Mo Report Bajaj Electricals - Re-Inspiring Trust - Detailed Report

08/08/2022, 17:20 Bajaj Electricals: Re-inspiring trust– Detailed Report

Initiating Coverage | 24 April 2014

Sector: Consumer
Bajaj Electricals
Re-inspiring trust
Atul Mehra (Atul.Mehra@motilaloswal.com); +91 22 3982 5417
Niket Shah (Niket.Shah@MotilalOswal.com); +91 22 39825426
Bajaj Electricals
Bajaj Electricals: Re-inspiring trust

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Page No.
Summary ........................................................................................................ 3-4
Story in Charts: Earnings set to accelerate ...................................................... 5
Enviable consumer franchise ...................................................................... 6-16
E&P business set for strong turnaround .................................................. 17-26
Earnings to quadruple over FY14-16 ........................................................ 27-29
Initiating coverage with Buy rating ................................................................ 30
Risks and concerns ........................................................................................... 31
Management .................................................................................................... 32
Industry overview ...................................................................................... 33-35
Financials and valuation ........................................................................... 36-37
Investors are advised to refer through disclosures made at the end of the Research Report.
24 April 2014 2
Bajaj Electricals
Initiating Coverage | Sector: Consumer
Bajaj Electricals
S&P CNX
BSE Sensex CMP: INR280 TP: INR370 Buy
22,877 6,841
Re-inspiring trust
Earnings to quadruple over FY14-16; re-rating imminent
Stock info  Bajaj Electricals (BJE) enjoys enviable consumer franchise, with market leadership
Bloomberg BJE IN in Small Appliances. Given its asset-light model, large product portfolio and wide
Equity Shares (m) 100.0 distribution network, the performance of its Consumer-facing businesses remains
52-Week Range (INR) 292/150 robust.
1, 6, 12 Rel. Per (%) -5/59/42  BJE’s Engineering & Projects (E&P) business, however, has been burning cash,
M.Cap. (INR b) 28.0 impacting consolidated financials and stock performance. We expect the E&P
M.Cap. (USD b) 0.5 business to witness a sharp turnaround in FY15 led by key initiatives undertaken
over the last 12 months.
 Consolidated earnings are set to quadruple over FY14-16, driven by the expected
turnaround in E&P and continued robust performance in Consumer-facing
Financial Snapshot (INR m)
Y/E March 2014E 2015E 2016E businesses. The stock should see a re-rating, as overall performance improves.
Net Sales 40,977 46,723 53,352  We initiate coverage with a Buy rating. Our target price of INR370 implies 32%
EBITDA 1,588 3,947 4,507 upside.
Adj PAT 587 2,133 2,469
EPS (INR) 5.9 21.4 24.8 Enviable consumer franchise
Growth (%) 78.6 263.4 15.8 BJE is known for its Consumer-facing Appliances and Lighting businesses. It
BV/Share (INR) 75.4 92.1 109.9 derives 80% of its revenues and its entire profits from these businesses. With
RoE (%) 7.9 25.5 24.5 over 75 years of history, its Bajaj brand enjoys mass awareness, which helps BJE
RoCE (%) 17.9 41.5 43.4 to thrive with lower ad spends than peers. At ~1.6% of sales, BJE’s ad spends are
P/E (x) 47.6 13.1 11.3 lower than peers (5.8% spent by TTK Prestige, 4.6% by V-Guard, 3.2% by Havells
P/BV (x) 3.7 3.0 2.5
and 2.8% by Hawkins). Bajaj is the only brand apart from Havells that has a pan-
India recall. TTK Prestige (60% South), Hawkins (70% North) and V-Guard (75%
South) derive majority of their revenues from a single market. While BJE has
Shareholding pattern (%) positioned Bajaj as a mass market brand, it has forged tie-ups with international
As on Mar-14 Dec-13 Mar-13
brands like Morphy Richards and Disney to capture the opportunity at the
Promoter 66.1 66.2 66.1
premium end of the market.
Domestic Inst 3.8 2.9 4.5
Foreign 15.4 15.9 12.0 Strong product portfolio and distribution reach, an asset-light model
Others 14.7 15.0 17.5
BJE has a huge product portfolio in the Appliances and Lighting segments,
spanning over 2,000 SKUs. The combined market size for BJE’s consumer-facing
Stock Performance (1-year)
segments is pegged at over INR178b, with BJE’s revenues and market share
Bajaj Electricals
Sensex - Rebased standing at INR26b and 15.2%, respectively. We believe BJE’s strategy of having
290
a presence across products gives it a great degree of clout amongst consumers
255 as well as the distribution channel, which has helped it to grow and sustain its
220 market leadership. It has a wide distribution reach, with over 4,100 dealers and
185 a 400k strong retail network for Lighting, 86k dealers for Fans and 45k dealers
150 for Appliances across India. Manufacturing is entirely outsourced to 80 different
vendors across India, leaving the management free to focus on innovation,
brand building and distribution.
24 April 2014 3
Bajaj Electricals
Fans, Lighting and Luminaires on a steady growth trajectory

BJE is a leading player in fans, lighting and luminaires segments. Fans contribute
24%, Lighting 18% and Luminaires 14% to BJE’s Consumer-facing business
revenues. BJE has a 17% share in the INR35b organized Fans market in India, an
8% market share in the INR50b organized Lighting market and a 5% market
share in the INR25b organized Luminaires market in India. To capture the
premium end of the market, BJE has international tie-ups with Chinese
appliances major Midea (USD11b in revenues) to sell Fans, and with Walt Disney
for the sale and marketing of children’s fans using Disney characters and
designs. Going forward, BJE is focusing on new launches in the energy efficient
and premium category, which should further help in driving market share gains
and margins. Similarly, in the Lighting segment, BJE has witnessed shift in favor
of power saving, and high margin CFL lamps over the last few years, with
contribution rising from 7% in FY05 to 30% in FY12 and 50% currently. We
expect this proportion to improve further aiding margin accretion (CFL margins
stand at ~10% as against 7% margins reported by lighting division).
E&P business set for strong turnaround

Since FY11, BJE’s E&P business has been suffering. Slowdown in the Power
sector coupled with execution slippages led to revenue de-growth and decline in
EBIT margin from +10.5% in FY10 to -17.6% in FY13. BJE has taken a number of
steps in the last 12 months to revive the performance of the E&P division. Unlike
earlier, the division now reports to the central finance team, resulting in more
prudent supervision. The top management has been revamped, with industry
veteran, Mr Rakesh Markhedkar replacing internally-groomed Mr Lalit Mehta as
Business Head. The new management has implemented a strict project
monitoring process, which has ensured better timeliness in execution. We
expect the E&P business to post a strong turnaround in FY15, with revenues
growing at a CAGR of 13% over FY14-16 and EBIT margin expanding to +5%.
Earnings to quadruple over FY14-16

We expect BJE’s consolidated earnings to quadruple from INR587m to
INR2,469m over FY14-16 on the back of turnaround in the E&P division. We
expect revenues to post 14% CAGR, with 460bp accretion in EBITDA margin from
3.9% to 8.4%. Working capital should improve from 62 days to 44 days. We
expect substantial improvement in return ratios (RoCE / RoE) from 17.9%/7.9%
to 43.4%/24.5%.
Initiating coverage with Buy rating and price target of INR370

Over the last three years, the dismal performance of the E&P division has
clouded BJE’s robust underlying consumer franchise. Expected turnaround of
the E&P business will be a key re-rating catalyst. BJE is trading at 11.3x FY16E
earnings as against Havell’s 17.8x FY16E earnings. This steep discount should
narrow in our view as BJE delivers on the E&P turnaround. We value BJE at 15x
FY16E EPS of INR24.8 and arrive at a target price of INR370. We initiate
coverage with a Buy rating.
24 April 2014 4
Bajaj Electricals
Story in Charts: Earnings set to accelerate

1. Consumer-facing businesses contribute 80% of revenues…
2. …and boast strong capital efficiency (RoCE)
3. E&P business – The party spoiler
4. Management changes to aid turnaround in E&P business
5. Consolidated earnings set to quadruple…
6. …and consolidated capital efficiency should improve meaningfully
1) Revenue Contribution (%) 2) Segment Profitability (%)

Segment RoCE (%)
128%
Engineering
& Projects, Lighting, 80%
20
25
Consumer
Durables,
54
-26%
Consumer Durables Lighting E&P
Source: MOSL, Company Source: MOSL, Company
3) E&P segment a drag on overall profitability 4) Management changes to ensure turnaround
E&P division's contibution to operating profits (%) E&P EBIT (INR m) Margin
11% 18% 18% 5.0% 5.0%

3.2%
672 760
265
(1,191)
(1,243)
-97% -10.0%
-114%
-18.1%
FY12 FY13 FY14E FY15E FY16E
5) Earnings to quadruple 6) Bajaj Electricals reports strong overall capital efficiency

PAT RoCE (%)
2,469 43
41
2,133
29
1,179
18
512 587 13
FY12 FY13 FY14E FY15E FY16E FY12 FY13 FY14E FY15E FY16E
24 April 2014 5
Bajaj Electricals
Enviable consumer franchise

