Bajaj Electricals: Electrical and project business overhang
Though order book as of June 2012 for E&P business was Rs 450 cr, cost overruns in older projects is a matter of concern
Bajaj Electricals has gained almost eleven per cent since closing lows of Rs 169.95 on September 7. This has come with the buzz of stake sale in Bajaj ventures that was likely to improve the balance sheet. The company finally declared the sale of 50 per cent stake in Bajaj Ventures to Black & Decker for Rs 36 crore on Wednesday. While the company had total debt of Rs 191.2 crore at the end FY12, after the unlocking of value in Bajaj Ventures, the debt is likely to rise only to Rs 201.2 crore by end of FY13 as per analysts. The net debt-to-equity ratio percentage as per Anand Rathi estimates is thereby likely to increase to 16.2 (FY13) compared to 13.4 at the end of Fy12.
Bajaj electrical had 15 million shares in Bajaj Ventures which accounted for 50 per cent of stake. The company sold these shares at Rs 23.96 each, which translated into Rs 36 crore. Bajaj Ventures manufactures and markets power tools, industrial machinery, household appliances and related accessories. While the book value of Bajaj Electricals in the joint venture was estimated at Rs 11.2 crore, it managed to get good valuations.
Moving forward, analysts estimate revenues and net profits to grow at a CAGR of 16 per cent and 21 per cent respectively during FY12-15 period. The rise in LPG prices indirectly through capping the number of LPG cylinders is likely to benefit electrical appliances business. The sales of cooking appliances as induction plates are likely to get a boost. Nevertheless concerns remain over electrical and projects (E&P) business. Though the order book at the end of June 2012 quarter for E&P business stood at Rs 450 crore, the cost overruns in its older projects is a matter of concern as per analysts. This is likely to keep pressure on operating margins in the segment. The EBIT margins in the E&P business are expected to be as low as three per cent and five per cent in FY13 and FY14 respectively as per analysts at Anand Rathi.
The consensus one year target price for the Stock stands at Rs 197 levels which means a limited upside for the stock trading currently at Rs 187 levels. The stock trades at 12.3 and 9.9 times FY13 and Fy14 earnings estimates respectively.