INSTITUTIONAL EQUITY RESEARCH Bajaj Electricals (BJE IN...

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Bajaj Electricals (BJE IN)

TOC and RREP are coming into play – rerating soon

INDIA | MIDCAP - ELECTRICALS | Company Update

11 May 2017

Why read this report?

Bajaj Electricals (BJE) is on the cusp of a rerating

Our channel checks suggest that implementation of TOC (Theory of Constraints, started two years ago) and RREP (Range and Reach Expansion Program, began a year ago) have started yielding rapid results now.

Increasing touch points and product mix under RREP is resulting in improving revenue visibility and margin improvement.

Tight control on working capital and channel financing under TOC is resulting in lower working capital needs. BJE’s WC days to fall to 53 by FY19; will lead FCF of Rs 6bn over FY17-19 – highest in the last seven years.

RoE/RoCE improving to 19%/25% by FY19 from 13%/17% in FY16.

What BJE did over the last few years: Its TOC and RREP implementation involved increasing touch points and counters, improving inventory and stocking management, product reach, and increasing SKUs, and reducing working capital needs. It also set out to recreate its brand to ride a revival in the consumer segment – plans to increase its advertising spend to 2.5% of sales by FY19 vs. 1.9% in FY16. In E&P, it became more selective about projects, and increased execution. It also improved margins and reduced WC through lower inventory.

The results of the changes (PC estimates): Consumer Durables (CD, 70% of sales) will start showing growth (10%/13% in FY18/19) based on growing touch points and product reach. E&P (30% of sales) is out from slow-moving projects and is seeing better execution and project selection; should see 8%/10% growth in FY18/19, backed by healthy order book (Rs 18.5bn in FY17). Margins will improve by 145bps over the next two years (majorly driven by CD) and profits will double (30% CAGR in FY17‐19). Improvement in business mix will ease working capital requirements to 53 days from 75 days in FY16. Free cash will help pay off debt in 3‐4 years. RoE/ROCE will improve dramatically.

How is TOC helping: At the beginning of implementation, BJE lost market share in CD, but has now applied TOC in most of its markets. This helped it to increase touch points (retail counters), which resulted in more visibility and availability of its products. We expect this visibility to aid BJE in recovering its market share and in sales picking up from FY18.

Outlook and valuation Historically, BJE has traded at a significant discount to its peers, and rightly so, due to lower margins in CD and value destruction in E&P due to losses. However, over the next two years, we expect the valuation gap between BJE and its peers to narrow as: (1) TOC yields results, (2) BJE focuses on leveraging distribution network through geographical and product expansion, (3) there is strong revenue visibility, with levers for margin expansion, (4) working capital could improve because of TOC and as BJE adopts channel financing, resulting in an FCF generation of Rs 6bn over FY17‐19 (highest in the last seven years), and (5) improving return ratios. Consequently, we have revised our FY18/19 earnings estimates by 4%/6%.

Current stock price implies a 20x PE for BJE’s CD segment and 6x EV/EBITDA on our FY19 estimates. We assign a FY19 target PE of 26x to BJE’s CD segment earnings (72% of FY19 PAT) to get a per share value of Rs 390. We expect measures taken by the company to lead to robust cash flow generation; improvement in the return profile will spur a rerating. Our multiple is at a 35% discount to the industry average. We value its E&P segment on EV/EBITDA at 7x FY19 vs. industry average of 10x to arrive at a per share value of Rs 60. We revise our target price (SOTP) to Rs 450 (Rs 300 earlier) – implying 29% upside. Upgrade our rating to Buy from Sell.