75-year history; leader in Small Appliances
 With over 75 years of history, the Bajaj brand enjoys mass awareness, which helps BJE
to thrive with lower ad spends than peers. It is a market leader in Small Appliances,
selling 3.5m Irons, 1.6m Mixer Grinders and ~600k Water Heaters every year.
 It has a wide distribution reach, with over 4,100 dealers and a 400k strong retail
network for Lighting, 86k dealers for Fans and 45k dealers for Appliances across India.
 Manufacturing is entirely outsourced to 80 vendors across India, leaving the
management free to focus on innovation, brand building and distribution.
 With an asset-light business model, coupled with huge product and distribution
presence, we believe BJE is well placed to ride the increasing penetration of Small
Appliances and Luminaires.
 BJE is largely a consumer franchise deriving 80% of its revenues and its entire profits
from B2C businesses. E&P contributes 20% to revenues and has been a drag on
profitability.
Bajaj a strong brand; international brand tie-ups help drive premiumization

Bajaj is a strong brand, with over 75 years of history and enjoys a strong first mover
Bajaj is a strong brand, with
over 75 years of history and advantage. Given the mass awareness of the Bajaj group, BJE’s ad spends are lower
enjoys a strong first mover than competitors (ad spends at ~1.6% of sales as against 5.8% spent by TTK Prestige,
advantage. 4.6% by V-Guard, 3.2% by Havells and 2.8% by Hawkins. Bajaj is the only brand apart
from Havells that has a pan-India recall. TTK Prestige (60% South), Hawkins (70%
North), and V-Guard (75% South) derive majority of their revenues from a single
market.
While BJE has positioned Bajaj as a mass market brand, it has forged tie-ups with
International tie-ups (only international brands, like Morphy Richards and Disney to capture the opportunity at
enjoyed by BJE) put BJE in a the premium end of the market. While MR is amongst the largest Small Appliance
favorable position to ride brands in UK (revenues of USD200m, selling over 5m units annually, with over 90%
the shift
ofin demandproducts.
premium in favor of British
youth homes owning
population. an MRtie-ups
International product), Disney
(only enjoyed byisBJE)
a popular brand
put BJE addressing the
in favorable
position as against peers to ride the shift in demand in favor of premium products.
BJE thrives with lower ad spends than peers (%)
Ad spend to revenues (%)

5.8%
4.6%
3.2%
2.8%
1.6%
Bajaj Electricals Hawkins Havells V-Guard TTK Prestige
Source: Company, MOSL
24 April 2014 6
Bajaj Electricals
Morphy Richards – successful re-entry post alliance with BJE

MR found an ideal partner Morphy Richards (MR) had withdrawn Indian markets in 1980s after it struggled to
in BJE given its years of
expand its India business given difficulty in setting up distribution, uncompetitive
experience in the Indian
import duties (40%) and lack of understanding of Indian tastes and cooking habits. In
Small Appliances market
and strong distribution
early 2000s, MR was looking at entering into an alliance with an Indian partner to
reach. address these issues and gain scale in the highly promising Indian Appliances
market. At the same time BJE was looking to enter the premium end of the Small
Appliances market given influx of international brands like Phillips, Braun, Kenwood,
Rowenta.
MR found an ideal partner in BJE given its years of experience in the Indian Small
Appliances market and strong distribution reach. BJE benefited by adding a premium
brand to its portfolio. MR entered into an agreement in 2002 to distribute MR
branded products in India for a royalty of 2.5%. Post 2002, there has been no
looking back for the MR brand in India.
MR is amongst the fastest MR is now amongst the fastest growing international brands in the Indian Small
growing international
Appliances market (33% revenue CAGR over FY10-13) and is one of the best-selling
brands in the Indian Small
international brands in BJE’s portfolio (contributes 15% to BJE’s Appliances
domestic appliances market
and has registered 33%
revenues). It is a Number.1 brand in India in Kettles, Coffee Makers and Oven
revenue CAGR over FY10- Toaster Grillers. We expect growth momentum for MR to continue (20% CAGR) on
13. the back of entry into new product categories like Water Heaters, Water Purifiers
and Fans and scale-up in distribution from 12,000 retail outlets to 20,000 retail
outlets by FY16.
MR revenues have post strong growth
MR revenues (INR m)
3,014
2,512
2,093
1,820
1,430
1,040
776
450 570
350 400
250
100
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E
Extending the International tie-ups in the Lighting and Luminaires business
premiumization strategy to
Extending the premiumization strategy to the Lighting and Luminaires business, BJE
the Lighting and Luminaires
has forged international tie-ups with CREE Trilux, Disano and Teleco. It has executed
business, BJE has forged
international tie-ups with
projects for interior luminaires for clients like TCS, Infosys, Google, Volkswagen, etc.
CREE Trilux, Disano and
Teleco. Company Country Service
CREE Lighting USA Outdoor street lighting

Trilux Luminaires Germany Interior luminaires
Disano & Mareco Luce Italy Landscape lighting

Teleco Italy Architectural outdoor lighting
24 April 2014 7
Bajaj Electricals
Huge mass market product portfolio; market leader in Small Appliances

BJE has a huge product portfolio in the Appliances and Lighting segments, spanning
over 2,000 SKUs. The combined market size for BJE’s Consumer-facing segments is
pegged at over INR178b, with BJE’s revenues and market share standing at INR26b
and 15.2%, respectively. We believe BJE’s strategy of having a presence across
products gives it a great degree of clout amongst consumers as well as the
distribution channel, which has helped it to grow and sustain its market leadership.
Bajaj Electricals product portfolio

Sub- Mkt Size Organized Mkt Share
Segment Description Competition
Segment (INR m) (%) (%)
GLS lamps, fluorescent tube lights, compact
Philips, Crompton,
Lighting 50,000 65% 8% fluorescent lamps, domestic luminaires, ballasts &
Surya, Havells, etc
starters, LED torches
Lighting
Industrial, commercial, decorative, street light,
floodlight, LED, lighting electronics, lighting control, Phillips, Crompton,
Luminaires 25,000 65% 5%
HID Lamps: Mercury & sodium vapor lamps, Wipro, Thorn
halogen lamps, metal halide & fluorescent lamps
Ceiling, table, pedestal & wall mounted fans,
Crompton, Usha,
personal fans, Bajaj-Disney children’s fans,
Fans 35,000 65% 17% Orient, Khaitan,
Industrial exhaust fans, commercial air industrial
Polar, Havells
fans, circulators, cooler kits and pumps
Consumer Durables Mixers grinders, juicers, food processors, water
heaters, air coolers, iron, ovens toasters grillers Philips, Kenstar,
(OTG), room heaters, toasters & S/W makers, hand Usha, Maharaja,
Appliances 68,000 70% 20%
blenders, water filters microwave ovens gas stove Preeti, Prestige,
purifiers & filters, ovens, stoves, electric kettles, Kenwood
coffee/tea makers
Break-up of BJE’s Consumer-facing business revenues (%)
Lighting, 18%
Appliances, 45%
Luminaries, 14%
Fans, 23%
BJE’s product portfolio is a combination of Havells and TTK Prestige

BJE is the only player with a
Havells TTK Prestige
product portfolio
Fans, Mixer Grinder, mixer grinder, juicer Pressure cooker, nonstick cookware, gas stoves, mixer
encompassing the
grinder, toaster, induction cook top, grinder, juicer grinder, toaster, induction cook top, rice
combined portfolio of other
microwave oven, lighting, luminaires cookers, microwave oven, microwave cooker
domestic and kitchen Source: Company, MOSL
appliances leaders…
24 April 2014 8
Bajaj Electricals
Number - 1 player in Kitchen and Domestic Appliances

Appliances contribute 45% to BJE’s Consumer-facing business. BJE offers a wide
range of Kitchen and Home Appliances under the ‘Bajaj’ brand. It has two verticals –
Kitchen Appliances (KAP; 52% of Appliance revenues) and Domestic Appliances
(DAP; 48% of Appliance revenues). BJE is the market leader in Small Appliances and
commands 20% market share in the INR68b organized appliances sector. Mixer
Grinders, OTGs and Induction Cooktops are key products in the KAP segment,
contributing ~60% to segment revenues while Irons, Water Heaters and Room Air
Coolers are key product categories in the DAP segment, contributing 50-60% of
segment revenues.
Appliances segment revenue mix (%)
Domestic
Appliances (DAP), Kitchen
48% Appliances (KAP),
52%

