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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) : 101MARKET CAP (RSBN) : 36MARKET CAP (USDBN) : 0.652 – W7K HI/LO (RS) : 388 / 203LIQUIDITY 3M (USDMN) : 2.8PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Mar 17 Dec 16 Sep 16PROMOTERS : 63.4 63.4 63.5FII / NRI : 7.6 7.6 7.9FI / MF : 6.8 7.7 7.7NON PRO : 7.4 5.6 5.6PUBLIC & OTHERS : 14.8 15.6 15.3 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 1.3 30.0 51.5REL TO BSE ‐1.0 23.2 34.1 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY17E FY18E FY19ENet Sales 44,663 48,824 54,688EBIDTA 2,719 3,366 4,121Net Profit 1,108 1,588 2,105EPS, Rs 11.0 15.7 20.8PER, x 31.9 22.2 16.8EV/EBIDTA, x 14.2 11.5 9.3P/BV, x 4.3 3.8 3.3ROE, % 13.4 17.0 19.4Debt/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


BAJAJ ELECTRICALS COMPANY UPDATE

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

BajajElectricals Ltd

Distributors (CD + Lightning)

Dealers Wholesale

Retail / Sub Dealers

BajajElectricals 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‐19Revenues (INR m) 8,604 9,530 8,983 10,576 8,990 9,529 10,386Growth (%) 12.5% 10.8% ‐5.7% 17.7% ‐15.0% 6.0% 9.0%EBITDA 600 420 353 718 633 724 831OPM (%) 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‐19Revenues (INR m) 18,377 19,252 20,237 20,026 19,225 21,532 24,762Growth (%) 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 1,733OPM (%) 9.7% 7.5% 6.9% 4.6% 5.2% 6.2% 7.0%

Source: Company, PhillipCapital India Research Estimates Polishing the Bajaj brand Bajaj is one of the oldest brands in consumer durables with about 60,000 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.

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Lighting Consumer Durables

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6

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%

Source: Company, PhillipCapital India Research Estimates 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

Source: Company, PhillipCapital India Research Estimates 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.

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Adv Spend As % of Sales

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Channel check: Compulsory channel financing from 1st April 2017 for all partners



Working capital cycle of peer companies using channel financing

Source: Company, PhillipCapital India Research Estimates

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

Source: Company, PhillipCapital India Research Estimates 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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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)

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CFO FCF

BEL keeps a daily track of its dealers’ inventory.

Better working‐capitalmanagement and channel

financing will lead tohigher 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%

Source: Company, PhillipCapital India Research Estimates 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%

Source: Company, PhillipCapital India Research Estimates 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 QoQConsumer 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 bpsCapital employed 3,585 3,768 3,750 5% 0%RoCE (%) 39% 12% 40% 130 bps 2810 bpsE&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 bpsCapital 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%

Source: Company, PhillipCapital India Research Estimates 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 FY191.) Consumer Business

PAT (Rs mn) 1,511 PE (x) 26

CD / Share Value (Rs) 3902.) 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.) 60TP ‐ Comp. 450

Source: PhillipCapital India Research Estimates



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

Source: Company, PhillipCapital India Research Estimates 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

Source: Company, PhillipCapital India Research Estimates

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 38.9 34.2 15.3 18.9 26.8 FY17e 35.8 38.7 14.2 15.8 26.1 FY18e 28.8 33.1 11.5 14.5 22.0 FY19e 24.2 27.8 9.3 13.1 18.6

