FY11-13, supported by new products like LED, aggressive marketing with the

builders/architect segments, and network expansion.

Potential energy service provider

BJE has diversified from a Lighting Solutions to E&P (33% revenue CAGR over FY05-FY10)

company with current order book of Rs9.9bn. A manufacturing capacity of 30k/20k/12k

mtpa galvanizing/fabrication/TLT facility positions BJE well to benefit from Government of

Indias (GoI) investments in Below Poverty Line (BPL) electrification, JNNURM and APDRP

schemes.

Valuation

We value BJE on SOTP basis (DCF for CD/Lighting and 4x FY12E EV/EBIT for E&P). We arrive

at a fair value of Rs298 at which the stock would be trading at 15.5/12.1x FY12E/FY13E

earnings.

Market data

Sensex 18,359

Nifty 5,511

Stock data

Market Cap (Rs bn) 22.2

Market Cap (USD mn) 492

Shares Outstanding (mn) 98

Free Float (%) 35

3M avg. daily vol.(mn) 24,101

Bloomberg Code BJE IN

Reuters Code BJEL.BO

Shareholding Pattern as on Dec10 (%)

Promoter 64.9

Institutions 20.1

Public & Others 15.0

Stock Performance

Return (%) 1m 3m 6m 12m

Absolute 9.8 (3.5) (26.7) 14.5

Relative 10.4 4.0 (19.8) (8.7)

P/E(x) band

0100200300400

Apr-04

Feb-05

Dec-05

Oct-06

Aug-07

Jun-08

Apr-09

Feb-10

Dec-10

12.8x

10.0x

7.2x4.4x1.6x

Source: Bloomberg, Almondz Research

EV/Sales(x) band

010,00020,00030,00040,000

Apr-04

Feb-05

Dec-05

Oct-06

Aug-07

Jun-08

Apr-09

Feb-10

Dec-10

0.7x

0.6x

0.4x0.3x0.1x


EV/EBITDA(x) band

010,00020,00030,000

40,000

Apr-04

Feb-05

Dec-05

Oct-06

Aug-07

Jun-08

Apr-09

Feb-10

Dec-10

2.0x3.3x

4.6x5.9x

7.2x


Ronald Siyoni

Email : r [email protected]

Tel. : +91 22 6752 6650

Mob. : +91 98672 44854


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18 March 2011 2

Bajaj Electricals

Company profile

Bajaj Electricals (BJE) is part of the Rs 200bn Bajaj Group, with an impressive range of consumer electrical

products on offer. It is a seven-decade old company with turnover of Rs 22.3bn. BJE has 19 branch offices, a

chain of 1000 distributors, 3,000 dealers, over 490,000 retail outlets (400k in lighting, 40k in appliances and

50k in fans) and 270 service franchises spread across the country. It has five major strategic business units

comprising home appliances, fans, lighting, luminaires and engineering & projects. The company also

manufactures transmission line towers, telecom and mobile telecom towers, and wind energy towers.

Exhibit 2: Business segments


Exhibit 3: Business divisions

Segments Manufacturing/Sourcing Arrangements

Appliances Dedicated vendors at Noida, Delhi, Himachal and imports from China

Electrical Lamps and Tubes Manufactured by sister concern Hind Lamps, Uttar Pradesh

CFL Lamps Manufactured by sister concern Starlite Lighting, Nashik

Luminaries Dedicated vendors at Daman, Himachal Pradesh and imports from China

Fans Own factory at Chakan and sourcing from vendors at Hyderabad, imports from China

High Masts, Poles & Towers Own factories at Ranjangaon and Chakan near Pune

Source: Company

Business segments

Consumer Durables

AppliancesSBU

FansSBU

Lighting

LightingSBU

LuminairesSBU

Engineering & Projects

SpecialProjects

High Mast& Poles

Towers


3/17

Bajaj Electricals

18 March 2011 3

Business Model

Better capital allocation

BJE has leveraged its consumer durables and lighting business to build the Engineering & Projects division

and take advantage of the increased infrastructure spending in the economy especially on electrification.

Exhibit 4: Business Model

Capital Employed

--

500

1,000

FY 06 F Y07 FY 08 FY09 F Y10

Lighting

(Rs mn) RoCE

--

100

200

FY06 FY07 F Y08 FY09 F Y10

Lighting

(%)

Capital Employed

--

500

1,000

FY 06 F Y07 FY 08 FY09 F Y10

Con. Dur.

(Rs mn) RoCE

--

100

200

FY06 FY07 F Y08 FY09 FY10

Con. Dur.

(%)

EBIT

(200)

300

800

1,300

FY 06 F Y07 FY08 F Y09 FY10

Con. Dur.

(Rs mn)

EBIT

--

200

400

F Y06 FY07 FY08 FY09 FY10

Lighting

(Rs mn)

Revenue growth YoY

--

10

20

30

40

FY07 FY08 FY09 FY10

Con. Dur.