Major products across KAP and DAP
BJE is a market leader in Kitchen Appliances (KAP) Domestic Appliances (DAP)
Small Appliances, selling Toasters, Mixer Grinders, Food Processors, Juicer Irons, Storage Water Heaters, Gas Water Heaters,
3.5m Irons, 1.6m Mixer Mixer Grinders, Wet Grinders, Juicers, Hand Instant Water Heaters, Emergency Lights, Room
Grinders and ~600k Water Blenders, OTGs, Electric Kettles, Induction Cooktops, Coolers, Home UPS, Voltage Stabilizers, Non
Heaters every year… Rice Cookers, Coffee Makers, Microwave Ovens, Electric Kitchen Aids, Premium Glass Models,
Water Purifiers, Pressure Cookers, Gas Stoves Chimneys
Kitchen Appliances (KAP)
Key Products Profile
Mixer Grinders, OTGs and No. 1 player, ~25% market share (1.6m units) in the 6m Indian mixer grinder
Induction Cooktops are key Mixer Grinder
market. On a pan India basis, BJE is a market leader in mixer grinders.
products in the KAP OTGs Morphy Richards leads this category for BJE
segment contributing ~60%
Induction Amongst Top 3 players in induction cooktops; outlook for this segment is soft and
to segment revenues… Cooktops hyper-growth witnessed over FY12-13 is not expected to repeat
Microwave Ovens Amongst Top 3 players
Entered the INR25b water purifier business in FY11, market dominated by Eureka
Water Purifiers
Forbes, Kent RO and Hindustan Unilever’s Pure It
Pressure Cookers, Focused on developing this non-electrical portfolio given its brand and distribution
Cookware, Gas strength. With < 5% market share trails market leaders like TTK Prestige and
Stoves Hawkins; however this will entail a different distribution strategy
Domestic Appliances (DAP)
Irons, Water Heaters and
Key Products Profile
Room Air Coolers are key
product categories in the Irons Sells 3.5m pieces annually and is a No. 1 brand in irons
DAP segment, contributing Water Heaters No. 1 player, Sells 600k water heaters annually, is market leader in this product
50-60% of segment No. 3 player in organized air coolers industry with a market share of 18%, lags
Air Coolers
revenues… Symphony, Kenstar, expected to post strong (>30% growth) in FY15E
24 April 2014 9
Bajaj Electricals
Multi-price and multi-brand strategy works in BJE’s advantage
BJE’s strategy to be present across the entire consumer value spectrum (Majesty,
Multi-price and multi-brand
Platinum, Morphy Richards) is reflected in the wide price difference and range in
strategy to help capture
variants offered under each of the individual product categories. This strategy in our
demand from consumers
across socio-economic view augurs well in capturing demand from consumers across socio-economic
status… status.
BJE’s product portfolio and price points

Bajaj Electricals Appliances Price Points (INR/piece)
KAP Min Max
Mixer Grinder 3,190 4,720
Juicer/Juicer Mixer Grinder 1,150 3,460
Blender 1,150 2,799
Electric cooker 999 4,999
Electric oven 3,990 10,490
Pop up Toaster 999 1,549
Induction cooker 2,699 3,999
Sandwich maker 3,049 7,349
Kettle 999 1,899
DAP Min Max

Steam Iron 899 2,252
Dry Iron 549 949
Room Heater 825 7,899
Air cooler 4,990 8,990
Ceiling Fan 1,650 2,235
Table Fan 1,050 2,025
Increase in penetration to drive demand; market leadership to sustain

Expect 17% revenue CAGR In KAP, BJE faces competition from players like Preeti, Prestige, Hawkins while in
in appliances division over
DAP it faces competition from Havells, Philips, Kenstar, Usha, Maharaja, Kenwood.
FY14-16…
Revenues for the Appliances division have grown at a 19% CAGR over FY12-14. We
expect appliance segment to continue with its growth trajectory (17% revenue CAGR
over FY14-16) given increase in penetration levels (average penetration levels ~30%
for Appliances), launch of new products and distribution expansion.
Appliances segment revenues (INR m)
Appliances revenues (INR m)

17,736
15,031
12,229 12,926
9,498
24 April 2014 10
Bajaj Electricals
Leading player in Fans; one of the oldest and most reputed players
Fans contribute 24% to BJE’s consumer-facing business. BJE has a 17% share in the
INR35b organized Fans market in India. BJE manufactures Fans at its Chakan unit,
apart from procuring from vendors located at Hyderabad, Himachal Pradesh,
Uttarakhand and China.
The Fans division markets Ceiling Fans, Table Fans, Pedestal Fans, Wall Fans,
Personal Fans, Fresh Air Fans, Heavy Duty Exhaust Fans, Air Circulators, Water Lifting
Mono-block Pumps, Power Gensets, etc. To capture the premium end of the
market, BJ E has international tie ups with Chinese appliances major Midea (USD11b
New launches in the energy

in revenues) to sell Fans, and with Walt Disney for the sale and marketing of
efficient and premium children’s fans using Disney characters and designs.
category should help in
driving market share gains BJE faces competition from players like Crompton Greaves, Orient and Havells in the
and margins in Fans Fans segment. However, it has been able to maintain market share on the back of
segment
new product innovations. Going forward, BJE is focusing on new launches in the
energy efficient and premium category, which should further help in driving market
share gains and margins. Revenues for the Fans division have grown at a 9% CAGR
over FY12-14 and we expect this segment to post 12% revenue CAGR over FY14-16.
Market share in Fans (%)
Market Share in Fans (%)
20.0%
17.1%
14.9%
13.5%
Crompton Greaves Bajaj Electricals Orient Fans Havells India
Fans segment to post steady growth

Fans revenues (INR m)
8,203
7,378
6,576
6,204
5,640
24 April 2014 11
Bajaj Electricals
Leading player in Lighting; increase in CFL contribution to aid margins

Lighting contributes 18% to BJE’s Consumer-facing business revenues. BJE has an 8%
market share in the INR50b organized Lighting market in India. A major portion of
GLS and FTL lamps are manufactured by Hind Lamps Limited (32% owned by BJE), a
Bajaj Group company, from its manufacturing facilities located at Shikohabad and
Kosi in Uttar Pradesh. Majority of CFL lamps are manufactured by Starlite Lighting
Limited (50% owned by BJE), from its manufacturing facility at Nashik, Maharashtra.
BJE has witnessed shift in The Lighting unit markets a wide range of Light Sources and domestic Luminaires.
favor of power saving, and
The range includes General Lighting Service (GLS), Fluorescent Tube Lights (FTLs),
high margin CFL lamps over
Compact Fluorescent Lamps (CFLs), Special Purpose Lamps and Luminaires. BJE has
the last few years, with
contribution rising from 7%
witnessed shift in favor of power saving, and high margin CFL lamps over the last
in FY05 to 30% in FY12 and few years, with contribution rising from 7% in FY05 to 30% in FY12 and 50%
50% currently… currently. We expect this proportion to improve further from current levels, aiding
margin accretion (CFL margins stand at ~10%, as against 7% margins reported by
Lighting division). Additionally, BJE has forayed into the premium lighting segment
with a new range of home decorative lighting and portable LED glow lanterns, which
should aid in further margin accretion.
Lighting segment witnessing shift in favor of power saving CFL products

Incandescent Lamps Fluorescent Lamps Compact Fluorescent Lamps
7%
19% 30%
50%
15%
10%
74%
56%
40%
FY05 FY12 FY14E
Expect Lighting segment to post BJE faces competition from players like Philips, Crompton, Surya, Havells, etc in the
16% revenue CAGR over Lighting segment. Revenues for the Lighting division have grown at a 17% CAGR over
FY14-16 FY12-14 and we expect this segment to post 16% revenue CAGR over FY14-16.
Lighting segment revenues (INR m)

Lighting segment revenues (INR m)
7,480
6,497
5,594
4,950
4,063
24 April 2014 12
Bajaj Electricals
Luminaires to post steady growth

Luminaires contribute 14% to BJE’s Consumer-facing business revenues. BJE has a
5% market share in the INR25b organized Luminaires market in India. Its
Luminaires product range covers Commercial Lighting, Industrial Lighting, Flood
Lighting, Street Lighting and Post-top Lighting, besides Special Luminaires.
Luminaires are sold largely through distributors who account for 80% of revenues.
Only 20% of luminaires’ business revenues come from direct bidding by BJE.
BJE faces competition from players like Phillips, Crompton, Wipro, Thorn, etc in the
Luminaires segment. Revenues for the division have grown at 6% CAGR over FY12-
14 and we expect this segment to post 9% revenue CAGR over FY14-16.
Major orders executed across industries

Industrial Customers Government Customers IT/ITES Customers Banks - Customers
Tata Steel, Tata Motors, Airports Authority of India,
TEC, Religare, L&T, Aditya Container Corporation of India, TCS, Infosys, Dell,
SBI, Axis, PNB, BoB
Birla group, Siemens, NTPC, Municipal corporations & Cognizant
Ranbaxy, etc councils, naval dockyards, HUDA,
Luminaires segment revenues (INR m)

Expect Luminaires segment to Luminaires segment revenues (INR m)
post 9% revenue CAGR over
4,799
FY14-16 4,420
4,015
3,580 3,650
24 April 2014 13
Bajaj Electricals
Robust distribution network, new initiatives to ensure better reach

BJE has a pan-India presence through a strong network of 2,200+ distributors and
4,100+ dealers. BJE has leveraged its brand to create a huge retail network of 45k
for Appliances, 86k for Fans and over 400k for Lighting across India.
‘Long armed salesmen’ and auto Our interaction with the management suggests there are significant initiatives being
replenishment of inventory to
undertaken to improve the retail reach further from current levels. For instance, BJE
drive secondary sales and
is appointing Direct Sales Officers under distributors which the company calls ‘Long
distributor incentive structure
armed salesmen’. They will be responsible for managing each distribution region
allotted to them by personally visiting all stores (irrespective of whether they stock
BJE products or not) on a weekly basis. BJE is focusing on driving secondary sales
rather than primary sales. Further, inventory will be replenished on auto basis to
make sure that inventory at the distributor level is minimal (targeting 15 days of
inventory as against 45 days currently), ensuring higher capital churn for
distributors, reflected in 3x Return on Investment (ROI) for them.
BJE has a strong retail network
Retail Network
400,000
86,000
45,000
Appliances Fans Lighting