BUY (Upgrade) CMP RS 350

TARGET RS 450 (+29%) COMPANY DATA

O/S SHARES (MN) : 101

MARKET CAP (RSBN) : 36

MARKET CAP (USDBN) : 0.6

52 – W7K HI/LO (RS) : 388 / 203

LIQUIDITY 3M (USDMN) : 2.8

PAR VALUE (RS) : 10

SHARE HOLDING PATTERN, %

Mar 17 Dec 16 Sep 16

PROMOTERS : 63.4 63.4 63.5

FII / NRI : 7.6 7.6 7.9

FI / MF : 6.8 7.7 7.7

NON PRO : 7.4 5.6 5.6

PUBLIC & OTHERS : 14.8 15.6 15.3

PRICE PERFORMANCE, %

1MTH 3MTH 1YR

ABS 1.3 30.0 51.5

REL TO BSE -1.0 23.2 34.1

PRICE VS. SENSEX

Source: Phillip Capital India Research

KEY FINANCIALS

Rs mn FY17E FY18E FY19E

Net Sales 44,663 48,824 54,688

EBIDTA 2,719 3,366 4,121

Net Profit 1,108 1,588 2,105

EPS, Rs 11.0 15.7 20.8

PER, x 31.9 22.2 16.8

EV/EBIDTA, x 14.2 11.5 9.3

P/BV, x 4.3 3.8 3.3

ROE, % 13.4 17.0 19.4

Debt/Equity (%) 0.9 0.7 0.5

Source: PhillipCapital India Research Est. Deepak Agarwal (+ 9122 6246 4112) [email protected]

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Apr-16 Sep-16 Feb-17

Bajaj Elec BSE Sensex


KEI INDUSTRIES LTD INITIATING COVERAGE

Implementing RREP successfully In its initial stages, implementation of its RREP resulted in lower sales or some market share loss in some CD products. So far, its RREP has covered ~45% of its addressable market. Management expects cross-country RREP implementation to be complete by the end of FY18 (has covered 99 districts so far, will cover 111 in FY18). It has covered Maharashtra, Tamil Nadu, Bihar, Rajasthan (some parts), and all major metros. In areas where BJE has implemented TOC, its primary sales have started picking up – according to our channel checks. This program is helping the company to increase its touch points (retail counters) with more products/SKU’s availability. This has resulted in more visibility and availability of BJE products and is also helping it to recover its market share. We expect primary sales to pick up from FY18; see a growth of 10%/13% in FY18/19 from its CD business (lighting + consumer durables).

A better distribution network Under TOC, BJE has modified its traditional distribution network to avoid a price war between channel partners and to reduce channel stuffing (inventory blocking by channel partners). It has removed wholesalers from the channel, and now supplies directly to dealers and retailers. Initially, this step resulted in lower sales (as wholesalers moved out from the channel) and some loss in market share. But now this move is helping BJE to: (1) increase its touch points/counters (focusing on increasing reach), (2) control inventory (working capital) and pricing, and (3) achieve growth and health margins.

Traditional distribution channel New distribution channel

Retail / Sub Dealers

Bharat Electricals Ltd

Distributors (CD + Lightning)

Dealers Wholesale

Retail / Sub Dealers

Bharat Electricals Ltd

Distributors (Consumer Durables)

Dealers

Converted under one BU (business

unit): One distributor for a specific area

with all products and SKUs

Lowers manpower cost

Focused area, result in covering more counters

Removal of the wholesaler: No inventory stocking No price war Some loss in sales

Channel check: - In RREP implemented areas - out of 10

retail counter ~5 are now selling Bajaj products vs. 1-2 earlier

- In fans: Lost some market share in the initial stages of TOC, as this product segment was majorly driven by wholesalers

To increase its presence, BJE is focusing on ecommerce.

Channel check: - In an areas where BJE implemented TOC, a dealer’s touch points have increased to ~200 counters vs. ~70 earlier



Margins to rise

The visibility of its products and its margins have both improved due to coverage (touch points) in RREP implemented areas and better availability of SUKs with uniform pricing policy across dealers and distributors. This has started showing in BJE’s performance in 3QFY17 (lighting + consumer durables) – margin improvement of 134bps yoy and 438bps qoq. We expect a further improvement of 150bps over the next two years as coverage and product mix improves.