(%)

Revenue growth YoY

(20)

--

20

40

FY07 F Y08 FY 09 F Y10

Lighting

(%)

Capital Employed

--

2,000

4,000

6,000

FY06 FY 07 FY08 FY 09 F Y10

E&P

(Rs mn)

Revenue growth YoY

--

50

100

150

200

FY 07 FY08 F Y09 FY 10

E&P

(%)

RoCE

--

10

20

30

FY06 FY07 FY08 FY09 FY10

E&P

(%)

EBIT

--

200

400

FY06 FY07 F Y08 FY09 FY10

E&P

(Rs mn)

Increased rural electrification to build building

blocks for future small electical equipments demand

Increased rural electrification to

drive demand for lighting

Consumer Durables: Lower capital requirements, higher product maneuverability, higher

profitability to sustain the momentum in higher cash flows

Lighting: Increased competition, slower industrial activity has slowed down growth

momentum but uptick in industrial activity shall drive cash flows

Profitability in Consumer durables and

lighting leading to higher investments

in E&P for long term revenue growth

ConsumerDurables

Light

ing

En

gineering&Projects



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18 March 2011 4

Bajaj Electricals

Flexibility for profitability

Capital allocation within segments in consumer durables and lighting is decided upon the profitability target

achievement which drives RoCE of each individual segment. The products sales in each segment are

maneuvered to drive the overall revenue growth of each segment.

Exhibit 5: Driving Profitability overall

Capital Employed

--

2,000

4,000

6,000

FY07 FY08 FY09 FY10

Li gh ti ng Co n. D ur. E&P

(Rs mn)RoCE

--

100

200

FY07 FY08 FY09 FY10

Lighting Con. Dur. E&P

(%)

EBIT

(200)

300

800

1,300

FY07 FY08 FY09 FY10

Li gh ti ng Con . Du r. E&P

(Rs mn)

Lowest capital employed in Con. Dur. at highest RoCE

Highe

stRoCEin

Con

.Dur

.along

with

stro

ngreve

nuegr

owth

Stro

ngre

venuegrowth

along

with

bette

rreturnsg

eneratinghigherp

rofita

bility

Revenue growth YoY

--

20

40

60

FY07 FY08 FY09 FY10

Li ghting Con. Dur. E&P

(%)

Source: Almondz Research


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Bajaj Electricals

18 March 2011 5

Consumer durables BJEs bulwark

Bajaj Electricals (BJE) is the largest and established consumer durables player with a burgeoning pan-India

presence. BJE is at the forefront with a market share of 15-30% across segments in Indias small appliance

sector. The company offers a gamut of products in the small appliance and fan segments. It reaps the

benefits of being numero uno in mixers, irons and oven-toaster-grillers (OTG), next in order being water

heaters. Consequently, the consumer durables division has grown at 30% CAGR over FY06-FY10, entailing a

43% revenue share in FY10.

With a strong pan-India presence (400k+ retail outlets), BJE is comfortably placed to cater to the countrys

booming consumer class. We expect BJE to increase penetration in the semi-urban and rural markets and

urban areas by ramping up distribution network at 10% per annum. Rural India, which is nearly insulated

from global economic fluctuations, coupled with rising disposable incomes, presents BJE significant growth

opportunities.

BJE evaluates a business segment and enters a segment that provides an addressable market size of USD

1bn. It zeroes in on products in a particular business segment to become a market leader or the next in

order. The focus of the company is on positioning, reliability, durability and service. BJE is heavily banking on

the rise in rural electrification, which will drive demand of small appliances and lighting products.

Appliances pacesetter

Largest player in Indias small appliance market

BJE is a frontrunner in the organized domestic small appliance market with aggregate share of 15% (market

share of 15-30% within the segment in various products). Indias appliance market estimated at ~Rs 60bn

(68% organized, 32% unorganized) is expanding at a healthy growth rate of 15% annually. The target market

for the small appliances segment is the bottom of the pyramid. This segment is expected to maintain the

growth momentum, given rising consumption, increasing purchasing power, and r apid urbanization.

As consumers become more brand conscious the demand for products is likely to shift from unorganized

market to organized, branded market. Thus, although competition is increasing, which may moderate

prices, we expect growth to be volume driven. However, BJE made several price increases successfully in

Q3FY11, which reflects its strong brand equity and ability to pass on cost increases to customers.

Exhibit 6: Appliances market share

Unorganised

32%

Bajaj

15%

Other players

53%

Unorga ni se d Ba ja j Othe r pl aye rs



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18 March 2011 6

Bajaj Electricals

Exhibit 7: Appliances product profile

Products

Iron Food Processors

Ovens Toasters Grillers (OTG) Hand Blenders

Room Heaters & Heat Converters Water purifiers and Filters

Toasters & Sandwich makers Microwave Ovens

Mixers Grinders Gas stoves

Juicers Electric Kettles

Coffee Makers Tea Makers

Source: Company

BJE has earned consumer trust and confidence over seven decades, which resulted in strong market share

growth. The company has robust distribution network of 40k retail outlets for appliances. Given its expertise

and long track record, BJE is number one in irons, oven toaster grillers (OTG) and mixers and number two in

water heaters. BJE has classified each product into three segments based on lower, medium and higher

strata of consumer demand: Bajaj Appliances, Platini range and Morphy Richards range.

