Bajaj Electricals’ Net Dips, E & P Business Reports Loss At Operating Level

The Bajaj Group Company - Bajaj Electricals has reported a 64% decline in its net profit to Rs 11.68 crore for the December 2012 quarter. The company however maintained a 10% growth in its topline to Rs 872 crore. Of its three main business segments, the Engineering and Projects business (E&P) reported poor numbers which dented its overall performance.

Bajaj reported a strong 22% growth to Rs 504 crore in its largest business segment, Consumer Durables (CD). Sequentially too, this business has shown a growth of 26%, which should be considered remarkable. Its lighting segment has reported a YoY growth of 10.6% to Rs 221.5 crore. The revenues of E&P segment, however, declined by 18% to Rs 146 crore. The company has said that it is taking a hit on its revenues as it is closing down its old sites. Its Board of the Directors has also taken a decision of increasing provisions for the E&P segment, which has hit its revenues to the tune of Rs 17 crore in this quarter.

On the margins front, Bajaj has reported an expansion of the PBIT margins in Lighting and CD business. PBIT margins of E&P business however have run into the negative owing to the cost over-runs. As an effect of this, the EBITDA margins of the entire business have come down by 450 basis points to 4.11%.

The management, during the conference call, said that the provisioning and the site closure will continue in the next quarter (March 2013) too and hence, margins of E&P business will remain under pressure for another one quarter.

The company said that the growth rates of CD and Lighting business will remain at the current levels but that of the E&P will remain weak in the next quarter. It has said that it has a total Rs 970 crore order book in E&P business, of which Rs 300 crore is with low margins, while the remaining Rs 670 has good margins. It is also a L1 bidder in Rs 700 crore orders which may get confirmed in the March quarter of the current fiscal.

On the capex front, the management has said that the capex for the current fiscal was set at Rs 50 crore but the company could only spent Rs 30 crore. In the next year, it will spend Rs 70 crore. It has a total debt of Rs 270 crore and expects that to go to Rs 200 crore by the year end.

The stock, after the results, surged by 6% as the company has reported a rise in the margins in its other two businesses. The expectations that FY14 would be a better year would also be seen positively by the markets. One can buy the stock at CMP with a long term perspective.