BJE leads the distribution game…
BJE has the highest reach as
compared to peers like Havells Channel Bajaj Electricals Havells TTK Prestige
and TTK Prestige Retail Network 4,00,000 > 1,00,000 25,000
EBOs 40 'Bajaj World' Stores 210 'Havells Galaxy' Stores 500 'Prestige Smart Kitchen' Stores
26 pan-India distribution centers (19 branches, 7 depots)
24 April 2014 14
Bajaj Electricals
Looking to aggressively ramp-up ‘Bajaj World’ stores

Plans to increase the number To further leverage its strong brand, BJE has taken an initiative to directly reach the
of ‘Bajaj World’ stores to over consumer by opening the retail chain ‘Bajaj World’ (pure franchisee model) for
250 by FY16 st
Appliances and Lighting Products. As at 31 March, 2013, BJE had 40 ‘Bajaj World’
stores across major cities in India. It plans to increase the number of stores to over
250 by FY16. BJE also plans to go international through franchisee agreements. It
has recently opened one store in Nepal and plans to open ‘Bajaj World’ stores in
Ghana, Nigeria, Sri Lanka and South Africa.
Bajaj World stores to be significantly expanded

Bajaj World Stores
250
200
100
40
FY13 FY14 FY15E FY16E
Asset-light business model – manufacturing outsourced to 80 vendors

95% of the Consumer and Lighting BJE has an asset-light business model. 95% of the Consumer and Lighting products it
products BJE markets are markets are outsourced. BJE has strong long-term relationships with ~80 vendors,
outsourced to 80 different
who have been supplying to the company over the last 15-20 years.
vendors
We highlight below the key reasons why vendors prefer to supply to BJE
 BJE has an on-time payment policy to vendors
 BJE extends trade advances to vendors to meet payments towards raw materials
 BJE has lent additional financial support to vendors (which enhances the trust
factor in the partnership) recognizing their long-term development potential.
 BJE employs centralized sourcing for vendors, which results in substantial
savings (100-150bp) as a result of economies of scale, better negotiation power
in pricing and payment terms
Our interaction with the management suggests that vendors highly appreciate BJE’s
above mentioned efforts which results in minimal churn amongst vendors.
Additionally, ~15% of products sold are imported from China. Specifically, 40% of
Morphy Richard’s revenues, ~20% of Appliances revenues, ~10% of Fans revenues,
and ~10% of lighting revenues are met through imports.
BJE’s Consumer facing Appliances With this asset light business model, BJE’s Consumer facing Appliances and Lighting
and Lighting businesses enjoy
businesses enjoy RoCE of ~128% and 80% respectively.
RoCE of ~128% and 80%
respectively.
24 April 2014 15
Bajaj Electricals
Consumer-facing Appliances and Lighting businesses BJE’s mainstay

Consumer-facing business forms BJE operates largely in three segments – Lighting & Luminaires (LL), Consumer
80% of BJE’s business Durables (CD) and Engineering & Projects (E&P). The CD segment contributes ~55%
to revenues, while the LL segment contributes ~25% to revenues. Together,
Consumer-facing Appliances and Lighting businesses, for which BJE is known for,
contribute ~80% to revenues. The E&P segment contributes ~20% to revenues and
has recorded a CAGR of 15% over FY08-13. BJE diversified into the E&P business in
2002 with a view to capture the large capex opportunity India’s Infrastructure sector
Concerns on E&P, which
provided. Strong growth in the Power sector led to significant growth in this division
constitutes 20% of BJE’s business,
have clouded valuations for the
over FY04-10. However, post FY10, performance of the E&P division began to suffer,
core Consumer business led by slowdown in the Power sector coupled with execution slippages. Revenue
declined and EBIT margin shrank from +10.5% to -17.6%. Losses in E&P clouded the
robust Consumer business, leading to de-rating in the stock.
BJE’s revenue mix (INR m, %)
Bajaj Electricals:
Revenues: INR33,875m
Lighting Consumer Durables Engineering and Projects

Revenues: INR8608m Revenues: INR18377m Revenues: INR6,879m
25% of total 55% of total 20% of total
Lighting Fans Transmission Line Towers

Revenues: INR4,854m Revenues: INR6083m Revenues: INR1,526m
Luminaries Appliances Lighting Contracts

Revenues: INR3,579m Revenues: INR11,911m Revenues: INR2,500m
High Masts
Revenues: INR3,342m
10% of total
Sourcing of major products

Business Sourcing
High Masts, Poles & Towers Own Factories at Ranjangaon and Chakan near Pune.
Own Factory at Chakan and Sourcing from dedicated vendors situated at Hyderabad , Himachal and
Fans
imports from China
Appliances Sourcing from dedicated vendors situated at Noida, Delhi, Himachal and imports from China
Electrical lamps and Tubes Manufactured by sister concern Hind Lamps Limited, Shikohabad in Uttar Pradesh
CFL Lamps Manufactured by sister concern Starlite Lighting limited, Nashik

Luminaires Sourcing from dedicated vendors situated at Daman, Himachal and imports from China
Contract Manufacturing 80 dedicated vendor base, Pan-India

24 April 2014 16
Bajaj Electricals
E&P business set for strong turnaround

Expect EBIT margin to expand from -18% in FY13 to +5% in FY16
 Since FY11, BJE’s E&P business has been suffering. Slowdown in the Power sector,
aggressive-bidding coupled with execution slippages led to revenue de-growth and
decline in EBIT margin from +10.5% in FY10 to -17.6% in FY13.
 BJE has taken key steps like centralization of financial decision making and change in
management to revive the performance of the E&P division
 We expect the E&P business to post a strong turnaround in FY15, with revenues
growing at a CAGR of 13% over FY14-16 and EBIT margin expanding to +5% in FY16.
BJE entered E&P business with a view to capture infra-growth story

BJE diversified into the Engineering & Projects (E&P) business in 2002 with the
BJE diversified into the intent to capture the large capex opportunity India’s Infrastructure sector provides.
Engineering & Projects (E&P) The management viewed this business as complementary and as a logical extension
business in 2002 as of its Luminaires business. It set up a plant at Ranjangaon near Pune to manufacture
management viewed E&P as a High Masts and Transmission Line Towers (TLT). The business unit was divided into
logical extension of its three segments – High Masts, TLT and Special Projects.
Luminaires business
E&P: Revenue contribution
Transmission Line
Towers, 21%
High masts and

poles, 45%
Special contracts,
34%
E&P business profile and execution track record

Projects Major customers Major Orders
Reliance Group, Siemens, Street light: PWD Delhi, MACD-Nagpur, Cidco Mumbai,
BPCL, HPCL, IOCL, NHAI, NH45 Tamil Nadu, Reliance Infra-Western Express
High mast &
PWD, CPWD, municipal Highway Mumbai High masts/area lighting: BORL Bina-
poles
corporations, port trusts, Bina refinery, Bhilai steel plant, REL Krishnapatanam, RIL
L&T Jamnagar Signages: HPCL, BPCL, Indian oil, Reliance etc
Power plant lighting: More than 20 power plants of NTPC,
Bhel, Reliance Infra, BSES Dahanu, etc. Sports Lightings:
National Games-2009 at Ranchi, Balewadi-Common wealth
Special
NTPC, Bhel, SEBs, AAI youth games, Cricket stadium: Chennaswamy stadium-
Projects
Bangalore, GreenGames
Jaipur, National park stadium- Kanpur, SMS
2002- Hyderabad, Stadium-
National Games
2007
TLT-PGCIL, Tata, SEBs, PGCIL- Almati, PGCIL-400 kv, Koldam, PGCIL-765 kv PK-A5,
TLT
etc PGCIL-765 kv PKA7, MSETCL PK- 801 A, MSETCL PK- 801 B,
24 April 2014 17
Bajaj Electricals
High Masts & Poles

The High Masts & Poles division executes turnkey projects, including design,
development, manufacturing and site erection of high masts and signage boards.
BJE is the market leader in the segment, and has executed street light projects on
the Western Express Highway, Mumbai (for Reliance Infrastructure), Bandra-Worli
Sea Link, Mumbai, and NH-45 in Tamil Nadu. Some of its key High Mast projects are
Reliance Industries, Jamnagar, Bina Refinery and signages for HPCL, BPCL, and IOCL.
High Mast is the most High Mast business contributes 45% to E&P revenues and has grown at an 18%
profitable sub-segment CAGR over the last five years. High Mast is the most profitable segment within E&P.
within the E&P
segment High mast segment revenues
High mast revenues (INR m)
3,309 3,409
3,213
2,847
2,090
1,510
FY08 FY09 FY10 FY11 FY12 FY13
In-house manufacturing facilities

