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Durable advantage

Bajaj Electricals has a number of worries, but its consumer durables business has kept the momentum going

The situation
Bajaj Electricals' engineering and projects (E&P) division, which brings in 20 per cent of its revenues, has been down for some time, with the vertical reporting losses for the last 11 quarters.

E&P is not the company's only worry. The lighting and luminary division, which brings in 25 per cent of the revenues, is not going anywhere either. Revenues from this division saw a de-growth of 8.6 per cent (YoY) in the latest quarter.

Bajaj Electricals is known for its consumer durables. And it is this division that brings in half of the company's revenues, which have been keeping the momentum going for the company.

What's changed?
The E&P business, which had so far been a drag on its performance, has finally come in black. With legacy orders nearly completed and provisions for doubtful receivables made in FY15, the company can finally look at an improved performance in FY16 from this division.

Triggers

  • E&P reported profits for the first time in 11 quarters. The division reported margins of 4.7 per cent in the last quarter of FY15.
  • With legacy orders completed and provisions made, the company management is looking at margins of 6 per cent for the E&P division.
  • The lighting division has won orders worth ₹120 crore for LED lighting. The order is expected to be executed in the first quarter of FY16.

What lies ahead?
The turning around of the E&P business will be a much-needed relief for the company. Lighting is expected to pick up in FY16, with the company targeting ₹1,000 crore in revenue from this division in the current year as compared to ₹900 crore the last year. The management expects 10 per cent growth in the consumer durables division.

Bajaj runs an asset-light business model that outsources around 95 per cent of its consumer and lighting products. Appliances, thus operates at a ROCE of 128 per cent; and lighting, 80 per cent.

Valuations
The company reported a loss in FY15 due to which P/E is not applicable. Buy.