Lighting and CD to show improvement of 121bps/236bps Quarterly CD (CD + lighting) margin

Source: Company, PhillipCapital India Research Estimates

CD and lighting segment – performance Lighting Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Revenues (INR m) 8,604 9,530 8,983 10,576 8,990 9,529 10,386

Growth (%) 12.5% 10.8% -5.7% 17.7% -15.0% 6.0% 9.0%

EBITDA 600 420 353 718 633 724 831

OPM (%) 7.0% 4.4% 3.9% 6.8% 7.0% 7.6% 8.0%

Consumer Durables Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Revenues (INR m) 18,377 19,252 20,237 20,026 19,225 21,532 24,762

Growth (%) 22.5% 4.8% 5.1% -1.0% -4.0% 12.0% 15.0%

EBITDA 1,780 1,436 1,402 929 1,000 1,335 1,733

OPM (%) 9.7% 7.5% 6.9% 4.6% 5.2% 6.2% 7.0%


Polishing the Bajaj brand Bajaj is one of the oldest brands in consumer durables with about 100,000 touch points. During the last two years, BJE has lost market share (due to implementation of TOC) especially in some products such as fans, but was able to maintain its market share in some others such as irons, water heaters, and mixers. It has a strong pan-India presence and is now focusing on increasing its touch points (retail counters) and aggressively increasing advertising spend and activity. We except it to increase its brand equity and to regain its lost market share in the next 1-2 years.

0%

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FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17e FY18e FY19e

Lighting Consumer Durables

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2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Mar

-07

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-07

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No more price wars The company is verifying bulk (institutional) order placed by dealers (to get a better price), and directly supplying to customers (to minimise sham orders – a practice by some channel partners to get bulk discounts). Has kept uniform price (RLP – retail landing price) for all its channel partners.

BJE is improving its product mix by pushing and selling more premium products in new and existing channels



Advertisement spends to increase to 2.5%


E&P: Slow and steady improvement Selection of the projects and increased execution has resulted in improving profitability in this segment. BJE has implemented TOC for its project execution business to improve supply chain and execution capabilities. To ensure that fixed costs are covered and to protect margins, it is selective about picking up orders – which resulted in 66% lower order intake in FY16. However, this will result in margin improvement of 174bps over FY17-19. TOC has speeded up project execution substantially (some projects before time, six projects completed until 9MFY17), which will help BJE to improve its margins in this segment and to gain healthy orders.

E&P: Revenue, margins


It’s all about working capital management Under TOC, BJE is focusing on effective management of its working-capital cycle. In FY16, BJE’s WC cycle was 75 days (PC estimates: 68 days for CD, 130 days for E&P). With the implementation of TOC, BJE is reducing the working capital requirement for both its businesses. We expect BJE’s working-capital cycle to come down to 61/53 days in FY18/19. CD: With TOC, dealer inventory down to 1 month from 2-3 months earlier

This means lower inventory at both dealer and company levels. Additionally, BJE has also started channel financing for its dealers, which will help in faster rotation of the working-capital cycle. We expect CD cycle (days) to improve to 49 by FY19 from 68 in FY16. Peer companies who provide channel financing are operating at 20-40 days.

1.9% 2.0%

2.3%

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FY16 FY17e FY18e FY19e

Adv Spend As % of Sales

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Channel check: Compulsory channel financing from 1

st

April 2017 for all partners



Working capital cycle of peer companies using channel financing


E&P: We expect working capital cycle to go below 110 days by FY19

This is a high working-capital intensive business, with a cycle of about 130 days (PC estimate). In Illumination (21% of E&P), BJE has stopped maintaining inventory at regional branches (earlier used to keep inventory of ~45 days) and now supplies based on orders. Additionally, due to project selection and timely execution, working capital requirement in this segment will fall.

BJE: Working capital cycle to reduce to 53 days BJE: Cash from operations and free cash flows


Improved FCF generation and return ratios BJE currently has a debt of Rs 7.2bn. With increasing touch points, product mix, and strong working capital management by company, we expect an FCF of Rs 4bn in the next two years – therefore, BJE should be able to pay off its debt (term loans) in the next 3‐4 years. With the implementation of channel financing for its consumer business (70% of revenue), working capital could fall to as low as 44 days (we estimate 53 days in FY19) and result in higher FCF. BJE has further scope for improving its WC cycle, as channel financing comes in (applicable to all its dealers). This can help it to reduce its working capital to below 20days. Increasing touch points in the consumer segment (~70% of sales) with dealer touch points increased to 2x, and improving product mix, will add to higher FCF generation.