BJE has in-house fabrication and galvanizing facilities with latest technology for
manufacturing of High Mast, Poles, Towers, Monopoles, etc. The facility is housed
by a team of over 750 engineers. It is certified ISO 9001 for quality systems, and ISO
14001 for environment management system, and OHSAS 18001.
High Mast and Poles in-house manufacturing facility
24 April 2014 18
Bajaj Electricals
 Special Projects
BJE’s Special projects division has competencies in three major segments, namely,
Power Plant Lighting, Sports Lighting and Rural Electrification. BJE has tied up with
UK’s Abacus for Sport Lightings. BJE is also working with all leading consultants like
MECON, TCE, MN Dastur, Howe India, EIL Design & P&D Consultants. BJE commands
~70% market share in Power Plant Lighting and Sports Lighting. In Power Plant
Lighting, BJE has executed large orders for major companies like NTPC and BHEL. In
Sports Lighting, it has executed prominent projects that include the lighting of
Mumbai’s Wankhede Stadium, Bangalore’s Chinnaswamy Stadium and Jaipur’s
Sawai Man Singh Stadium. In this segment, BJE faces competition from players like
GE, Crompton and Kalpataru.
Special Projects is the The Special Projects business contributes ~34% to E&P revenues and has grown at
second most profitable 20% CAGR over last five years. This sub-segment has the highest profitability in E&P.
sub-segment within
the E&P segment Special projects revenues
Special projects revenues (INR m)
2,451 2,500 2,550

2,179
1,600
1,017
BJE is largely focusing on the government’s flagship social program of electricity to

all rural households under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY).
This scheme was started in 2005 with the target of illuminating ~600k villages
(according to census 2001) with capital subsidy allocation of INR45b in the Tenth
Plan, INR250b in the Eleventh Plan, and INR233b in the Twelfth Plan. We believe this
segment will continue to witness order book growth considering the government’s
endeavor to electrify rural India and expenses towards modernization of sports
stadiums in India.
Plan allocation on rural electrification
RGGVY Allocation (INRb)

250
233
45
10th Five Year Plan (2002-07) 11th Five Year Plan (2007-12) 12th Five Year Plan (2012-17)
24 April 2014 19
Bajaj Electricals
 Transmission Line Towers (TLT)

BJE entered the Transmission Line Tower (TLT) business in 2002 and accepts turnkey
projects, including design, supply, and erection and commissioning of transmission
lines largely for Power Grid. It manufactures a range of towers of 110kv, 132kv,
220kv, 400kv, 765kv for power transmission lines. Historically, largely present in
400kv, BJE is ramping up 765kv, which now contributes 20% to order book. The
primary driver for TLT is activity in the Power sector which has witnessed steady
growth of 5.3% in both generation and transmission. BJE is a small player with <5%
market share and faces competition from players like KEC, Kalpataru Power, Jyoti
Structures and L&T in this segment.
Power generation capacity has been added at a 5.3% CAGR…
Installed Power Generation Capacity (In GW, As per 5 Year plans) 200
132
105
86
69
43
6th Five Year Plan 7th Five Year Plan 8th Five Year Plan 9th Five Year Plan 10th Five Year Plan 11th Five Year Plan
(1982-87) (1987-92) (1992-97) (1997-2002) (2002-07) (2007-12)
…leading to subsequent expansion in transmission capacity which has been added at a similar rate of 5.3%
Transmission Line Network Strength (In ‘000 Circuit Kilometers, As per 5 Year plans)
243
190
146
116
80
52
6th Five Year Plan 7th Five Year Plan 8th Five Year Plan 9th Five Year Plan 10th Five Year Plan 11th Five Year Plan
(1982-87) (1987-92) (1992-97) (1997-2002) (2002-07) (2007-12)
Power Grid has an annual capex target of INR200b

Power Grid Capex Plan (INRB)
224 225 225
221
200
FY13 FY14 FY15 FY16 FY17
24 April 2014 20
Bajaj Electricals
12th Plan Capacity Addition Plan targets

(GW) Hydro Coal Gas Total Thermal Nuclear Total
Central 6 11 1 11 3 20
State 1 12 0 12 0 14
Private 2 40 0 40 0 42
Total 9 63 1 64 3 76
Plan-wise capex
INR b 11thPlan 12thPlan
Generation Capex 4,796 6,380
T&D Capex 2,230 4,860
T&D Capex as % age of Generation Capex 46% 76%

Plan–wise transmission capacity additions

Transmission Capacity addition Upto 6th Plan 7th Plan 8th Plan 9th Plan 10th Plan 11th Plan 12th Plan
Inter-regional capacity (MW) 14,900 11,800 39,900

HVDC capacity (MW) 13,000
Transmission Lines (ckt km)

- HVDC Bipole - 1,634 - 3,104 1,134 3,560 10,340
- 765kva - - - 1,160 1,158 3,546 27,000

- 400kva [A] 6,029 20,061 10,052 13,236 23,057 37,645 38,000
- 230/220kva [B] 46,005 19,024 14,571 17,393 16,025 25,535 35,000

Others (400/230/220kva) [A+B] 52,034 39,085 24,623 30,629 39,082 63,180 73,000
Total lines (all voltage) ckt kms 52,034 40,719 24,623 34,893 41,374 70,286 110,340
Plan–wise transmission cumulative capacity

th
Transmission Capacity (end of Each Plan) 6th Plan 7th Plan 8th Plan 9th Plan 10th Plan XI Plan 12 Plan
Inter-regional capacity (MW) 14,050 25,850 65,550
HVDC capacity (MW) 26,500
Transmission Lines (ckt km)
- HVDC Bipole - - 1,634 3,138 5,872 9,432 19,772

- 765kva - - - 971 1,704 5,250 32,350
- 400kva [A] 6,029 19,824 36,142 49,378 75,722 106,819 151,367
- 230/220kva [B] 46,005 59,631 79,600 96,993 114,629 135,980 174,945
Others (400/230/220kva) [A+B] 52,034 79,455 115,742 146,371 190,351 242,799 328,955
Total lines (all voltage) ckt kms 52,034 79,455 117,376 150,480 197,927 257,481 381,077
24 April 2014 21
Bajaj Electricals
th
Planned T&D capex of select states in 12 plan
States (INR b)
Maharashtra 220
Bihar 200
Punjab 180
West Bengal 152
Karnataka 120
Andhra 110
Rajasthan 95
MP 75
Chhattisgarh 72
J&K 55
Gujarat 47
Haryana 32
Delhi 34
Kerala 32
Odisha 28
Assam 23
Uttar Pradesh 9
Tripura 8
TLT contributes ~21% to BJE’s E&P revenues and has been the worst performing
TLT has been the worst
segment for BJE – both in terms of growth (4% CAGR over last 5 years as against
performing sub-
18% for High Mast and 20% for Special Projects) and in terms of profitability
segment within the
(Majority of drag on E&P business has been led by huge losses suffered in TLT).
E&P segment
TLT segment revenues

TLT revenues (INR m)
2,650 2,730
2,356
1,730
1,556
1,290
24 April 2014 22
Bajaj Electricals
E&P performance deteriorated significantly post FY10

Post FY10, performance of the E&P division began to suffer. Slowdown in the Power
Post FY10, E&P
sector, aggressive bidding coupled with execution slippages led to de-growth in
witnessed de-growth in
revenues and decline in EBIT margin from +10.5% to -17.6%. Profitability for peers
revenues and decline in
like Kalpataru (decline of 300bp) and KEC International (decline of 500bp) also got
EBIT margin from
hit during FY10-13, led by aggressive bidding during the period.
+10.5% to -17.6%
E&P segment revenues and margins

E&P revenues (INRm) EBIT Margin(%)
13% 13% 13%
12% 11%
9%
13,445 15,191
3% 11,905
5% 5%
8,318 8,320
7,368 6,880
5,224
3,052 3,627
2,446 -10%
-18%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E
Competitor margins also EBIT margins for competitors like Kalpataru and KEC also got hit due to over-bidding…
came under pressure , Kalpataru KEC International BJE
reflective of bidding
15 16
irrationality 13 13 12 13 13 13 11 11
10 11 9 11 9
8 10 9 8 8
6 6
3
-18
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
We highlight below key reasons why E&P division took a hit
Bidding irrationality and  Bidding irrationality

lack of effective Post FY10, as the industry slowed down, competition increased. However, BJE’s E&P
monitoring key reasons division continued to bid aggressively. The division did not report to the CFO or the
for deterioration in E&P central finance team. The consequent lack of financial supervision by the top
performance management allowed the aggressive bidding to continue unchecked.
 Lack of effective monitoring mechanisms

Earlier, Power Grid had a payment mechanism whereby it cleared invoices based on
the material brought to the site. BJE and other industry players resorted to dumping
key and costly material (which was not even required upfront; in some cases,
required after a year) to the site, raising and encashing invoices even when project
execution had hardly commenced. Since they got most of their money upfront,
there was limited incentive to complete projects on time, which eventually resulted
in time delays. At the same time, the material on site was subject to
pilferage/damages, which resulted in significant cost overruns.
24 April 2014 23
Bajaj Electricals
Multiple structural initiatives to revive E&P business

