3QFY2012 Result Update | Cons.

Durables
February 9, 2012

Bajaj Electricals
Performance Highlights
Y/E March (` cr) Net sales EBITDA EBITDA (%) PAT 3QFY12 794 65 8.2 32.8 2QFY12 701 53 7.5 25.0 % chg (qoq) 13.2 23.3 66bp 31.4 3QFY11 690 71 10.3 40.6 % chg (yoy) 15.1 (8.6) (212)bp (19.1)

BUY
CMP Target Price Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cons. Durables 1,700 0.9 296/133 32,961 2 17,831 5,412 BJEL.BO BJE@IN

`171 `201 12 Months

Source: Company, Angel Research

Bajaj Electricals (BEL) posted strong top-line growth of 15.1% yoy to `794cr (`690cr) in 3QFY2012. The companys OPM fell by 212bp yoy but improved by 66bp qoq to 8.2%. PAT for the quarter came in at `33cr (`41cr), down 19.1% yoy. We recommend Buy on the stock. Top-line growth driven by the lighting and consumer durables segments: BELs sales grew by 15.1% yoy due to strong performance by the lighting and consumer durables segments, which grew by 18.8% and 24.7%, respectively, while the E&P segment witnessed a decline of 5.1% yoy. The companys OPM declined by 212bp yoy to 8.2% (10.3%) due to increased other expenditure. Despite a 212bp OPM contraction, PAT margin declined by 175bp yoy to 4.1% (5.9%), owing to higher other income, which increased by 204% yoy to `2cr. PAT for the quarter came in at `33cr, down 19.1%. Going ahead, we expect the companys margin to improve from these levels on the back of easing commodity prices and closure of lower-margin E&P projects. Outlook and valuation: We expect the trend of strong top-line growth to continue going ahead as well. Further, we expect the companys margin to improve from these levels on the back of easing commodity prices and closure of lower-margin E&P projects. Overall, we expect the company to post a top-line CAGR of 15.7% over FY201113E. We expect adjusted PAT to register a CAGR of 18.5% to `183cr over FY201113E. With the recent sharp correction, the stock is available at attractive valuation on just 9.3x FY2013 earnings, against its five-year historical average of 11x one-year forward earnings. We recommend Buy on the stock with a target price of `201, valuing the stock at 11x FY2013 earnings.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 65.6 9.4 7.4 17.5

Abs.(%) Sensex Bajaj Electricals

3m 2.7 (11.4)

1yr 1.4

3yr 86.0

(16.8) 328.7

Key financials
Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA Margin (%) FDEPS (Rs) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 2,227 26.1 112 22.4 10.5 11.7 14.6 3.4 31.7 40.4 0.8 7.5

FY2011 2,741 23.1 130 16.5 8.7 14.7 11.6 2.8 26.2 33.1 0.6 7.4

FY2012E 3,084 12.5 134 2.9 7.7 13.4 12.7 2.4 20.4 29.2 0.6 7.4

FY2013E 3,670 19.0 183 36.6 8.5 18.3 9.3 2.0 23.9 34.0 0.5 5.6

Sharan Lillaney
+91 22 3935 7800 Ext: 6811 Sharanb.lillaney@angeltrade.com

Please refer to important disclosures at the end of this report

Bajaj Electricals | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance highlights

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Prior Period Items Adjusted PAT PATM Equity shares (cr) EPS (` ) Adjusted PAT 2QFY12 793.6 593.7 74.8 34.1 4.3 101.1 12.7 728.9 64.8 8.2 15.2 2.9 2.1 48.8 48.8 6.2 16.0 32.7 32.8 4.1 10.0 3.3 32.8 1QFY12 700.8 520.9 74.3 46.3 6.6 81.1 11.6 648.3 52.5 7.5 12.8 2.9 0.7 37.5 37.5 5.3 12.5 33.2 0.0 25.0 3.6 10.0 2.5 25.0 31.4 31.6 31.4 57 bp 28.3 30.3 12.4 23.3 66bp 18.2 (1.4) 200.0 30.3 24.7 (26.4) % chg (qoq) 13.2 14.0 2QFY11 689.5 515.9 74.8 28.7 4.2 74.1 10.7 618.6 70.9 10.3 9.3 2.7 0.7 59.6 59.6 8.6 19.2 32.2 (0.1) 40.6 5.9 9.9 4.1 40.7 (19.7) (19.3) (19.1) (175) bp (16.7) (18.1) 17.8 (8.6) (212) bp 63.9 8.3 204.3 (18.1) 36.4 19.1 % chg (yoy) 15.1 15.1

Source: Company, Angel Research

Segment-wise performance
For 3QFY2011, the lighting division posted growth of 18.8% yoy to `200cr (`168cr). The segment reported higher EBIT of `11.1cr in 3QFY2012 compared to `7.4cr in 3QFY2011. EBIT margin increased by 119bp yoy to 5.6% (4.4%). The consumer durables division maintained its strong growth momentum, with sales increasing by 24.7% yoy to `414cr (`332cr). EBIT for the segment came in at `46cr, implying an EBIT margin of 11.1% (13.0%), down 185bp yoy. The E&P segment posted a decline of 5.1% in sales to `179cr (`189cr). EBIT margin of the segment declined by 582bp yoy during the quarter to 3.6% (9.4%).