Havells, Neutral

V‐guard, Neutral

BJE, Buy

Finolex , Buy

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BUYHOLD


BAJAJ ELECTRICALS LTD QUARTERLY UPDATE

Financials Income Statement Y/E Mar, Rs mn FY16 FY17e FY18e FY19eNet sales 46,120 44,663 48,824 54,688Growth, % 8.2% ‐3.2% 9.3% 12.0%Raw Material expenses 30,143 29,343 32,068 35,911Operating expenses 10,633 9,357 9,887 10,872Employee expenses 2,749 3,244 3,503 3,784EBITDA (Core) 2,595 2,719 3,366 4,120Growth, % 194.0% 4.8% 23.8% 22.4%Margin, % 5.6% 6.1% 6.9% 7.5%Depreciation 272 294 318 354EBIT 2,322 2,424 3,049 3,767Growth, % 292.1% 4.4% 25.7% 23.6%Margin, % 5.0% 5.4% 6.2% 6.9%Interest paid 1,014 946 838 760Other Non‐Operating Income 229 240 233 230Pre‐tax profit 1,537 1,718 2,443 3,237Tax provided 580 610 855 1,133Profit after tax 957 1,108 1,588 2,104( ‐ ) Exceptional Expenses 0 0 0 0Net Profit 957 1,108 1,588 2,104Growth, % ‐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 2,104No. of Eq. Sh O/S (m nos) 101 101 101 101 Balance Sheet Y/E Mar, Rs mn FY16 FY17e FY18e FY19eCash & bank 555 469 589 742Debtors 16,456 15,384 16,004 16,710Inventory 5,067 4,660 4,798 5,057Loans & advances 2,619 2,720 2,920 3,270Other current assets 0 0 0 1Total current assets 24,697 23,234 24,311 25,780Investments 594 594 594 594Gross fixed assets 4,562 5,512 6,162 6,812Less: Depreciation 1,773 2,067 2,385 2,738Add: Capital WIP 207 50 50 50Net fixed assets 2,996 3,495 3,827 4,124Total assets 28,287 27,323 28,732 30,497 Current liabilities 11,594 11,185 11,996 13,063Provisions 1,145 1,145 1,145 1,145Total current liabilities 12,739 12,330 13,141 14,208Debt 8,536 7,236 6,732 5,932Deferred Tax Liability ‐503 ‐503 ‐503 ‐503Total liabilities 20,772 19,063 19,370 19,637Paid‐up capital 202 202 202 202Reserves & surplus 7,313 8,057 9,159 10,656Shareholders’ equity 7,515 8,259 9,361 10,858Total equity & liabilities 28,287 27,322 28,731 30,495 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY16 FY17e FY18e FY19ePre‐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 0Other 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 0Debt 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 FY19ePer Share data Dil. EPS (INR) 9.5 11.0 15.7 20.8Growth, % ‐781% 16% 43% 33%Book NAV/ FD share (INR) 74.4 81.8 92.7 107.6CEPS (INR) 12.2 13.9 18.9 24.4CFPS (INR) 35.8 30.5 23.4 27.1DPS (INR) 2.8 3.0 4.0 5.0Return ratios Return on assets (%) 3.4 4.1 5.5 6.9Return on equity (%) 12.7 13.4 17.0 19.4Return on capital employed (%) 16.8 17.4 21.5 25.1Turnover ratios Sales/Total assets (x) 3.0 3.0 3.1 3.4Sales/Net FA (x) 16.5 13.0 12.9 13.4Working capital/Sales (x) 0.3 0.2 0.2 0.2Fixed capital/Sales (x) 0.1 0.1 0.1 0.1Receivable days 128.5 124.0 118.0 110.0Inventory days 41.9 40.0 38.0 36.0 Loans, Adv (days) 20.4 21.9 21.5 21.5Payable days 95.9 96.0 95.0 93.0Working capital days 94.9 89.9 82.5 74.5Liquidity ratios Current ratio (x) 1.9 1.9 1.8 1.8Quick ratio (x) 1.5 1.5 1.5 1.5Interest cover (x) 2.2 2.5 3.3 4.2Dividend cover (x) 3.4 3.7 3.9 4.2Total debt/Equity (%) 1.1 0.9 0.7 0.5Net debt/Equity (%) 1.1 0.8 0.7 0.5Valuation PER (x) 36.9 31.9 22.2 16.8PEG (x) ‐ y‐o‐y growth (4.7) 201.7 51.3 51.6Price/Book (x) 4.7 4.3 3.8 3.3Yield (%) 0.8 0.9 1.1 1.4EV/Net sales (x) 0.9 0.9 0.8 0.7EV/EBITDA (x) 15.3 14.2 11.5 9.3EV/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 Naveen Kulkarni, CFA, FRM (9122) 6246 4122 Naveen Kulkarni, CFA, FRM (9122) 6246 4122 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



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