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44 41

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Havells V-guard Bajaj Electrical

FY15 FY16 FY17e FY18e FY19e

Increased in working capital mainly because of lloyd AC business

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FY13 FY14 FY15 FY16 FY17 FY18 FY19

Debtors (days) Inventory (days) Creditors (days)

66 76 80 75 68 61 53

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CFO FCF

BEL keeps a daily track of its dealers’ inventory.

Better working-capital management and channel

financing will lead to higher cash flows



Sensitivity Analysis: Lower working capital days result in higher FCF

BJE – consumer segment: Revenue growth and working capital days Rev Growth (%)

(FY19E)

Working capital days

19 29 39 49* 59 69 79

10.2% 3,945 2,949 1,952 956 (41) (1,037) (2,034)

11.2% 4,174 3,177 2,181 1,184 188 (809) (1,805)

12.2% 4,402 3,406 2,409 1,413 416 (580) (1,577)

13.2% 4,631 3,634 2,638 1,641 645 (352) (1,348)

14.2% 4,859 3,863 2,866 1,870 873 (123) (1,120)

15.2% 5,088 4,091 3,095 2,098 1,102 105 (891)

16.2% 5,316 4,320 3,323 2,327 1,330 334 (663)

*PC Estimates , OPM of 7.5%


BJE – consumer segment: Operating margin and working capital days OPM (%)

(FY19E)

Working capital days

19 29 39 49* 59 69 79

4.5% 3,945 2,949 1,952 956 (41) (1,037) (2,034)

5.5% 4,174 3,177 2,181 1,184 188 (809) (1,805)

6.5% 4,402 3,406 2,409 1,413 416 (580) (1,577)

7.5%* 4,631 3,634 2,638 1,641 645 (352) (1,348)

8.5% 4,859 3,863 2,866 1,870 873 (123) (1,120)

9.5% 5,088 4,091 3,095 2,098 1,102 105 (891)

10.5% 5,316 4,320 3,323 2,327 1,330 334 (663)

*PC Estimates, Rev. growth at 13.2%


We expect Capital employed will reduced and result in an improvement in ROCE with: (1) improvement in working capital in CD (lighting + CD), (2) improvement in execution in E&P, and (3) lower inventory in CD and Illumination (E&P).

Segmental ROCE: Consumer started improving, looking for E&P to improve. Rs mn 3QFY16 2QFY17 3QFY17 YoY QoQ

Consumer Business

Revenue 6,902 5,661 5,895 -15% 4%

PBIT 349 115 377 8% 230%

Margin (%) 5.1% 2.0% 6.4% 134 bps 438 bps

Capital employed 3,585 3,768 3,750 5% 0%

RoCE (%) 39% 12% 40% 130 bps 2810 bps

E&P Business

Revenue 4,449 4,393 4,654 5% 6%

PBIT 484 330 260 -46% -21%

Margin (%) 10.9% 7.5% 5.6% -531 bps -194 bps

Capital employed 10,396 8,628 7,953 -24% -8%

RoCE (%) 19% 15% 13% -558 bps -225 bps

Source: Company, PhillipCapital India Research



DuPont analysis reveals rerating triggers Over FY09‐15 BJE’s ROE fell into negative territory from 36%, mainly due lower

profitability in both business verticals. BJE reported net margin of 5.1% in FY09, which reduced to 0% in FY15. Also, with lower total asset‐turnover (3.8x in FY09, 2.9x in FY15), ROEs declined.

In FY15, BJE started implementing TOC and RREP. In FY16, BJE reported PAT margin of 2.1% and asset turnover of 3x. It moved towards higher total asset‐turnover of 3x+ because of better business (revenue visibility – increase product reach) and product mix (product availability) and improvement in margin profile (uniform pricing). We, expect this will continue with total asset‐turnover above 3x and net profit margin of more than 2.5%.

RoE will improve due to (1) improving margin and lower working capital requirements (channel financing), and (2) improving distribution with not much capex – this could lead to much better RoE, which will enable it to command richer valuations.

Opportunities – expansion of the dealer network in retail, new healthy orders in E&P.

While ramp up in sales would be gradual over 10‐12 months, we believe there are significant opportunities to increase the channel and for asset sweating.

