>Bajaj Electricals Ltd- Q1FY13 Result Update

􀂉 In Q1FY13, Bajaj Electricals Ltd (BJE) has reported a revenue of `6661.9 Mn registering a growth of 22.4% on Y-o-Y basis but it has shown a substantial decline of 37% on sequential basis mainly on account of decline in lighting and engineering & project business. During the quarter, Consumer durable business has grown by 28.8% , lighting business has grown by 19.6% and engineering & project business by mere 8.4% compared to same quarter previous year.


􀂉 BJE’s EBITDA margins in Q1FY13 stood at 5.2%, which declined by 40 bps on Y-o-Y basis and by 290bps on Q-o-Q basis, mainly due to shrinking margin of Engineering & project segment. In Q1FY13, net profit margin of the company stood at mere 1.8% , registering a decline of 20bps on Y-o-Y basis, whereas it has declined by 280 bps on Q-o-Q basis. The decline in the margins is mainly attributed to operating losses in engineering & project business where the company is finding it difficult to close the ongoing projects and to control increasing capital employed.


􀂉 Consumer Durables business which contributed more than half (58.6%) of total revenue
in Q1FY13, has grown by 28.8% on Y-o-Y basis but declined sharply by 12% on sequential
basis. However the EBITDA margin for consumer durables had declined by 120 bps on Y-o-
Y basis to 8 4%. The decline in margins was due to fans segment which has pulled down the profitability performance largely on account of increasing commodity prices and due to
Forex losses on account of imported products. Under consumer durable business; appliances segment grown by 32%, Morphy Richards grown by 29% and fans segment
grown by 13% in Q1FY13 on Y-o-Y basis.


􀂉 Engineering & Project (E&P) business had a dull quarter with `70.5 mn operating loss.
Engineering & project business order book stands at `4500 mn as on QFY13 and is L1 in projects worth `7000 mn. The order book includes orders worth `2540 mn for Special projects, `1460 mn for TLT (Transmission Line Towers) and `6000 mn for High-mast. The company is trying to close various sites which were in-complete and hoping to close significant projects in coming quarters, the company has also mentioned that the next few quarters are going to be critical for E&P segment.


Valuation & Recommendation:

At CMP of `173.4/ share, BJE is currently trading at P/E Multiple of 10.3x on FY13E EPS of `16.8. We maintain “HOLD” on BJE with target price of `202/ share (12x P/E on FY13 EPS of `16.8)



RISH TRADER

>JYOTHY LABORATORIES: Growth in Maxo & Exo

 Revenue recognition in-line with expectations: Jyothy Labs (JLL) recorded standalone revenue growth of 70.6% yoy aided by 92% yoy growth in Exo and 105% yoy growth in Maxo. The fantastic growth numbers for Maxo has to be viewed in context to last year’s low base (~7% trader margin, which was discontinued in Maxo coil category last year, has been reinstated). Exo’s growth is primarily on account of increase in market share with ~90% revenue contribution from institutional sales, resulting in volume growth increase (volume market share for Exo has increased from 21% in June 2011 to 25.6% in June 2012 in South India). The cash cow, Ujala franchise registered revenue growth of 25% yoy.


 New Management team on board; re-launches Pril and Margo: On yoy basis, JLL reported margin expansion of 302bp, aided by decrease in staff cost (down 531bp), and other expenses (down 475bp). We believe, margin comparison for JLL will be relevant on qoq basis owing to–(1) Majority of Henkel staff were laid off in order to make the two companies (Henkel acquired and JLL) leaner for smooth integration, (2) new management team has been recruited to facilitate revenue recognition from Henkel’s acquired brands and (3) JLL management has committed to higher advertisement and promotional spends for all its brands. Hence, sequentially JLL has reported a margin contraction of 487bp on account of higher staff cost (up 362bp; there is also a provision of ~Rs5cr as write off cost for Karikal plant employees) and higher A&P spends (up 315bp).