February 9, 2012

Bajaj Electricals | 3QFY2012 Result Update

Exhibit 2: Segment-wise performance

Y/E Mar (` cr) Total Revenue A) Lighting B) Cons Durables C) E&P D) Others Total Less: Inter-Segment Net Sales EBIT Margin (%) A) Lighting B) Cons Durables C) E&P D) Others
Source: Company, Angel Research

3QFY12 200.2 413.8 179.3 0.3 793.6 793.6 5.6 11.1 3.6 20.6

2QFY12 189.2 339.4 171.2 1.0 700.8 700.8 6.0 9.3 3.8 76.0

3QFY11 168.5 331.9 188.8 0.3 689.6 689.6 4.4 13.0 9.4 40.6

% chg (qoq) 5.8 21.9 4.7 (67.3) 13.2 13.2 (41)bp 186 bp (16) bp (5,537) bp

% chg (yoy) 18.8 24.7 (5.1) 6.3 15.1 15.1 119 bp (185) bp (582) bp (2,004) bp

Sales growth comes in at 15.1%

The company has consistently posted strong growth in its sales over the past eight quarters. In 3QFY2012, the company reported growth of 15.1% yoy. Growth was backed by strong performance by the consumer durables and lighting segments. Going ahead as well, we expect sales to continue to report a strong performance.

Exhibit 3: Sales trend

1,200 1,000 800 784 588 484 690 544 Sales (LHS) yoy Growth (RHS) 980 701 794 35 30 25

(` cr)

15 10 5 0

400 200 0

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

Source: Company, Angel Research

February 9, 2012

3QFY12

(%)

600

20

Bajaj Electricals | 3QFY2012 Result Update

OPM remains under pressure, declines by 212bp yoy

OPM declined by 212bp yoy during 3QFY2012 to 8.2%, while it improved by 66bp qoq. EBIT margins of the E&P and consumer durable segments were under pressure during the quarter and reported a decline on a yoy basis.

Exhibit 4: OPM trend

120 100 80
(` cr)

EBITDA (LHS) 92.3 70.9 40.8 44.6 101.7

OPM (RHS)

14 12 10 64.8 52.5 8 6
(%)
(%)

60 40 20
4QFY10

30.2

4 2

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

Source: Company, Angel Research

PAT down by 18.8%

The companys PAT declined by 19.1% yoy to `33cr (`41cr) on the back of OPM compression in 3QFY2012. Despite a 212bp OPM contraction, the companys PAT margin declined by 175bp yoy to 4.1% (5.9%), owing to higher other income, which increased by 204% yoy to `2cr.

Exhibit 5: PAT trend

70 60 50 37 23 23 11.1 40 32.8 25.0 PAT (LHS) PAT growth (RHS) 57.5 50 40 30 20 10 0 (10) (20) (30) (40) (50) (60)

(` cr)

40 30 20 10 0

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

Source: Company, Angel Research

February 9, 2012

3QFY12

3QFY12

Bajaj Electricals | 3QFY2012 Result Update

Investment arguments
Strong brand image Leveraging on strong brands and substantial market share: BEL has a strong brand positioning and a well-spread distribution network. As per the company's internal estimates, it is the fastest growing player in the domestic appliances market, which is growing at 20% per year. In the small appliances market, BEL enjoys a market share of over 15-30% across all product categories. Future growth drivers Rural markets, acquisitions and newer verticals: BEL plans to capitalize on growth in the rural markets. The company has also identified 7-8 potential acquisition candidates across businesses. Management expects about 15% of future sales to come from the acquired businesses. The company also plans to foray into newer verticals, including water management, which is an underpenetrated and rapidly growing market.

Outlook and valuation

We expect the trend of strong top-line growth to continue going ahead as well. Further, we expect the companys margin to improve from these levels on the back of easing commodity prices and closure of lower-margin E&P projects. Overall, we expect the company to post a top-line CAGR of 15.7% over FY2011-13E. We expect adjusted PAT to register a CAGR of 18.5% to `183cr over FY2011-13E. With the recent sharp correction, the stock is available at attractive valuation on just 9.3x FY2013 earnings, against five-year historical average of 11x one-year forward earnings. We recommend Buy on the stock with a target price of `201, valuing the stock at 11x FY2013 earnings.