ROCE & ROE trend

Source: Company, PhillipCapital India Research

Dupont analysis

Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Net Profit Margin (%) 5.1% 5.6% 5.2% 3.8% 1.5% -0.1% -0.3% 2.1% 2.5% 3.3% 3.9%

Asset Turnover (x) 3.8 3.5 3.8 3.0 3.1 2.9 2.9 3.0 3.0 3.2 3.4

Leverage Multiplier (x) 1.9 1.3 1.2 1.5 1.5 1.9 2.1 2.0 1.8 1.6 1.5

RoE (%) 36.3% 25.4% 23.5% 16.8% 7.0% -0.8% -2.0% 12.6% 13.5% 17.0% 19.4%


ROE and ROCE should improve based on: (1) better channel sweating, (2) improvement in margins, (3) higher free-cash generation leading to reduction in debt, and (4) better working capital management. We expect ROE of 13.4%/ 17.0%/ 19.4% in FY17/18/19 and RoCE of 17.4%/21.5%/25.1%.

+ Improving margin + Improving asset turnover ‐ Lower leverage multiplier = Higher return ratios



Some other takeaways from channel checks

RREP covers 50% of BJE’s market

For example, touch points have increased sharply for the dealers we touched base with (now supplies to 200 counters vs. 70 earlier)

Strong inventory management: If a dealer has a capacity of Rs 150mn monthly sales (selling 100 units daily), and if that dealer’s inventory count comes down to 99, a system will automatically generate a bill and complete the inventory. This will result in lower working capital requirement for both the dealer and inventory

The RREP program is not applicable for seasonal products such as room heaters (about a month of sales) and water coolers (2 months)

BJE has increased prices by 4% in April 2017 in consumer products

Others players in the industry (CG, Usha, havells) have started following BJE’s “Go to Market strategy”

With a strong brand Bajaj, its products are accepted well in the market

BJE is recreating its brand through heavy advertisement

Outlook and valuation: Gap with peers to narrow In the backdrop of its operational strengths and improving financials, we believe that the valuation gap between BJE and its peers in the consumer durable industry will narrow. Historically, BJE has traded at a significant discount to its peers, and rightly so, due to lower margins in CD and value destruction in E&P due to losses. However, over the next two years, we expect the valuation gap between BJE and its peers to narrow as: (1) TOC yields results, (2) BJE focuses on leveraging distribution network through a judicious mix of geographical and product expansion, (3) there is strong revenue visibility, with levers for margin expansion, (4) working capital could improve because of TOC, and as BJE adopts channel financing resulting in an FCF generation of Rs 6bn over FY17‐19 (highest in the last seven years), and (5) improving return ratios. Consequently, we have revised our FY18/19 earnings estimates by 4%/6%. Current stock price implies a 20x PE for BJE’s CD segment and 6x EV/EBITDA on our FY19 estimates. We assign a FY19 target PE of 26x to BJE’s CD segment earnings (72% of FY19 PAT) to get a per share value of Rs 390. We expect measures taken by the company to lead to robust cash flow generation and improvement in the return profile to spur a rerating. Our multiple is at a 35% discount to the industry average. We value its E&P segment on EV/EBITDA at 7x FY19 vs. industry average of 10x to arrive at a per share value of Rs 60. We revise our target price to Rs 450 (Rs 300 earlier) – implying 29% upside. Upgrade our rating to Buy from Sell.

Valuation Valuation - BJE Electricals FY19

1.) Consumer Business PAT (Rs mn) 1,511

PE (x) 26

CD / Share Value (Rs) 390 2.) E&P Business

EBITDA (Rs mn) 1,670

EV/EBITDA (x) 7 EV (Rs mn) 11,693 Debt* (Rs mn) 6,040

Cash (Rs mn) 742 Net Debt (Rs mn) 5,298 No. of Share (No. mn) 101

E&P per Share Value (Rs.) 60 TP - Comp. 450

Source: PhillipCapital India Research Estimates



Peer companies vs. BJE: PAT CAGR over FY16‐19 and FY19 PER (PC Coverage)