 Yoy comparison of earnings not very relevant for analysis purpose: JLL has taken loan from Axis bank for the purpose of paying off Henkel’s debt. As a result, JLL charges interest income from Henkel (reported in other income; ~Rs15cr) and pays off interest expense from its own books. This is not visible on yoy numbers for JLL, however, one can see this reporting in the sequential numbers. Hence, on qoq basis, earnings came in lower by 36.9% primarily on account of trickle-down effect of margin contraction.


Outlook and Valuation
We value the company on a consolidated level. In view of the weak monsoons directly affecting the revenue for Maxo, we have tweaked our revenue estimates downwards by ~1% over FY2013-14E. With JLL management taking price hikes across its portfolio (~7% weighted average price hike taken in 4QFY2012 and ~10% price hike taken across Henkel portfolio in April 2012) and focusing on increasing sales of Pril, Fa deodorant and Henko detergent, we believe Henkel will be a primary incremental revenue driver for JLL going ahead. We factor revenue of ~Rs448cr in FY2013E and ~Rs484cr in FY2014E from Henkel into our numbers. The laundry business of the company, JFSL, is also performing above expectations; we factor-in revenue of Rs49cr in FY2013E and Rs57cr in FY2014E. We value the stock at a discount to its peers (higher rural led sales, which may soften on account of high inflation and low monsoon) and recommend a Reduce on the stock with a target price of Rs110.


Risks to the view
 Faster and successful integration of Henkel holds an upside to our estimates
 Debt repayment and stabilized core business of JLL will warrant a re–rating of the stock.




RISH TRADER

>ACC: Q2CY12 Results

Stellar performance, Upgrade to Neutral


ACC’s Q2CY12 result was sharply above estimates driven by strong realization increase of 7.9% QoQ against our expectation of 2.5%. EBITDA margin was at 23.4% against est. 20.5% driven by better-than-expected realization and adjusted profit was at Rs4.2bn vs. est. Rs3.3bn. Going forward, with our expectation of demand improvement and an uptick in utilization rate of the industry, we believe manufacturers will be able to pass on the increase in input costs to consumers and will be able to maintain operating margins. In Apr-May ’12, the industry recorded despatches growth of 9.6% against 0% in the same period last year. We expect cement demand to grow at 8-9% in FY13E and FY14E. Over the last one year, cement prices have sustained at higher levels and the industry ensured price hikes despite lower utilization
rates which compensated for increase in operating costs (freight, energy and raw material) and resulted in expansion of operating margins. Our interaction with dealers indicate ~2.5% M-o-M increase in retail price in July which is likely to protect the margins in the coming quarter even if the monsoon peaks (historically, we have seen a correction in cement prices during the monsoons). We have revised our realization assumption by 4.8%/5.2% for CY12E and CY13E to factor in improvement in retail prices, which resulted in EPS upgrade of 25.9%/24.9% for CY12E/CY13E. Consequently, we revise our rating on the Stock from Sell to Neutral with a price target of Rs1,413, upside of 12% from its CMP.


Steep realization increase results in higher profits and helps to beat estimates: Steep increase in realization (up 13.3% YoY against est. 7.7% YoY increase) resulted in 15.6% YoY increase in Revenues to Rs27.8bn (vs. est. Rs26.5bn). Cement sales volume was up 2% YoY to 6.05mt. Higher realization and sales volume led to 18.3% YoY growth in EBITDA to Rs6.5bn.



Better realization negates the benefit of input cost hike and results in margins expansion: Operating costs increased 12.5% YoY led by 9.9% YoY increase in raw material costs, 9.7% YoY increase in employee costs and 19.2% YoY increase in freight costs due to the increase in railway freight rates in March ’12. Despite 12.5% increase in op. costs, op. margin expanded 53bps YoY to 23.4% primarily due to 133% YoY increase in realization. Op. profit/tonne increased 15.9% YoY (and 17.3% QoQ) to Rs1,076/tonne.