Exhibit 8: BJE market position

Segment Market share (%) Rank

Irons 20 1OTG 30 1

Mixers 20 1

Water Heaters 20 2


Revenue to grow at 30% CAGR over FY11-FY13E

The Appliance division has grown at 31.4% CAGR over FY06-FY10 entailing 26.2% revenue share for FY10.

We estimate the division to grow at 30% CAGR over FY11-FY13E, fuelled by introduction of new products

along with network expansion and increased rural penetration.

Exhibit 9: Appliances revenue growth trend

1,9402,600

3,6304,640

5,780

7,630

9,918

12,8943834

40

30

3028 3225

0

2000

4000

6000

8000

10000

12000

14000

FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

0

5

10

15

20

25

30

35

40

45

Revenue YoY grow th (R)

(Rs mn) (%)

Source: Company

International collaborations fortify market position

BJE sources products from dedicated vendors in Noida, Delhi and Himachal Pradesh and imports from China.

In addition, it has a tie-up with Morphy Richards, the UKs top home appliance player for marketing and

manufacturing of Morphy Richards premium brands in India. The contract with Morphy expires in 2014 and

is expected to be renewed, since it is beneficial to both the companies. The tie-up covers products such as

coffee makers, worlds first tea maker, electric cookers, mixers, OTGs, sandwich toasters and blenders. BJE

also entered into a pact with Nardi of Italy for marketing gas appliances and cooking ranges, among other

products. Future plans with Nardi include entry into new product designs for invertors, water heaters, irons

and coolers.

Competitors in Appliances

Companies

Philips

Kenstar

Usha

Maharaja

Marloni

Symphony


Competitors in premium brand

Companies

Philips

Black & Decker

National

Tefal



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Bajaj Electricals

18 March 2011 7

Fans breezing through

Leader in premium fans segment

The Rs 20bn fan industry is growing at 25% annually and is dominated mainly by organized players (57% of

demand). BJE commands an overall market share of 16.5% and is among the frontrunners in the premium

fans segment. BJE has a leading presence in 8 states although it is No. 3 overall. BJE has a strong network of

50k retail outlets pan India. The Fans segment has grown at a healthy 28.1% CAGR over FY05-FY10 due to

strong traction in the domestic housing and construction industry and higher replacement demand. BJE is

likely to further consolidate its position through a tie-up with GD Midea Holding Co., a leading global fan

manufacturer.

Exhibit 10: Market share in Fans

Organis ed, 44%

Unorgai se d, 40%

Baja j, 17%

Baja j Unorga is ed Organi se d


Expanding product portfolio

The company has a wide array of products that includes ceiling fans, table and pedestal fans, wall mounting

(TPW), Industrial and Domestic exhaust fans, Industrial and Domestic Air circulators, Personal Fans, and

Bajaj-Disney Childrens fans. BJE has a factory at Chakan (0.8mn installed capacity with ~40% capacity

utilization). It also sources products from dedicated vendors in Andhra Paradesh and Himachal Pradesh, and

imports from China.

The company plans to introduce new models in the premium/decorative and under-light fans segment,

including remote-controlled and energy-smart fans. The company will also be focusing on pumps,

generators and industrial fans. Competitors in this segment include Crompton Greaves, Usha, Orient,

Khaitan, Polar and Havells. We anticipate a 25% CAGR in segmental revenue over FY11-FY13 on the back of

network expansion coupled with revival in housing and construction demand.

Exhibit 11: Fans revenue growth trend

14101850

24102950

3760

5264

6580

8225

29.4 31.2 30.3

40.0

25.0 25.0

27.5

22.4

0

2000

4000

6000

8000


0.0

10.0

20.0

30.0

40.0

50.0

Revenue YoY growth (R)

(Rs mn) (%)

Source: Company

Competitors in Fans segment

Companies

Crompton

Usha

Orient



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18 March 2011 8

Bajaj Electricals

Marketing agreement with China-based Midea

GD Midea Holding Co enjoys leadership in small electric appliance sales in China, with a strong presence in

rice cookers and heating and cooling appliances. It is a household name in China for cooling fans. Midea

Electric Fan, the predominant product, has ranked first in terms of manufacture and sales volumes in the

global market for 12 consecutive years. Over the years, these fans have captured a share of 35% in India and

50% in the European, American and other overseas markets. In 2000, BJE entered into an agreement with

Midea for marketing and servicing of the Chinese players products in India.