Peer companies - key financials Key Financials Havells V-guard BJE Finolex

CMP (Rs) 494 211 350 525

Revenue (Rs mn)

FY16 54,368 18,623 46,120 24,611

FY17e 59,506 21,015 44,663 26,337

FY18e 85,191 23,843 48,824 28,681

FY19e 97,592 27,458 54,688 31,731

OPM (%)

FY16 13.8 9.6 5.6 13.8

FY17e 13.6 10.3 6.1 14.2

FY18e 12.5 10.6 6.9 14.7

FY19e 12.8 10.9 7.5 15.1

PAT (Rs mn)

FY16 5,128 1,117 957 2,488

FY17e 5,679 1,498 1,108 3,163

FY18e 6,763 1,780 1,588 3,449

FY19e 7,845 2,172 2,105 3,777

Net Debt (Rs mn)

FY16 (12,959) 28 7,981 (1,672)

FY17e (13,562) (15) 6,767 (2,603)

FY18e 2,172 (107) 6,143 (3,859)

FY19e (1,038) (582) 5,190 (5,112)

FCF (Rs mn)

FY16 3,502 1,172 3,155 2,829

FY17e 2,621 710 2,285 1,395

FY18e (12,784) 509 1,714 1,944

FY19e 7,172 1,017 2,090 2,042


Peer companies - key ratios and valuations Ratios and Valuation Havells V-guard BJE Finolex Average

M.Cap (Rs bn)

ROCE (%)

FY16 27.7 36.0 16.8 23.3 26.0

FY17e 27.6 39.0 17.4 25.4 27.4

FY18e 28.6 37.0 21.5 23.5 27.7

FY19e 28.9 35.7 25.1 22.2 28.0

ROE (%)

FY16 28.5 26.3 12.7 18.2 21.4

FY17e 20.4 28.3 13.4 19.8 20.5

FY18e 21.8 27.1 17.0 18.4 21.1

FY19e 22.5 26.8 19.4 17.3 21.5

Debt/ Equity (X)

FY16 0.0 0.0 1.1 0.0 0.3

FY17e 0.0 0.0 0.9 0.0 0.2

FY18e 0.2 0.0 0.7 0.0 0.2

FY19e 0.1 0.0 0.5 0.0 0.2

PE (x)

FY16 60.2 80.2 36.9 32.3 52.4

FY17e 54.3 59.8 31.9 25.4 42.9

FY18e 45.6 50.3 22.2 23.3 35.4

FY19e 39.3 41.2 16.8 21.3 29.7

EV/EBITDA (x)