Increased financial BJE has taken a number of steps in the last 12 months to revive the performance of
supervision, change in top the E&P division.
management and stricter
focus on execution to  Increase in financial supervision
ensure E&P turnaround To curb aggressive bidding, BJE has now involved (effective July 2013) its central
finance team in the E&P division as well. The CFO is now empowered not to release
funds if there are any major deviations. For instance, if the norm is of having only
three months of inventory and if the inventory at the site has breached this, then
the CFO is empowered not to release funds. We believe centralization of financial
matters will result in more prudent supervision, reducing chances of aggressive
bidding / increase in working capital.
 Change in top management

Top management of the E&P division has been revamped. In July 2013, Mr Rakesh
Markhedkar replaced Mr Lalit Mehta as Head of the E&P Business. Mr Markhedkar
has an Engineering degree from BITS Pilani and is an IIM Bangalore alumnus. He has
rich work experience, having worked with L&T in the EPC business (from July 1990
to August 2003), followed by successful stints with EMCO and KEI Industries. While
Mr Mehta was an internal expert, who started his career as an Intern with BJE and
rose to senior levels, Mr Markhedkar brings years of relevant industry experience.
 Strict focus on execution

The new management has implemented a strict monitoring process, whereby
execution at all sites is monitored on a daily basis through FCCM software. The E&P
division now prepares detailed MIS reports, mapping progress on various aspects
like inventory levels at the site, actual v/s targeted progress on execution at the site,
progress on getting financial closure (as payment can be realized only once financial
closure is done), etc. This has ensured better timeliness in execution. The
management highlights that most new projects are now running ahead of schedule
by 7-8 months. In fact, Power Grid recently gave an award to BJE for on-time project
completion, testifying the marked improvement in timelines followed by the
company.
 Tightening in pre-qualification norms by Power Grid has improved outlook

Power Grid (PWGR) has tightened bidding norms over the past 2 years to weed out
irrational bids. This has led to moderation in competitive intensity in the power
transmission orders (6-7 bidders per tender now bid and difference between L1 and
L2 is hardly 1-2% currently, reduction in total number of players bidding for PWGR
orders from 50 in FY12 to 19 in FY13), leading to better margins and higher market
share amongst existing players. Further, PWGR has changed the payment
mechanism. Earlier full payment used to be made for materials brought to the site,
along with the contractor’s embedded profit margin. Now only 60-65% of bills
pertaining to materials brought on site are cleared with the balance 40-35% being
linked to final execution. PWGR’s changes have led to filtering; with weaker players
now choosing to opt out.
24 April 2014 24
Bajaj Electricals
Most legacy projects concluded; improvement evident

We expect revenues to We believe that measures taken by the management over the last 12 months will
grow at 13% CAGR over structurally improve the performance of the E&P division over the next couple of
FY14-16, with EBIT margins years. Most legacy projects (8% of unexecuted order book), which were running
improving from -17.6% in behind schedule, will be concluded in 4QFY14 and FY15 will see negligible drag of
FY13 to 5% in FY15/FY16 legacy contracts. We expect revenues to grow at 13% CAGR over FY14-16, with EBIT
margins improving from -17.6% in FY13 to 5% in FY15/FY16.
E&P margins (%)

E&P Margins
10.2% 10.6%
3.1% 3.9% 3.8% 5.6%
9.4%
-5.1%
-5.7% -17.8%
-6.7%
-13.7%
-27.1% -17.0%
-20.2%
While revenues for 9MFY14 have grown at 76%, capital employed is stagnant
E&P segment - 9M-FY14

BJE expects working capital
to improve further, as 76%
INR3b stuck in retention

money is expected to get
released by 1HFY15
4%
Revenue growth Capital employed growth
Management is targeting 20% RoCE, led by 2.5x asset turn and 8% EBIT margin
Asset Turnover (x) EBIT Margins (%) RoCE (%)
Management is targeting
23%
19% 2.5 2.5
working capital cycle of 5-6
15% 20%
months and plans to 1.9 20%
1.7 1.6
1.6 5% 1.4 1.4
achieve turnover of INR15b
on the same level of capital -14%
13% 11% 9% 3% 8% 8%
employed of INR6b -18%
-26% -10%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
24 April 2014 25
Bajaj Electricals
Focus is on site closures; order book stands at INR21b

The E&P division has an order book of INR21b, which is expected to be executed
over the next two years. Order book is largely for TLT and Special Projects, as these
two segments have long gestation periods (2-2.5 years order execution cycle), while
High Mast which accounts for 45% of E&P revenues is a low gestation business (3-
month execution life cycle).
The management is focused on reducing the number of active sites and will be
closing 41 sites during FY14. At any given point in time, the number of active sites
will not exceed 40 as per the targets the management has set for itself. This, in our
view, will enable better monitoring mechanisms, resulting in better execution
quality.
Current order book size (INR b)

Gestation period of High High Masts, 0.8
Mast is lowest; hence it
doesn’t form a major TLT, 5.2
proportion of order book
Special projects,
15.2
Segment-wise gestation period

Segment Gestation period
High Masts 3 months
TLT 2-2.5 years
Special projects 18 months - 2.5 years
Snapshot of sites execution cycle

Opening New Sites Total sites to
Plan to close sites Carry Forwards
Segment Balance added be closed
during FY14 Sites into FY15
(FY14) during FY14 (FY14)
1Q 2Q 3Q 4Q
Transmission Lines
12 0 2 1 0 7 10 2
(TLT)
Station Lighting (Spl
38 2 0 2 7 12 21 19
Projects)
Power Distribution
20 4 0 0 5 5 10 14
(RE)
Total 70 6 2 3 12 24 41 35
24 April 2014 26
Bajaj Electricals
Earnings to quadruple over FY14-16

E&P turnaround to drive earnings growth
 We expect BJE’s consolidated earnings to quadruple from INR568m to INR2,390m over

FY14-16 on the back of turnaround in the E&P division.
 We expect revenues to post 14% CAGR, with 460bp accretion in EBITDA margin from
3.9% to 8.4% over FY14-16.
 Working capital should improve from 62 days to 44 days, led by improved capital
efficiency in E&P
 We expect substantial improvement in return ratios (RoCE / RoE) from 17.7%/7.7% to
41.5%/24.0% over FY14-16.
Expect revenue CAGR of 14% over FY14-16

We expect consolidated revenue to grow at a CAGR of 14%, led by 15% CAGR in the
Consumer Durables segment, followed by 13% CAGR in Lighting and E&P.
Revenues (INR m) to post 14% CAGR Consumer Durables to post 15% CAGR
Revenues Consumer Durables
53,352
25,861
46,723
22,341
40,977
18,377 19,443
33,876
30,990 15,005
Source: MOSL
Lighting and Luminaires and E&P expected to post 13% CAGR each
Lighting & Luminaires E&P
12,286
10,922 15,191
9,613 13,445
8,604 11,905
7,648
8,320
6,880
Source: MOSL
24 April 2014 27
Bajaj Electricals
EBITDA to grow at 69% CAGR over FY14-16; margin to expand 460bp

Led by turnaround in the E&P segment, we expect EBITDA margin to expand 460bp
over FY14-16 from 3.9% to 8.4%.
EBITDA to post 69% CAGR, led by 460bp margin expansion Consumer Durables margins to expand 100bp
EBITDA (INR m) Margin Consumer Durables EBIT (INR m) Margin
8.4% 8.4%
7.7% 10.1% 10.0% 10.0%
9.5%
3.9% 9.0%
3.3%
2,372 1,108 1,588 3,947 4,507 1,513 1,744 1,750 2,234 2,586
Source: MOSL
Lighting and Luminaires margins expected to remain flat, E&P expected to post a strong turnaround
Lighting EBIT (INR m) Margin E&P EBIT (INR m) Margin
7.8% 5.0% 5.0%
3.2%
672 760
7.0% 7.0% 7.0% 265
6.8%
(1,191)
(1,243)
-10.0%
594 584 673 765 860
-18.1%
Source: MOSL
PAT to grow four-fold over FY14-16

We expect PAT to grow four-fold over FY14-16 from INR587m to INR2,469m.
PAT (INR m)
PAT
2,469
2,133
1,179
512 587
Source: MOSL
24 April 2014 28
Bajaj Electricals
Working capital cycle to improve

We expect consolidated working capital days to improve from 64 days in FY13 to 44
days in FY16. This improvement will largely be led by the E&P division.
Cash conversion cycle (days)

Inventory Days Debtor Days Creditor Days Cash Conversion Cycle
109 101 95 90 90
55 58 58 58 58
73
62
51 46 44
-57 -62 -62 -62 -62

Source: MOSL
Operating and free cash flows to improve; minimal capex required

Operating cash flows are expected to improve significantly to INR2,622m, while free
cash is expected to improve to INR2,111m.
Cash generation (INR m)
Operating Cash Flow Free Cash Flow
2,822 2,312
2,622 2,111
1,279 1,331 1,030

818
614
97
Source: MOSL
Return ratios to improve substantially; debt-equity to decline

BJE’s return ratios deteriorated significantly post FY10 due to higher working capital
requirement coupled with EBIT losses in the E&P business. With turnaround in E&P,
return ratios will improve substantially over FY14-16. We expect RoCE / RoE to
improve to 43% / 25% respectively.
Return ratios (%)
RoCE (%) RoE
41 43 26 25
29 18
18
13 8
5
Source: MOSL
24 April 2014 29
Bajaj Electricals
Initiating coverage with Buy rating