Lighting and Light fittings In good light

Lighting industry pegged at Rs 36bn

Indias rapid urbanization, growth in emerging segments such as retail formats, malls and IT parks,

complimented by greater government spending on infrastructure have propelled the lighting industry to Rs

36bn. The segment is expected to grow at 10% per annum. Philips is the leading player in the lighting

industry with 30% market share and BJE holds 8% market share. BJEs product portfolio includes GLS lamps,

fluorescent tube lights (FTL) and compact fluorescent lamps (CFL). BJEs brand positioning is akin to that of

the market leader Philips with respect to price points and range.

Exhibit 12: Lighting product profile

Lighting product profile

GLS lamps Ballasts & starters

Fluorescent tube lights LED torches

Compact fluorescent lamps Miniature lamps

Domestic luminaires

Source: Company

Rural expansion and energy saving products to drive growth

BJE is expected to increase its network footprint from present 0.4mn outlets to 0.5mn outlets with focus on

rural market segment. The company is expected to move aggressively in organized businesses like modern

retail formats, government-led power saving initiatives and institutional sales. We believe energy saving

lamps like CFLs are likely to increase penetration in India markets through promotion of products in utilities

and motivating consumers to switch to energy-saving lamps. BJE is also promoting LEDGLOW, a brand of

LED lanterns aggressively. We anticipate a 20% CAGR in segmental revenue over FY11-FY13E.

Exhibit 13: Revenue growth trend in lighting segment

1,090

1,760

2,409

3,011

3,613

4,335

1,340

2,090

20 20

9

23

31

15

25

19

0

500

1000

1500

2000

2500

3000

3500

4000

4500


0

5

10

15

20

25

30

35

Revenue YoY grow th (R)

(Rs mn) (%)

Source: Company

Competitors in Lighting

Companies

Philips

Crompton

Surya



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Bajaj Electricals

18 March 2011 9

Luminary in luminaires

The domestic market size for luminaires is estimated at ~Rs 25bn, also growing at 10%. Organised players

account for 57% of the market. BJE ranks number 2 in the segment with 17% share. Apart from having

dedicated vendors in India and imports from China, BJE manufactures electrical lamps and tubes through a

sister concern, Hind Lamps, in Shikohabad, Uttar Pradesh and CFL lamps through Starlite Lighting, an

associate company, in Nashik.

Exhibit 14: Luminaires market share mix (organised players)

Balance

organis ed, 43%

Unorgani se d, 40%

Baja j, 17%

Ba ja j Unorga ni se d Ba la nce orga ni se d


Inorganic growth, product extension plans

BJE has been aggressively tapping inorganic growth opportunities, tying up with Trilux Lenze of Germany for

premium technical lighting, RUUD lighting of US for LED lighting, Disano of Italy for street lighting, Securiton

of Switzerland for fire alarm systems, Delta Controls of Canada for Access Controls and BMS and UK-based

Helvar for lighting controls and ballasts. It now plans to focus on new end-user segments such as IT, BPO,

retail and healthcare. It is also looking to aggressively promote products to builders and architects, besides

introducing new offerings such as LED light sources and designer streetlights. We anticipate 10% CAGR in

segmental revenue over FY11-FY13E.

Exhibit 15: Revenue growth in Luminaires segment

1,5501,930

2,300

2,820 2,7503,163

3,4793,827

28.124.5

15.0

10.0 10.0

19.2

22.6

(2.5)

0

1000

2000

3000

4000

5000


-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0


(Rs mn) (%)


Competitors in Luminaires

Companies

Philips

Crompton

Wipro

Thorn



10/17

18 March 2011 10

Bajaj Electricals

Engineering and Projects potential to become energy services company

Over the years, BJE has diversified from being a complete lighting solutions provider to a strong contender

in the E&P business. E&P revenue has increased more than 16x from Rs 452mn in FY04 to Rs 7.3bn in FY10.

The divisions contribution to top line has risen from 9% to 33% over this period, with EBITDA margins of 12

13% as against blended margin of 10.7% for FY09. The current order backlog for E&P stands at Rs 9.9bn. We

expect this to ramp up substantially, given GoIs increased focus on rural and urban infrastructure.

BJEs E&P division is divided into three sub-divisions, namely:

Special Projects (turnkey lighting, factory lighting, airport and sports lighting, rural electrification) High Mast and Poles (design, supply, erection and commissioning of high masts, signages and

streetlight poles)

Towers (design, supply, erection and commissioning of transmission lines, telecom towers andmonopoles)

Towers comprise 49% of the E&P order book followed by special projects at 40%. BJE manufactures high

masts, poles and towers at its own factories at Ranjangaon and Chakan near Pune. Apart from a world-class

fabrication and galvanizing plant, it has in-house capabilities for lighting design, civil and structural design

and electrical system design. On its rolls are 250 experienced engineers, while manufacturing capacity totals

3,000 masts per annum in the high mast fabrication facility, and 30,000mtpa and 20,000mtpa respectively

for galvanizing and fabrication at Pune. BJE has a Transmission Line Towers Fabrication capacity of

12,000mtpa at Chakan.