Upgrade earnings estimates due to higher realizations: Cement prices are on an increasing trend and our dealers’ interaction suggests ~2.5% M-o-M increase in pan-India average retail prices. We have revised our realization assumption by 4.8%/5.2% for CY12E and CY13E to factor in improvement in retail prices, which resulted in EPS upgrade of 25.9%/24.9% for CY12E/CY13E.


Upgrade to Neutral on improving valuations: Cement manufacturers have been to able to pass on the rising input costs and maintain/improve their op. margins over the last one year despite lower utilization rates. With our expectation of improvement in utilization rates over the next two years, we do not see any risk to pricing power of manufacturers which will result in improved earnings scenario. At the CMP, the stock trades at 13.9x CY13E EPS, 7.6x EV/EBITDA and EV/tonne of US$143.1. We upgrade our rating on the stock to Neutral from Sell earlier with a revised price target of Rs1,413 (earlier: Rs1,030), upside of 12% from its CMP.

RISH TRADER

>SIEMENS AG: Implications for Siemens India

New orders slide


Key highlight of Siemens Q3FY12 results was the 23% decline in its order inflow which was much steeper than expected as customers, wary of European debt crisis, increasingly refrained from making investments. The market environment was less favorable in the third quarter, particularly for Siemens’ industrial short‐cycle businesses. Revenue rose 10% YoY to €19.542bn. The management indicated that the deteriorating environment poses difficult task to achieve their FY12 guidance.


Implications for Siemens India
Order intake from India (all Siemens entities‐India) was up 7% in EUR terms at EUR633mn; adjusted for currency, it was a growth of 16 % YoY. We believe, Siemens India’s order intake could be around INR27bn‐29 bn (up 16 %, YoY) given that largely ~70 % of total business for the parent comes from the listed entity (Siemens India). Order intake from Emerging Markets (India China, Brazil etc) grew 5% YoY, led by strong inflows from India while China order intake declined 5% YoY.


Absence of big ticket size, short cycle business orders thin inflow
Siemens posted a 23% drop in quarterly new orders, steeper than expected, as customers, wary of Europe's debt crisis, increasingly refrained from making investments. The iIndustry sector ‐ the bread and butter of Siemens ‐ has been the worst‐hit among its four segments as demand declined for a range of products including electric drive systems and control machinery for factory assembly lines and amusement park rides. Orders came in at €17.770bn, 23% below the prior‐year period which included a €3.7bn order for trains in
Germany and a substantially higher volume from large orders in Energy. Growth in new order intake for Siemens AG got impacted by a sharp dip in key market of Europe (down 38 % YoY) and Americas (down 19 % YoY). The book‐to‐bill ratio for the quarter was 0.91, and the order backlog was €100bn.


Outlook: Challenging, FY12 guidance seems too ambitious for now
The company has seen growing reluctance among its customers regarding capital expenditures besides strong economic headwinds, especially in its industrial short‐cycle businesses. Siemens expects a moderate organic revenue growth compared to fiscal 2011, and orders exceeding revenues for a book‐to‐bill above 1. Due to lower than expected earnings in its industrial short cycle business and deteriorating environment, it will be very challenging and over ambitious for the company to achieve its guidance of €5.4bn income for FY12.



Other Key Highlights


Higher revenue in all Sectors and regions
All Sectors reported revenue growth in the third quarter, benefiting from currency translation effects. Energy’s growth was supported by conversion from its strong order backlog. Infrastructure & Cities and Industry generated moderate increases. The Americas and Asia, Australia saw double‐digit revenue growth, and the region comprising Europe, the Commonwealth of Independent States, Africa and the Middle East (Europe/CAME) showed a moderate increase. Emerging markets on a global basis grew 8% year‐over‐year, and accounted for €6.329 billion, or 32%, of total revenue for the quarter.


Substantially lower volume from large orders
Both Infrastructure & Cities and Energy saw orders fall due to lower volume from large orders compared to a year earlier. The drop in large order volume YoY was most evident in Europe/CAME and the Americas. Asia, Australia posted moderate growth. Globally, orders grew 5% in emerging markets and accounted for €6.708 billion, or 38%, of total orders for the quarter.

RISH TRADER