February 9, 2012

Bajaj Electricals | 3QFY2012 Result Update

Profit and loss statement

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of associate Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY09 1,788 23 1,766 1,766 28.0 1,584 1,315 92 77 100 182 27.0 10.3 9 173 27.7 9.8 41 10 7.0 142 27.5 142 51 35.7 91 0 91 91 25.5 5.2 10.3 10.3 22.8 FY10 2,248 21 2,227 2,227 26.1 1,994 1,652 113 97 131 233 28.0 10.5 9 224 29.1 10.0 37 8 4.3 195 37.3 195 75 38.6 120 8 120 112 22.4 5.0 12.0 11.7 13.5 FY11 2,765 24 2,741 2,741 23.1 2,503 2,095 126 122 160 238 2.2 8.7 11 227 1.6 8.3 29 6 2.8 204 4.5 (15) 219 74 33.8 145 145 130 16.5 4.7 14.7 14.7 25.2 FY12E 3,111 27 3,084 3,084 12.5 2,846 2,338 160 154 194 238 (0.2) 7.7 13 225 (1.2) 7.3 29 8 4.1 204 (0.1) 204 70 34.4 134 134 134 2.9 4.3 13.4 13.4 (8.3) FY13E 3,702 32 3,670 3,670 19.0 3,357 2,770 172 183 231 312 31.3 8.5 16 297 32.1 8.1 27 8 3.0 278 36.6 278 96 34.4 183 183 183 36.6 5.0 18.3 18.3 36.6

February 9, 2012

Bajaj Electricals | 3QFY2012 Result Update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability (Net) Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Inventories Debtors Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 154 60 95 2 32 904 54 113 178 559 570 333 462 170 68 102 0 37 1,199 61 178 209 751 692 507 646 230 77 153 37 1,575 48 167 295 1,065 1,039 536 726 237 90 147 2 37 1,616 66 231 280 1,039 990 627 813 282 105 177 3 37 1,900 55 275 334 1,236 1,182 718 934 17 2.8 225 245 214 3 462 20 0.2 475 494 152 (1) 646 20 591 611 116 (2) 726 20 678 698 116 (2) 813 20 810 830 106 (2) 934 FY09 FY10 FY11 FY12E FY13E

February 9, 2012

Bajaj Electricals | 3QFY2012 Result Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation (Inc.)/ Dec. in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments (Inc.)/ Dec. in loans and adv. Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY09 140 9 (12) 10 51 76 (13) (9) 10 (12) (0) (23) 20 1.0 (42) 22 32 54 FY10 201 9 (192) 8 75 (66) (13) (5) 8 (10) 163 (62) 27 9.4 83 7 54 61 FY11 219 11 (64) 6 74 86 (60) (0) 6 (54) (35) 42 32.2 (45) (13) 61 48 FY12E 204 13 (89) 8 70 49 (9) 8 (1) 47 16.0 (30) 18 48 66 FY13E 278 16 (108) 8 96 81 (45) 8 (37) (10) 51 6.1 (55) (11) 66 55

February 9, 2012

Bajaj Electricals | 3QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/E (on basic, reported EPS) P/CEPS P/BV Dividend yield (%) Market cap. / Sales EV/Sales EV/EBITDA EV / Total Assets Per Share Data (Rs) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROCE (Post Tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC ROE Turnover ratios (x) Asset Turnover (Gross Block) Asset Turnover (Net Block) Operating Inc. / Invested Capital Inventory / Sales (days) Receivables (days) Payables (days) WCcycle (ex-cash) (days) Solvency ratios (x) Gross debt to equity Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 0.9 0.7 0.9 4.2 0.3 0.2 0.4 6.0 0.2 0.1 0.3 7.8 0.2 0.1 0.2 7.7 0.1 0.1 0.2 11.2 11.8 19.0 4.0 35 102 113 57 13.7 22.7 4.0 32 107 115 59 13.7 21.5 4.0 34 121 126 62 13.2 20.5 4.0 34 125 130 62 14.1 22.6 4.2 31 113 118 61 39.5 34.0 42.6 40.4 36.7 31.7 33.1 27.2 26.2 29.2 22.2 20.4 34.0 27.8 23.9 9.8 77.3 4.5 33.9 11.7 0.7 50.4 10.1 81.3 4.5 36.9 12.7 0.3 43.0 8.3 75.4 4.3 27.2 14.3 0.1 28.8 7.3 70.2 4.3 22.1 16.4 0.1 22.6 8.1 76.0 4.5 27.7 15.6 0.1 28.5 10.3 10.3 15.1 10.0 28.3 12.0 11.7 13.2 2.4 50.7 14.7 14.7 10.8 3.6 61.8 13.4 13.4 11.6 4.0 70.2 18.3 18.3 8.6 4.4 83.4 16.6 16.5 15.1 6.0 1.2 0.8 0.9 9.0 3.5 14.6 14.2 13.2 3.4 1.4 0.7 0.8 7.5 2.7 11.6 11.6 10.8 2.8 2.1 0.6 0.6 7.4 2.4 12.7 12.7 11.6 2.4 2.3 0.6 0.6 7.4 2.2 9.3 9.3 8.6 2.0 2.6 0.5 0.5 5.6 1.9 FY09 FY10 FY11 FY12E FY13E

February 9, 2012

Bajaj Electricals | 3QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Bajaj Electricals No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 9, 2012

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