Exhibit 16: Revenue growth in E&P segment

24503050

3630

5230

7370 72057670 7830

37.6

24.519.0

44.140.9

-2.2

6.52.1

-

2,000

4,000

6,000

8,000

10,000


-10.0

0.0

10.0

20.0

30.0

40.0

50.0


(Rs mn) (%)


Special Projects leader in sports and power plant lighting

BJE has maintained its leadership position in sports lighting projects and power plant lighting, cornering 70%

market share in this segment. BJE has worked along with all leading consultants such as MECON, TCE, M.N.

Dastur, Howe India, EIL, Design Ltd, P&D Consultants. Its client roster includes NTPC, BHEL, various state

electricity boards, and the Airport Authority of India (AAI). Despite fierce competition from players like

Philips, GE and Crompton Greaves, among others, BJE has grown robustly at 33% over FY05-10. It has tied

up with Abacus, UK f or sports lighting. The company has enough opportunities under APDRP.

Ministry of Power has sanctioned 573 projects for 546 districts to electrify 118,499 villages and to provide

free electricity connections to 24.6mn BPL rural households. As on 28 February 2011, 180,114 villages have

been electrified and 15.25mn free electricity connections have been released to BPL households. RGGVY is

yet to electrify 174,853 villages and 9.4mn BPL households. With GoIs stated target of Power for all,

channeled through the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), we believe order inflows in this

segment will remain strong for the next five years.

Exhibit 17: RGGVY status

Un/De

electrified

villages

Electrified

villagesRHH inc BPL BPL HH's

National Target 118,499 354,967 41,524,682 24,645,017

Achievement until 28Feb 2011 93,893 180,114 16,689,994 15,248,621

Source: Ministry of Power, Almondz Research

Competitors in Special proj ects

Companies

Philips

GE

Crompton Greaves

KBL



11/17

Bajaj Electricals

18 March 2011 11

In sports lighting, BJE has worked on projects such as the National Games (2002, 2007 and 2009),

Commonwealth Youth Games Balewadi, and cricket stadia like Chennaswamy in Bangalore, Green Park in

Kanpur and SMS in Jaipur. With various, international level sporting events being hosted by India, growth

opportunities in this segment are high.

High Mast and Poles Front runner

Increased allocation to the Jawaharlal Nehru National Urban Mission (JNNURM) in the recent Budget will

boost the high mast and poles business. BJE is a leader in this segment, commanding 65% market share inhigh masts, with a strong client base that includes the Reliance Group, L&T, Siemens, BPCL, HPCL, IOC and

the NHAI.

Exhibit 18: E&P division major projects handled segment-wise

Segments Major projects handled

StreetlightsPWD Delhi, MADC-Nagpur, CIDCO Mumbai, NH 45 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

Source: Company

Under JNNURM, the government intends to transform 68 cities in seven years by improving economic and

social infrastructure with an investment of Rs 599bn. There are about 527 projects sanctioned with cost

estimates of Rs 599bn. The projects include investments in roads, flyovers and urban transport systems,

which would translate to increased order flows for infrastructure players.

Towers at a nascent stage

BJE is a new entrant in the towers segment (transmission lines, telecom and wind energy towers) and faces

strong competition from companies like KEC International, Kalpataru Power, Jyoti Structures and L&T.

Nonetheless, it has managed to build a strong order book of Rs 4.8bn as of Feb 2011.

Exhibit 19: BJE's major projects

Particulars

PGCIL-Almati PGCIL-765kV PK-A7

PGCIL-400kV Koldam MSETCL PK-801 A

PGCIL-765kV PK-A5 MSETCL PK-801 B

Source: Company

Transmission projects continue to be accorded high priority in India in the context of the need to evacuate

power from generating stations to load centres, system strengthening and creation of a National Grid.

Indias power ministry has envisaged setting up of an integrated National Power Grid in the country by 2012

with inter-regional power transfer capacity of ~38,650MW. Consequently 60,000ckm of transmission

network has to be added by 2012.

BJE continues to receive major orders for transmission line projects from Power Grid Corporation, Damodar

Valley Corporation, Gujarat Electricity Transmission Company, Andhra Pradesh Transmission Corporation,

Wardha Power and Tamil Nadu Electricity Board. Order inflow momentum is expected to remain strong

considering planned additions to transmission line network in the country during the 11th plan period.


12/17

18 March 2011 12

Bajaj Electricals

Exhibit 20: Transmission lines addition trend

79455

115742

151469

198407

258407

27421

36287 35727

46938

60000

0

50,000

100,000

150,000

200,000

250,000

300,000

7th plan 8th pla n 9th pla n 10th plan 11th pl a n

20000

30000

40000

50000

60000

70000

Tra ns mi s si on l ine s Add iti on du ri ng pe ri od (R)

(Ckms)

Source: CEA

Financial overview

Appliances and Fans to lead volume growth

We see volume growth in the Appliance and Fans divisions on the back of an expanding retail network,

introduction of new models, and stronger promotion of products to builders and architects. At the same

time, volume growth in the Luminaires and Lighting businesses is expected to slow owing to increasing

competition and lower industrial activity.