Price target of INR370 implies 32% upside
Attractively valued at 11.3x  Over the last three years, the dismal performance of the E&P division has clouded
FY16E earnings BJE’s robust underlying consumer franchise. Expected turnaround of the E&P business
will be a key re-rating catalyst.
 BJE is trading at 11.3x FY16E earnings as against Havell’s 17.8x FY16E earnings. This
steep discount of 36% should narrow, as BJE delivers on the E&P turnaround.
 We value BJE at 15x FY16E EPS of INR24.8 and arrive at a target price of INR370,
implying 32% upside. We initiate coverage with a Buy rating.
Peer comparison
CMP Mcap EPS (INR) PE (x) RoE (%)
Company (INR) (USD b) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E
Bajaj Electricals 280 0.5 5.9 21.4 24.8 47.6 13.1 11.3 7.9 25.5 24.5
Havells India 920 1.8 41.6 45.4 51.8 22.1 20.3 17.8 32.1 28.9 27.7
TTK Prestige* 3,080 0.6 97.9 125.0 150.0 31.5 24.6 20.5 22.9 22.9 23.2
V-Guard Industries 490 0.2 23.5 31.7 39.3 20.9 15.5 12.5 24.3 27.1 27.4
Average 30.5 18.4 15.5 21.8 26.1 25.7
* Bloomberg consensus Source: Company, MOSL
Assumptions
Segment Revenue Growth (%) FY12 FY13 FY14E FY15E FY16E
Lighting 21.2 12.5 11.7 13.6 12.5
Consumer Durables 17.5 22.5 5.8 14.9 15.8
Engineering & Projects 0.0 (17.3) 58.4 12.9 13.0
Total 13.0 9.3 21.0 14.0 14.2
Segment EBIT Margins(%)
Lighting 7.8 6.8 7.0 7.0 7.0
Engineering & Projects 3.2 (18.1) (10.0) 5.0 5.0
Total 7.7 3.2 3.0 7.9 7.9
Segment Revenue Mix (%)
Lighting 24.7 25.4 23.5 23.4 23.0
Engineering & Projects 26.8 20.3 29.1 28.8 28.5
Total 100 100 100 100 100
Segment EBIT Mix (%)
Lighting 25.0 53.6 54.6 20.8 20.4
Engineering & Projects 11.1 (114.2) (96.6) 18.3 18.1
Total 100 100 100 100 100
24 April 2014 30
Bajaj Electricals
Risks and concerns

 Slowdown in economy may hamper growth prospects
Any slowdown in GDP growth may impact the Consumer Durables segment,
adversely affecting BJE’s prospects.
 Highly competitive industry

Though BJE is a strong brand in the Consumer Durables segment, with a 75-year
history, the industry has faced regular competition from the unorganized sector
due to low entry barriers.
 Currency risk
BJE’s import content (includes 40% of Morphy Richards, 20% of Appliances, 10%
each of Lighting and Fans) contributes ~15% of its revenues. INR depreciation
could put pressure on near-term margins.
 Slippages in E&P business

Contrary to our expectations, if the E&P business does not recover, the stock
price may be adversely impacted.
24 April 2014 31
Bajaj Electricals
Management
Shekhar Bajaj
 Shekhar Bajaj, Chairman & Managing Director
Chairman & Managing Director
Mr Shekhar Bajaj has served as the Managing Director since November 1987
and as CMD since 1994. He has over 25 years of varied and rich work experience
in a wide range of functions, with emphasis on Marketing and Sales. He is the
Chairman of Bajaj Group companies, Bajaj International and Hercules Hoist. He
is on the Board of Directors of Bajaj Auto and IDBI Bank. He was past President
of ASSOCHAM, Indian Merchants Chamber (IMC) and Council for Fair Business
Practices (CFBP). Mr Bajaj’s educational qualifications include BSc and MBA
(NYU).
Anant Bajaj
Joint Managing Director
 Anant Bajaj, Joint Managing Director
Mr Anant Bajaj has been Joint Managing Director since April, 2012 and has been
an Executive Director since February, 2006. He has 11 years of experience. He
also serves as a Director of Hind Musafir Agency Ltd. He is a BCom and PGDM.
Madhur Bajaj
 Madhur Bajaj, Non-Independent Director
Non-Independent Director
Mr Madhur Bajaj has around 30 years of industry experience and is the Vice
Chairman of Bajaj Auto. He holds board position in Bajaj International, Bajaj
Auto Finance and many other companies. He has been a Non-Executive Director
at Bajaj Electricals Limited since 1994.
24 April 2014 32
Bajaj Electricals
Industry overview
Demographics changes, rising incomes to create demand for appliances
The home appliances market in India will see significant growth due to lower
penetration, increasing incomes, and growing urbanization. The need for comfort
and convenience in urban households, as both partners work and will result in
change in perception of appliances from luxury to necessity, leading to rapid growth
in home appliance market.
Another major growth driver will be the growing middle class in India. According to
a McKinsey Global Institute (MGI) 2010 report, India’s fast growing cities will drive a
four-fold increase in the country’s per capita income over 2008 and 2030. Also, the
number of middle class households (earning between INR200k and INR1m a year)
will increase more than fourfold nationwide from 32m to 147m in 2030. With the
rising disposable income (per capita disposable income of the urban segment is
expected to grow at a CAGR of 6.4% over 2008-2030), consumer discretionary
expenditure is also likely to increase significantly. Rising disposable income would
provide more room for expenditure on discretionary items.
Consuming class expected to expand from 50% to 85% over FY10-30

Deprived <0.9 Lakhs Aspirers 0.9-2 Lakhs Seekers 2-5 Lakhs
Strivers 5-10 Lakhs Globals > 10 Lakhs
0% 3% 7%
4% 1% 2% 2% 6%
12%
31% 17%
25%
34%
29%
40%
64% 32%
50%
26%
15%
2000 2010 2020 2030
Small appliances set to grow at 15-18% annually

ASSOCHAM expects the Indian consumer durable industry to grow to USD 8.4b by
2015. The overall small appliances market is estimated at USD1.2b, growing 15-18%
a year. The premium segment is expected to grow at 30%. Penetration levels for
consumer goods across categories remains low.
Consumer goods penetration in urban regions (%) Consumer goods penetration in rural regions (%)
Urban Rural
89 48
80
38
56
46
34 19 19
12 8
3
Source: Industry, MOSL Source: Industry, MOSL
24 April 2014 33
Bajaj Electricals
Key factors which will lead to double-digit growth in small appliances market
include:
 Rise in number of nuclear families, with reduction in average household size
(has reduced from 5.6 in 1991 to 4.9 currently).
 Rise in per capita income of middle class Indian households will lead to
consumer upgrading to branded products.
 Higher growth (25 -30% pa) in under -penetrated rural market will help drive
overall growth momentum.
 Increasing affordability and improving educational levels will lead to reduction in
replacement cycle to 2-3 years for small appliances.
Small appliances market size (INR b)
Small appliances market size (INRb)
130
113
98
86
74
CY13 CY14 CY15 CY16 CY17

Source: Industry, MOSL
Market size of major products

Lighting
Lighting is a INR50,000m market with 65% of the market dominated by the
organized sector and the balance 35% controlled by the unorganized sector. Major
players include Bajaj, Philips, Crompton, Surya, Havells, etc. Major product
categories include GLS lamps, fluorescent tubelights, compact fluorescent lamps,
domestic luminaires, ballasts & starters, LED torches.
Lighting industry market size (INR m)
Unorganized
17,500
35%
Organized, 32,500
, 65%
Luminaires
Luminaires is a INR25,000m market with 65% of the market dominated by the
players include Bajaj, Phillips, Crompton, Wipro, Thorn, etc. Major product
categories include industrial, commercial, decorative, street light, floodlight, LED,
lighting electronics, lighting control, HID Lamps: Mercury & sodium vapour lamps,
halogen lamps, metal halide & fluorescent lamps.
24 April 2014 34
Bajaj Electricals
Luminaires industry market size (INR m)
Unorganized, 8,750 ,
35%
Organized, 16,250 ,
65%
Fans
Fans is a INR35,000m market, with 65% of the market dominated by the organized
sector and the balance 35% controlled by the unorganized sector. Major players
include Bajaj, Crompton, Usha, Orient, Khaitan, Polar, Havells, etc. Major product
categories include ceiling, table, pedestal & wall mounted fans, personal fans,
Industrial exhaust fans, industrial fans, circulators, cooler kits and pumps.
Fans industry market size (INR m)
Unorganized, 12,250
, 35%
Organized, 22,750 ,
65%
Appliances
Appliances is a INR68,000m market, with 70% of the market dominated by the
players include Bajaj, Philips, Kenstar, Usha, Maharaja, Preeti, Prestige, Kenwood,
etc. Major product categories include mixers grinders, juicers, food processors,
water heaters, air coolers, iron, OTG, room heaters, toasters, hand blenders, water
filters, microwave ovens, gas stove, purifiers & electric kettles, coffee/tea makers.
Appliances industry market size (INR m)
Unorganized, 20,400
, 30%
Organized, 47,600 ,
70%
24 April 2014 35
Bajaj Electricals
Financials and valuation

