Bajaj Electrical

Bajaj Electrical a good buy on dips

BAJAJ Electricals is probably one of the best performers in recent years in the portfolio of companies that form part of the Bajaj Group, one of the oldest business houses in India. The company has shown consistent growth in revenues in the past five years.

BUSINESS:

Bajaj Electricals is a 71-year old company and operates in three major business segments — consumer durables, lighting and Engineering and Products (E & P). In the lighting segment the company manufactures and sells lamps, tubes and luminaries (light fittings) while appliances and fans are produced and sold through the consumer durable segment. E & P includes manufacturing, erection and commissioning of transmission line towers, telecommunications towers, highmasts lighting, poles and special projects, including rural electrification projects. At the end of FY09, the company’s rural electrification business received four major orders from an NTPC subsidiary, National Electric Supply Company Limited (NESCL) and National Hydro Power Corporation (NHPC) totalling Rs 360 crore. Export of all BEL’s products except of its engineering and projects business unit is taken care of by group company Bajaj International. Out of all the business units, the consumer durable segment is the biggest contributor to the revenues and profits, followed by the E&P and lighting segments.

FINANCIALS:

In last five financial years the company’s topline grew at compounded annual rate of 28%. After sluggish year on year growth in revenue for the quarter ending June’09, for the latest quarter net sales rose by 35% compared to the previous year. While the lighting division experienced a decline in revenue for the second quarter of this fiscal, it recovered by expanding by 15% in the latest quarter. The company’s operating profit and net profit posteda CAGR of 88% and 60% in the last five financial years. The profit margins, considered on a trailing year basis, have also improved since the quarter ending December’09. The company showed a healthy annually compounded growth of 53% in cash profit since FY05 while the dividend paid also grew at a CAGR of 61% during the period.

GROWTH PROSPECTS:

While the consumer durables segment is expected to continue its r contribution to total revenues, the company expects the E&P business units to act as a growth engine. Besides the rural electrification projects, Bajaj Electricals is also associated with the entire chain of power generation, transmission and distribution for the Commonwealth Games 2010. The company’s balanced business portfolio, which is both consumer centric and infrastructure oriented is expected to boost future growth.

VALUATIONS:

The company’s stock has outperformed the Sensex in the last five months and its market capitalisation has more than doubled in the last two years. At the current market price the P/E ratio is 12, a little above its average of 10 during the period. Given the growth prospects of the company and dividend payout strategy the stock is a good buy on dips.