Exhibit 21: Sales volume growth assumptions

Segment (%) FY08 FY09 FY10 FY11E FY12E FY13E

Appliances 40 29 22 25 25 25

Fans 24 17 27 36 23 23

Lighting 12 16 13 5 9 9

Luminaries 22 17 12 13 8 8


Lower contribution from E&P over FY11-FY13E

The order book of the E&P segment stands at Rs 9.9bn, with towers and special projects accounting for 49%

and 40% respectively. Considering an execution timeline of 30 months, 6 months and 18 months

respectively for towers, high mast and poles and special projects, we expect the E&P segment to record 4%

CAGR over FY11-FY13E.

Exhibit 22: E&P order book size

Specia l Projects,

Rs 3,919mn, 40%

High Mas t & Pole,

Rs 1,167mn, 12%

Towers, Rs

4,805mn, 48%

To we rs Hi gh Ma s t & Pol e S pe ci a l Pro je cts

Total order book of Rs 9,891mn

Source: Company


13/17

Bajaj Electricals

18 March 2011 13

Overall net revenue to grow at 19% CAGR

BJE has recorded revenue CAGR of 27% over FY06-FY10 with Appliances and E&P growing at 31% and 32%

CAGR respectively and other divisions growing at 15-28% CAGR. We see continued all-round growth across

divisions, barring the E&P division and estimate 19% CAGR in top line over FY11-FY13E.

Exhibit 23: Revenue mix Exhibit 24: Revenue growth trend

23.0 24.1 26.4 26.2 26.2 29.0 31.734.7

16.7 17.2 17.6 16.6 17.020.0 21.0

22.212.9 12.4 12.8 11.8 10.911.5 11.6

11.718.4 17.9 16.8 15.9 12.512.0 11.1

10.329.0 28.3 26.4 29.5 33.4 27.4 24.5

21.1

0

20

40

60

80

100


Appl ia nces Fa ns Lighting Luminari es E & P

(%)

844010770

1373017730

2206926271

3125937111

24.518.7

19.019.0

27.527.630.0 29.1

0

10000

20000

30000

40000

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

0.0

10.0

20.0

30.0

40.0

Tota l YoY growth (%)

(Rs mn) (%)

Source: Company, Almondz Research Source: Company, Almondz Research

Increasing EBIT margins

EBIT margins in Consumer Durables have been on the r ising trend while BJE feels the pressure in the Lighting

and E&P segments. Margin contraction in Lighting has been mainly because of r ising raw material costs and

slower industrial activity. E&P has suffered margin contraction owing to higher input costs and cost overruns

in the CWG projects.

Exhibit 25: Segment wise EBIT margins

8.7

5.5 5.0

7.5 8.0

6.24.8

6.7 7.0

10.4 10.1

12.7

3.2

13.111.8

12.9 12.9

10.6

0

2

4

6

8

10

12

14

FY05 FY06 FY07 FY08 FY09 FY10

Lighting Consu mer Durable s Enginee ring & Projects

(%)



14/17

18 March 2011 14

Bajaj Electricals

Excellent return parameters

BJE has robust return parameters in terms RoE, RoCE and RoA at 32%, 25% and 12% respectively in FY10.

RoE declined compared with FY09 owing to equity dilution of 2 mn shares at Rs785 issued through QIP

during Dec 2009. We estimate BJE to m aintain strong return ratios.

Exhibit 26: Return ratios trend

20.9

33.837.9

50.4

43

3228 27 27

12.515.2 17.0

24.0 26 25 24 24 24

7.5 8.5 9.012.3 12 12 12 12 13

0

10

20

30

40

50

60

FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

ROE ROCE ROA

(%)

`


Exhibit 27: Value of imports

CIF value of imports (Rs mn) FY06 FY07 FY08 FY09 FY10

Raw materials 30 9 3 2 8

Capital goods 39 5 4 23 20

Finished goods 371 405 655 1048 1072

Machinery spares 1 2 4 3 5

Total 442 421 666 1075 1104

Source: Company

Exhibit 28: Purchase cost

Particulars (Rs mn) FY06 FY07 FY08 FY09 FY10

Fans 760 1157 1583 1967 2582

% total 26.4% 30.6% 32.1% 35.0% 36.9%

Lights 903 1108 1502 1621 2231

% total 31.4% 29.3% 30.5% 28.8% 31.9%

luminaires 1214 1516 1843 2036 2181

% total 42.2% 40.1% 37.4% 36.2% 31.2%

Total 2878 3781 4928 5625 6995

Source: Company

Increasing imports

BJEs imports, as a percentage of purchase cost, have gone up from 11.1% in FY07 to 15.8% in FY10. The

company imports fans, luminaires and appliances from China primarily to take advantage of low-costfinished goods. We believe that increasing imports will lead to higher margins in these segments.


