Stock Market Result Update on Bajaj Electricals for 2QFY2012

Stock Market Result Update on Bajaj Electricals for 2QFY2012 with a Neutral recommendation.

Bajaj Electricals (BEL) posted strong top-line growth of 19.2% yoy to `701cr (`588cr) in 2QFY2012. The company’s OPM fell by mere 9bp yoy to 7.5% (7.6%). PAT for the quarter came in at `25cr (`23cr), up 7.6% yoy. We recommend a Neutral rating on the stock.

Top-line growth driven by the lighting and consumer durables segments: During the quarter, BEL’s sales grew by 19.2% yoy due to strong performance by the lighting and consumer durables segments, which grew by 25.0% and 21.3%, respectively, while the E&P segment grew by 9.5% yoy. The E&P segment reported profit of `6.5cr vs. loss of `7.6cr in 1QFY2012, showing signs of a turnaround. Despite flat OPM, the company’s PAT margin declined by 39bp yoy to 3.6% (4.0%), owing to higher interest cost, which increased by 68.7% yoy `13cr. Going ahead, the company’s margins are expected to remain under pressure on the back of high commodity prices.

Outlook and valuation: We expect the trend of strong top-line growth to continue going ahead as well. Overall, we expect the company to post a top-line CAGR of 20.4% over FY2011-13E. However, the company has been reporting depressed OPM, owing to which we have revised our OPM estimates for FY2012 and FY2013 downwards. We expect PAT to register a CAGR of 18.4% to `182cr over FY2011-13E. At the CMP of `199, the stock is trading at 14.2x and 10.9x its FY2012E and FY2013E EPS, respectively, factoring in most of the positives. Thus, we recommend a Neutral rating on the stock.