Income statement (INR Million)
Y/E March 2011 2012 2013 2014E 2015E 2016E
Net Sales 27,414 30,990 33,876 40,977 46,723 53,352
Change (%) 23.0 13.0 9.3 21.0 14.0 14.2
EBITDA 2,549 2,372 1,108 1,588 3,947 4,507
EBITDA Margin (%) 9.3 7.7 3.3 3.9 8.4 8.4
Depreciation 108 125 145 170 194 218
EBIT 2,441 2,246 963 1,418 3,753 4,289
Interest 367 630 690 784 804 814
Other Income 161 144 169 205 233 266
Extraordinary items 50 0 -247 0 0 0
PBT 2,185 1,760 690 838 3,183 3,741
Tax 748 581 178 252 1,050 1,272
Tax Rate (%) 34.2 33.0 25.8 30.0 33.0 34.0
Reported PAT 1,438 1,179 512 587 2,133 2,469
Adjusted PAT 1,471 1,179 329 587 2,133 2,469
Change (%) 22.5 -19.8 -72.1 78.6 263.4 15.8
Balance sheet (INR Million)

Y/E March 2011 2012 2013 2014E 2015E 2016E
Share Capital 198 199 200 200 200 200
Reserves 5,913 6,799 7,087 7,324 8,990 10,759
Net Worth 6,111 6,999 7,286 7,523 9,189 10,958
Debt 1,170 2,091 1,659 1,659 859 0
Deferred Tax -20 -19 -79 -79 -79 -79
Total Capital Employed 7,261 9,070 8,866 9,103 9,969 10,879
Gross Fixed Assets 2,302 2,721 3,260 3,760 4,260 4,760
Less: Acc Depreciation 769 881 996 1,166 1,360 1,578
Net Fixed Assets 1,533 1,840 2,264 2,594 2,901 3,183
Capital WIP 0 30 59 71 81 92
Investments 366 441 298 298 298 298
Current Assets 15,739 17,191 18,874 21,438 23,892 27,163
Inventory 2,946 3,552 4,212 5,056 5,433 6,204
Debtors 9,112 9,220 9,379 10,665 11,521 13,155
Cash & Bank 486 536 501 389 864 868
Loans & Adv, Others 3,195 3,882 4,781 5,327 6,074 6,936
Curr Liabs & Provns 10,377 10,432 12,628 15,298 17,203 19,857
Curr. Liabilities 9,646 9,634 11,846 14,287 15,936 18,197
Provisions 731 797 782 1,010 1,267 1,660
Net Current Assets 5,362 6,759 6,246 6,140 6,690 7,306
Total Assets 7,261 9,070 8,866 9,103 9,969 10,879
E: MOSL Estimates
24 April 2014 36
Bajaj Electricals
Financials and valuation

Ratios
Y/E March 2011 2012 2013 2014E 2015E 2016E
Basic (INR)
EPS 14.9 11.8 3.3 5.9 21.4 24.8
Cash EPS 16.0 13.1 4.7 7.6 23.3 26.9
Book Value 61.8 70.2 73.0 75.4 92.1 109.9
DPS 2.8 2.8 2.0 3.0 4.0 6.0
Payout (incl. Div. Tax.) 22.4 27.5 45.6 59.7 21.9 28.4
Valuation(x)
P/E 18.8 23.7 85.0 47.6 13.1 11.3
Cash P/E 17.5 21.4 59.0 36.9 12.0 10.4
Price / Book Value 4.5 4.0 3.8 3.7 3.0 2.5
EV/Sales 1.0 1.0 0.9 0.7 0.6 0.5
EV/EBITDA 11.2 12.4 26.3 18.4 7.1 6.0
Dividend Yield (%) 1.0 1.0 0.7 1.1 1.4 2.1
Profitability Ratios (%)
RoE 26.6 18.0 4.6 7.9 25.5 24.5
RoCE 37.9 29.2 12.6 17.9 41.5 43.4
Turnover Ratios (%)
Asset Turnover (x) 3.8 3.4 3.8 4.5 4.7 4.9
Debtors (No. of Days) 120.3 107.5 100.3 94.1 89.2 89.2
Inventory (No. of Days) 39.2 41.8 45.4 45.0 42.4 42.4
Creditors (No. of Days) 61.9 47.4 50.2 50.1 49.6 49.6
Leverage Ratios (%)
Net Debt/Equity (x) 0.2 0.3 0.2 0.2 0.1 0.0
Cash flow statement (INR Million)

Y/E March 2011 2012 2013 2014E 2015E 2016E
OP/(Loss) before Tax 2,186 1,760 690 838 3,183 3,741
Depreciation 108 125 145 170 194 218
Others 0 0 0 0 0 0
Interest 368 607 671 580 570 548
Direct Taxes Paid 806 600 398 252 1,050 1,272
(Inc)/Dec in Wkg Cap -773 -1,278 171 -6 -75 -613
CF from Op. Activity 1,124 756 1,422 1,331 2,822 2,622
(Inc)/Dec in FA & CWIP -215 -660 -392 -512 -510 -511
(Pur)/Sale of Invt 0 -75 -70 0 0 0
Others -74 59 461 205 233 266
CF from Inv. Activity -290 -676 -2 -308 -277 -245
Inc/(Dec) in Net Worth 0 0 0 0 0 0
Inc / (Dec) in Debt -411 840 -500 0 -800 -859
Interest Paid -315 -567 -660 -784 -804 -814
Divd Paid (incl Tax) -235 -278 -279 -350 -467 -700
CF from Fin. Activity -961 -5 -1,439 -1,135 -2,070 -2,374
Inc/(Dec) in Cash -127 75 -18 -112 475 4
Add: Opening Balance 612 461 519 501 389 864
Closing Balance 486 536 501 389 864 868
E: MOSL Estimates
24 April 2014 37
Disclosures Bajaj Electricals

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Disclosure of Interest Statement BAJAJ ELECTRICALS LTD

1. Analyst ownership of the stock No
2. Group/Directors ownership of the stock No
3. Broking relationship with company covered No
4. Investment Banking relationship with company covered No
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Mo Report Bajaj Electricals - Re-Inspiring Trust - Detailed Report

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08/08/2022, 17:20 Bajaj Electricals: Re-inspiring trust– Detailed Report

Initiating Coverage | 24 April 2014

Bajaj Electricals: Re-inspiring trust

Summary ........................................................................................................ 3-4

Story in Charts: Earnings set to accelerate ...................................................... 5

Enviable consumer franchise ...................................................................... 6-16

E&P business set for strong turnaround .................................................. 17-26

Earnings to quadruple over FY14-16 ........................................................ 27-29

Initiating coverage with Buy rating ................................................................ 30

Risks and concerns ........................................................................................... 31

Industry overview ...................................................................................... 33-35

Financials and valuation ........................................................................... 36-37

Fans, Lighting and Luminaires on a steady growth trajectory

E&P business set for strong turnaround

Earnings to quadruple over FY14-16

Initiating coverage with Buy rating and price target of INR370

Story in Charts: Earnings set to accelerate

1) Revenue Contribution (%) 2) Segment Profitability (%)

Source: MOSL, Company Source: MOSL, Company

3) E&P segment a drag on overall profitability 4) Management changes to ensure turnaround

11% 18% 18% 5.0% 5.0%

5) Earnings to quadruple 6) Bajaj Electricals reports strong overall capital efficiency

Source: MOSL, Company Source: MOSL, Company

Enviable consumer franchise

Bajaj a strong brand; international brand tie-ups help drive premiumization

BJE thrives with lower ad spends than peers (%)

Ad spend to revenues (%)

Bajaj Electricals Hawkins Havells V-Guard TTK Prestige

Source: Company, MOSL

Morphy Richards – successful re-entry post alliance with BJE

Source: Company, MOSL

CREE Lighting USA Outdoor street lighting

Disano & Mareco Luce Italy Landscape lighting

Huge mass market product portfolio; market leader in Small Appliances

Bajaj Electricals product portfolio

Break-up of BJE’s Consumer-facing business revenues (%)

Source: Company, MOSL

BJE’s product portfolio is a combination of Havells and TTK Prestige

Number - 1 player in Kitchen and Domestic Appliances

Source: Company, MOSL

BJE’s product portfolio and price points

DAP Min Max

Increase in penetration to drive demand; market leadership to sustain

Appliances segment revenues (INR m)

Appliances revenues (INR m)

FY12 FY13 FY14E FY15E FY16E

Source: Company, MOSL

New launches in the energy

Market share in Fans (%)

Market Share in Fans (%)

Crompton Greaves Bajaj Electricals Orient Fans Havells India

Source: Company, MOSL

Fans segment to post steady growth

FY12 FY13 FY14E FY15E FY16E

Source: Company, MOSL

Leading player in Lighting; increase in CFL contribution to aid margins

Lighting segment witnessing shift in favor of power saving CFL products

FY05 FY12 FY14E

Source: Company, MOSL

Lighting segment revenues (INR m)

FY12 FY13 FY14E FY15E FY16E

Source: Company, MOSL