15/17

Bajaj Electricals

18 March 2011 15

Valuation

Valued at Rs 298 based on SOTP

We value BJE using Sum-of-the-Parts (SOTP) approach. We value the companys Lighting and Consumer

durables business on discounted cash flow basis and its E&P business on EV/EBIT.

Exhibit 29: Valuation assumptions for lighting and consumer durables segments

Parameters Growth phase (5yr) Stabilisation period (10yr) Terminal value

Revenue growth (%)

Lighting 20-15 10 4

Consumer durables 35-25 15 4

ROCE (%)

Lighting 46-39 38-22 11.6

Consumer durables 129-95 86-21 11.6


Exhibit 30: Discounted cash flow (Lighting & Consumer Durables)

0

200

400

600

800

1,000

1,2001,400

1,600

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24

FY25

0

20

40

60

80

100

Discounted cashf low ROIC WACC

(Rs mn) (%)


Exhibit 31: Valuation Summary

Particulars Rs mn

EV of L+CD 26426

EV of E&P (valued at 4x FY12 EBIT) 2914

Total EV 29340

Less: Debt (1718)

Add: Cash + Inv. 1434

Equity value 29057

Per share value (Rs.) 298


Key risks

Entrance of Japanese players

We believe that entry of Japanese players like Mitsui and Matusita into markets where BJE has a major

presence can affect its sales and profitability. Given the value-for-money offered by Japanese products and

their high product quality, BJE will witness intensifying competition.

Raw material price risk

The companys margins and profitability are likely to be affected by increase in prices of raw material like

copper, steel, aluminium and zinc.


16/17

18 March 2011 16

Bajaj Electricals

Financial summary (Rs mn)

Income Statement FY09 FY10 FY11E FY12E FY13E

Net sales 17,705 22,286 26,023 30,961 36,754

Other operating income -

Total operating income 17,705 22,286 26,023 30,961 36,754

Less: Total operating 15,907 19,902 23,251 27,674 32,663

Raw materials 13,149 16,524 19,243 22,906 27,003

Employee cost 771 972 1,145 1,362 1,617

Power & Fuel - - - - -

SG&A 1,956 2,448 2,862 3,406 4,043

Others 31 (41) - - -

EBITDA 1,798 2,384 2,772 3,287 4,090

EBITDA margin (%) 10.2 10.7 10.7 10.6 11.1

Less: Depreciation 85 92 95 100 105

Less: Interest 370 314 324 331 338

PBT (operating) 1,343 1,978 2,353 2,856 3,647

Add: Other income 57 29 29 29 29

PBT 1,400 2,006 2,381 2,884 3,675

Less: Tax 507 830 848 1,027 1,308

Effective tax rate (%) 36.2 41.4 35.6 35.6 35.6PAT 893 1,176 1,533 1,858 2,367

Add: Share of earnings of - - - - -

Less: Minority interest - - - - -

Net income (before E.O) 893 1,176 1,533 1,858 2,367

Prior period items -

Extraordinary income/(loss) - - - - -

Net income (after E.O) 893 1,176 1,533 1,858 2,367

(Rs mn)

Balance Sheet FY09 FY10 FY11E FY12E FY13E

Equity capital 173 195 195 195 195

Preference capital - - - - -

Reserves and surplus 2,277 4,749 5,997 7,512 9,537

Net worth 2,450 4,944 6,192 7,707 9,732

Minority interest - - - - -

Total debt 2,139 1,518 1,718 1,818 1,918

Deferred tax liability 31 (5) (19) (33) (48)

Total liabilities 4,620 6,457 7,891 9,492 11,602

Gross block 1,545 1,700 1,800 1,900 2,000

Less: Acc. depreciation 599 683 753 853 958

Net block 946 1,016 1,047 1,047 1,042

CWIP 25 1 75 100 100

Goodwill

Investments 316 366 366 366 366

Current assets 9,037 11,990 14,188 17,174 20,876

Inventories 1,777 2,094 2,425 2,887 3,403

Debtors 5,592 7,507 8,912 10,603 12,587

Cash 538 612 712 1,140 1,865

Loans and advances 1,130 1,777 2,139 2,545 3,021

Other Current assets 0 0 - - -

Current liabilities 5,703 6,916 7,785 9,195 10,782

Creditors 5,191 6,273 7,130 8,482 10,069

Provisions 513 643 655 712 712

Net working capital 3,334 5,074 6,404 7,980 10,094

Total assets 4,620 6,457 7,891 9,492 11,602

(Rs mn)

Cash Flow Statement FY09 FY10 FY11E FY12E FY13E

Net profit 895 1,205 1,520 1,844 2,352

Depreciation 85 92 95 100 105

Working capital changes 56 (1,564) (1,241) (1,206) (1,389)

Others 411 315 269 303 310

Cash flow from operations 1,447 48 643 1,041 1,377

Capital expenditure (145) (144) (174) (125) (100)

Increase/Decrease in (92) (50) - - -

Others (182) (190) 29 29 29

Cash flow from investing (420) (384) (145) (96) (71)