FY16 11.7 19.0 4.7 5.5 10.2

FY17e 10.6 15.3 4.3 4.6 8.7

FY18e 9.4 12.3 3.8 4.0 7.4

FY19e 8.3 10.0 3.3 3.4 6.3

Havells, Neutral

V-guard, Neutral

BJE, Buy

Finolex , Buy

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BUY

BUY HOLD


BAJAJ ELECTRICALS LTD QUARTERLY UPDATE

Financials Income Statement Y/E Mar, Rs mn FY16 FY17e FY18e FY19e

Net sales 46,120 44,663 48,824 54,688

Growth, % 8.2% -3.2% 9.3% 12.0%

Raw Material expenses 30,143 29,343 32,068 35,911

Operating expenses 10,633 9,357 9,887 10,872

Employee expenses 2,749 3,244 3,503 3,784

EBITDA (Core) 2,595 2,719 3,366 4,120

Growth, % 194.0% 4.8% 23.8% 22.4%

Margin, % 5.6% 6.1% 6.9% 7.5%

Depreciation 272 294 318 354

EBIT 2,322 2,424 3,049 3,767

Growth, % 292.1% 4.4% 25.7% 23.6%

Margin, % 5.0% 5.4% 6.2% 6.9%

Interest paid 1,014 946 838 760

Other Non-Operating Income 229 240 233 230

Pre-tax profit 1,537 1,718 2,443 3,237

Tax provided 580 610 855 1,133

Profit after tax 957 1,108 1,588 2,104

( - ) Exceptional Expenses 0 0 0 0

Net Profit 957 1,108 1,588 2,104

Growth, % -781.3% 15.8% 43.3% 32.4%

Margin, % 2.1% 2.5% 3.3% 3.8%

Net Profit (adjusted) 957 1,108 1,588 2,104

No. of Eq. Sh O/S (m nos) 101 101 101 101

Balance Sheet Y/E Mar, Rs mn FY16 FY17e FY18e FY19e

Cash & bank 555 469 589 742

Debtors 16,456 15,384 16,004 16,710

Inventory 5,067 4,660 4,798 5,057

Loans & advances 2,619 2,720 2,920 3,270

Other current assets 0 0 0 1

Total current assets 24,697 23,234 24,311 25,780

Investments 594 594 594 594

Gross fixed assets 4,562 5,512 6,162 6,812

Less: Depreciation 1,773 2,067 2,385 2,738

Add: Capital WIP 207 50 50 50

Net fixed assets 2,996 3,495 3,827 4,124

Total assets 28,287 27,323 28,732 30,497

Current liabilities 11,594 11,185 11,996 13,063

Provisions 1,145 1,145 1,145 1,145

Total current liabilities 12,739 12,330 13,141 14,208

Debt 8,536 7,236 6,732 5,932

Deferred Tax Liability -503 -503 -503 -503

Total liabilities 20,772 19,063 19,370 19,637

Paid-up capital 202 202 202 202

Reserves & surplus 7,313 8,057 9,159 10,656

Shareholders’ equity 7,515 8,259 9,361 10,858

Total equity & liabilities 28,287 27,322 28,731 30,495


Cash Flow Y/E Mar, Rs mn FY16 FY17e FY18e FY19e

Pre-tax profit 1,536 1,718 2,443 3,238

Depreciation 272 294 318 354

Chg in working capital 1,038 969 (147) (248)

Total tax paid (566) (610) (855) (1,133)

Other operating activities 1,333 706 605 530

Cash flow from operating activities 3,614 3,078 2,364 2,740

Capital expenditure (459) (793) (650) (650)

Chg in investments (261) 0 0 0

Other investing activities 0 240 233 230

Cash flow from investing activities (720) (553) (417) (420)

Free cash flow 2,894 2,525 1,947 2,320

Equity raised/(repaid) 32 0 0 0

Debt raised/(repaid) (1,335) (1,300) (504) (800)

Dividend (incl. tax) (544) (364) (486) (607)

Other financing activities (868) (946) (838) (760)

Cash flow from financing activities (2,716) (2,611) (1,828) (2,167)