Increase/Decrease in Equity - 1,599 - - -

Change in borrowings (228) (620) 200 100 100

Dividends paid (incl. tax) (161) (201) (273) (285) (342)

Others (419) (368) (324) (331) (338)

Cash flow from financing (809) 410 (397) (517) (581)

Net change in cash 219 74 100 428 725

Opening cash balance 320 538 612 712 1,140

Closing cash balance 538 612 712 1,140 1,865

(Rs mn)Ratio Analys is FY09 FY10 FY11E FY12E FY13E

EPS (Rs.) 10.3 12.0 15.7 19.0 24.3

EPS growth (%) 21.9 16.4 31.0 21.1 27.4

Cash EPS (Rs.) 11.3 13.0 16.7 20.1 25.3

BV (Rs. ) 30 53 65 81 102

DPS (Rs.) 2.0 2.4 2.5 3.0 3.0

Payout (%) 19.4 20.0 15.9 15.8 12.4

Valuation (x) FY09 FY10 FY11E FY12E FY13E

P/E (on adjusted FD EPS) 22.1 19.0 14.5 12.0 9.4

P/CEPS 15.4 462.8 34.6 21.4 16.1

P/BV 7.6 4.3 3.5 2.8 2.2

EV/EBITDA 13.3 10.0 8.6 7.3 5.8

EV/Sales 1.3 1.1 0.9 0.8 0.6

Dividend yield (%) 0.88 1.05 1.10 1.32 1.32

Profitabi lity ratios (%) FY09 FY10 FY11E FY12E FY13E

RoE 42.9 31.8 27.5 26.7 27.2

RoCE 25.9 24.6 24.2 23.8 24.4

Turnover ratios FY09 FY10 FY11E FY12E FY13E

Debtors (days) 101 107 115 115 115

Inventory (days) 47 43 43 42 43

Creditor (days) 49 56 59 56 56

Net Working capital (days) 99 94 99 101 101

Asset turnover (x) 1.9 1.9 1.8 1.8 1.8

Solvency ratio (x) FY09 FY10 FY11E FY12E FY13E

Gross debt /equity 0.9 0.3 0.3 0.2 0.2

Net debt /equity 0.7 0.2 0.2 0.1 0.0

Net debt/ EBITDA 0.9 0.4 0.4 0.2 0.0

Interest Coverage (EBIT / 4.6 7.3 8.3 9.6 11.8

Growth ratios (%) FY09 FY10 FY11E FY12E FY13E

Net sales 28.8 25.9 16.8 19.0 18.7

EBITDA 25.6 32.6 16.3 18.6 24.4

PAT (before E.O.) 21.9 31.4 31.0 21.1 27.4

EPS 21.9 16.4 31.0 21.1 27.4

Operating ratios (%) FY09 FY10 FY11E FY12E FY13E

EBITDA margin 10.2 10.7 10.7 10.6 11.1

EBIT margin 9.7 10.3 10.3 10.3 10.8

PAT margin 5.0 5.3 5.9 6.0 6.4

Other income/PBT 4.1 1.4 1.2 1.0 0.8

Effective Tax rate 36.2 41.4 35.6 35.6 35.6


17/17

Bajaj Electricals

Team Coordinates

Institutional Equities Team Sector Contact No. E-mail Id

Harjit Singh Business Head 91-22-67526601/2 [email protected]

Research Team

Sanjeev Patkar Head of Research 91-22-67526660 [email protected]

Amit Shah Capital Goods & Power 91-22-67526648 [email protected]

Darpin Shah Bank & NBFC 91-22-67526643 [email protected]

Indrajit Mitra Economy 91-22-67526639 [email protected]

Mangesh Kulkarni Bank & NBFC 91-22-67526642 [email protected]

Niral Dalal Information Technology 91-22-67526645 [email protected]

Parul Patel Cement 91-22-67526647 [email protected]

Piyush Parag Automobiles 91-22-67526640 [email protected]

Rakesh Nayudu Pharmaceuticals 91-22-67526644 [email protected]

Ronald Siyoni Real Estate and Midcaps 91-22-67526650 [email protected]

Sundar Subramoney Infrastructure 91-22-67526646 [email protected]

Sales Team

Nevil Dedhia Sales 91-22-67526617 [email protected]

Ritesh Shah Sales 91-22-67526661 [email protected]

Shyam Gupta Sales Trader 91-22-67526662 [email protected]

Derivatives Team

Chandrashekhar Kabadi Sales Trader 91-22-67526672 [email protected]

Rameshwar Singh Sales Trader 91-22-67526671 [email protected]

Dealing Team

Chetan Lodaya Dealer 91-22-67526664 [email protected] Vadoliya Dealer 91-22-67526663 [email protected]

Technical Team

Gurudatta Dhanokar Technical Strategist 91-22-67526669 [email protected]

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Almondz Bajaj Electricals Initiating Coverage 18Mar11