Net chg in cash 179 (86) 119 153

Valuation Ratios

FY16 FY17e FY18e FY19e

Per Share data

Dil. EPS (INR) 9.5 11.0 15.7 20.8

Growth, % -781% 16% 43% 33%

Book NAV/ FD share (INR) 74.4 81.8 92.7 107.6

CEPS (INR) 12.2 13.9 18.9 24.4

CFPS (INR) 35.8 30.5 23.4 27.1

DPS (INR) 2.8 3.0 4.0 5.0

Return ratios

Return on assets (%) 3.4 4.1 5.5 6.9

Return on equity (%) 12.7 13.4 17.0 19.4

Return on capital employed (%) 16.8 17.4 21.5 25.1

Turnover ratios

Sales/Total assets (x) 3.0 3.0 3.1 3.4

Sales/Net FA (x) 16.5 13.0 12.9 13.4

Working capital/Sales (x) 0.3 0.2 0.2 0.2

Fixed capital/Sales (x) 0.1 0.1 0.1 0.1

Receivable days 128.5 124.0 118.0 110.0

Inventory days 41.9 40.0 38.0 36.0

Loans, Adv (days) 20.4 21.9 21.5 21.5

Payable days 95.9 96.0 95.0 93.0

Working capital days 94.9 89.9 82.5 74.5

Liquidity ratios

Current ratio (x) 1.9 1.9 1.8 1.8

Quick ratio (x) 1.5 1.5 1.5 1.5

Interest cover (x) 2.2 2.5 3.3 4.2

Dividend cover (x) 3.4 3.7 3.9 4.2

Total debt/Equity (%) 1.1 0.9 0.7 0.5

Net debt/Equity (%) 1.1 0.8 0.7 0.5

Valuation

PER (x) 36.9 31.9 22.2 16.8

PEG (x) - y-o-y growth (4.7) 201.7 51.3 51.6

Price/Book (x) 4.7 4.3 3.8 3.3

Yield (%) 0.8 0.9 1.1 1.4

EV/Net sales (x) 0.9 0.9 0.8 0.7

EV/EBITDA (x) 15.3 14.2 11.5 9.3

EV/EBIT (x) 17.0 15.8 12.6 10.1


BAJAJ ELECTRICLAS COMPANY UPDATE

Stock Price, Price Target and Rating History

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.

Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

S (TP 206) S (TP 206)

N (TP 195)

N (TP 260) S (TP 204)

S (TP 204)

0

50

100

150

200

250

300

350

A-15 M-15 J-15 A-15 S-15 N-15 D-15 F-16 M-16 M-16 J-16 A-16 S-16 N-16 D-16 J-17



Management Vineet Bhatnagar (Managing Director) (91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6246 4101

Jignesh Shah (Head – Equity Derivatives) (91 22) 6667 9735

Research Automobiles

IT Services

Pharma & Specialty Chem

Dhawal Doshi (9122) 6246 4128

Vibhor Singhal (9122) 6246 4109

Surya Patra (9122) 6246 4121

Nitesh Sharma, CFA (9122) 6246 4126

Shyamal Dhruve (9122) 6246 4110

Mehul Sheth (9122) 6246 4123

Banking, NBFCs

Infrastructure

Strategy

Manish Agarwalla (9122) 6246 4125

Vibhor Singhal (9122) 6246 4109

Naveen Kulkarni, CFA, FRM (9122) 6246 4122

Pradeep Agrawal (9122) 6246 4113

Aashima Mutneja, CFA (9122) 6667 9764

Paresh Jain (9122) 6246 4114

Logistics, Transportation & Midcap

Telecom

Consumer & Retail

Vikram Suryavanshi (9122) 6246 4111



Media

Manoj Behera (9122) 6246 4118

Jubil Jain (9122) 6246 4117

Manoj Behera (9122) 6246 4118

Technicals

Preeyam Tolia (9122) 6246 4129

Metals

Subodh Gupta, CMT (9122) 6246 4136

Cement

Dhawal Doshi (9122) 6246 4128

Production Manager

Vaibhav Agarwal (9122) 6246 4124

Yash Doshi (9122) 6246 4127

Ganesh Deorukhkar (9122) 6667 9966

Economics

Mid-Caps & Database Manager

Editor

Anjali Verma (9122) 6246 4115

Deepak Agarwal (9122) 6246 4112

Roshan Sony 98199 72726

Shruti Bajpai (9122) 6246 4135

Oil & Gas

Sr. Manager – Equities Support

Engineering, Capital Goods

Sabri Hazarika (9122) 6667 9756

Rosie Ferns (9122) 6667 9971

Jonas Bhutta (9122) 6246 4119

Vikram Rawat (9122) 6246 4120

Sales & Distribution

Corporate Communications Ashvin Patil (9122) 6246 4105

Sales Trader

Zarine Damania (9122) 6667 9976

Shubhangi Agrawal (9122) 6246 4103

Dilesh Doshi (9122) 6667 9747

Kishor Binwal (9122) 6246 4106

Suniil Pandit (9122) 6667 9745

Bhavin Shah (9122) 6246 4102

Ashka Mehta Gulati (9122) 6246 4108

Execution

Archan Vyas (9122) 6246 4107

Mayur Shah (9122) 6667 9945

Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd

250 North Bridge Road, #06-00 RafflesCityTower,

Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd

B-3-6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur

Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong

Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd

4-2 Nihonbashi Kabutocho, Chuo-ku

Tokyo 103-0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia

ANZTower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, OceanTower Unit 2318

Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, VorawatBuilding, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc.

141 W Jackson Blvd Ste 3050

The Chicago Board of TradeBuilding

Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia

Level 10, 330 Collins Street

Melbourne, VIC 3000, Australia

Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA

PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/



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This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

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Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

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any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for

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connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

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Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.



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