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Rating: BUY | CMP: Rs384 | TP: Rs500
Bajaj Electricals (BJE IN)
Mass market play in consumer electricals
Amnish Aggarwal amnishaggarwal@plindia.com | 91-22-66322233
Paarth Gala paarthgala@plindia.com | 91-22-66322242
Bajaj Electricals
July 6, 2020 2
Contents
Page No.
BJE - Play on mass market Appliances ................................................................. 4
Story in charts ........................................................................................................ 5
BJE well placed to capture uptick in demand ........................................................ 6
Mass market positioning to capture uptick in demand ........................................ 6
Appliances (60% of CP sales): Distribution expansion & product differentiation key to growth ............................................................................... 7
Fans (26% of CP sales): Grow faster than the market; recoup lost market share ...................................................................................................... 8
Lighting (14% of CP sales): To remain a filler product ....................................... 9
Industry leading distribution network in Appliances .......................................... 10
Strong after-sale service network ..................................................................... 11
Premiumisation through international tie ups ................................................... 12
BJE has less dependence on seasonal products ............................................. 12
Nirlep acquisition yet to be exploited fully ........................................................ 12
Increase ad-spends to improve Brand visibility ................................................ 13
BJE sustains quality focus despite outsourcing ............................................... 13
RREP to improve efficiency, sales and margins .................................................. 14
Outsourcing model to remain at its core .............................................................. 16
EPC drag to remain despite rights issue .............................................................. 17
EPC to drag profitability in near term ............................................................ 18
Financials & Valuations ....................................................................................... 19
Estimate CAGR of 6.9% in Sales over FY20-23 .............................................. 19
Commodity price have bottomed out ................................................................ 20
EBITDA CAGR of 28.8% over FY20-23 ........................................................... 21
Valuations: Strong execution can re-rate the stock .......................................... 23
Annexure: ............................................................................................................ 25
Board of Directors & KMP ................................................................................ 25
July 6, 2020 3
Rating: BUY| CMP: Rs384 | TP: Rs500
Mass market play in consumer electricals
We initiate coverage on Bajaj Electricals (BJE) with BUY rating and a target
price of Rs500 on SOTP basis. We believe BJE is a play on immense growth
opportunity in mass market consumer electricals given 1) strong brand with
wide portfolio in kitchen appliances 2) deep distribution network (covers 94%
of districts in India) 3) leadership position in high potential small kitchen
appliances and 4) expected gains in profitability, reach and working capital
due to RREP implementation. Although near term looks challenging due to
COVID, however, less dependence on seasonal products, mass market
positioning and deep distribution makes BJE ideal candidate to gain from
expected surge in demand from 2HFY21. We believe strengthening of balance
sheet through rights issue (Rs3.5bn), realization of receivables and renewed
focus on profitability & cash flows in EPC bidding are positives.
We estimate Sales/EBITDA to grow at CAGR of 6.9% / 28.8% over FY20-23E
due to improving business mix, operating leverage, gains from RREP &
benign commodity prices. 72% decline in interest burden (improving cash
flows and Rs3.5bn right issue) over FY20-23 will enable EPS to expand from
Rs8.4 in FY21 to Rs25.2 in FY23. We value the stock on SOTP and arrive at a
target price of Rs500 (derived P/E of 22.7x on Sep-22 EPS, Consumer
business valued at 24x). We initiate coverage with BUY rating.
Investment Arguments
Mass market play with deep distribution reach: BJE has a diverse
consumer product portfolio having mass market focus. Post implementation of
RREP program, BJE has one of the largest distribution network in India,
covering 94% of its districts (514+ distributors/ 220,000+ retailers). BJE is well
placed to capitalize on immense opportunity in the mass segment given its 1)
strong brand recall 2) Leadership in low ticket kitchen appliances 3) deep
distribution reach of more than 0.22mn outlets and 4) expected benefits from
improved product focus and RREP benefits.
Rights issue, cash flow focus to strengthen balance sheet: Time bound
execution of large UP project & delay in project closures negatively impacted
operating cash flows (Rs-6bn in FY19) causing debt to balloon 2x to Rs16bn.
As BJE looks to scale down its power distribution business (20% of EPC), we
expect overheads cost & declining revenue to impact its EPC business in
FY21. However, improved balance sheet through rights issue (Rs3.5bn),
realization of receivables, cash flows focus while bidding for EPC are positives.
Valuation & Outlook: We estimate Sales/EBITDA CAGR of 6.9%/ 28.8% over
FY20-23 led by improving business mix, operating leverage and benign input
costs. We estimate that 72% decline in interest cost over FY20-23 on the back
of debt reduction (CFO – Rs5.3bn in FY21 and ~Rs3.5bn rights issue). We
estimate EPS to expand from Rs8.4 in FY21 to Rs25.2 in FY23. At 20x FY22
EPS, BJE trades at a huge discount (20-50%) to its peers. We believe higher
consumer business margins, lower gearing and improved cash flow can re-rate
the stock. Initiate coverage with an BUY rating and target price of Rs500, a
30% upside.
Bajaj Electricals (BJE IN)
July 6, 2020
Company Initiation
Key Financials - Standalone
Y/e Mar FY20 FY21E FY22E FY23E
Sales (Rs. m) 49,771 45,582 54,146 60,865
EBITDA (Rs. m) 2,069 2,367 3,614 4,419
Margin (%) 4.2 5.2 6.7 7.3
PAT (Rs. m) (1) 959 2,205 2,863
EPS (Rs.) 0.0 8.4 19.4 25.2
Gr. (%) NA NA 129.9 29.8
DPS (Rs.) 3.2 - 2.0 5.0
Yield (%) 0.8 - 0.5 1.3
RoE (%) 0.0 6.7 14.0 16.0
RoCE (%) 8.0 11.4 18.5 21.1
EV/Sales (x) 1.0 1.0 0.8 0.7
EV/EBITDA (x) 24.2 19.6 12.4 9.8
PE (x) NA 45.6 19.8 15.3
P/BV (x) 3.2 3.0 2.6 2.3
Key Data BJEL.BO | BJE IN
52-W High / Low Rs. 535 / Rs. 260
Sensex / Nifty 36,021 / 10,607
Market Cap Rs. 44 bn/ $ 586 m
Shares Outstanding 114m
3M Avg. Daily Value Rs. 226.68m
Shareholding Pattern (%)
Promoter’s 63.17
Foreign 7.96
Domestic Institution 12.43
Public & Others 16.44
Promoter Pledge (Rs bn) -
Stock Performance (%)
1M 6M 12M
Absolute (10.4) 10.7 (26.2)
Relative (15.2) 27.4 (18.4)
Amnish Aggarwal
amnishaggarwal@plindia.com | 91-22-66322233
Paarth Gala
paarthgala@plindia.com | 91-22-66322242
Bajaj Electricals
July 6, 2020 4
BJE - Play on mass market Appliances
Bajaj Electricals (BJE) is a leading Consumer Electrical and EPC company with a
legacy of over eight decades. BJE’s business portfolio comprises of mass market
focused Consumer Products (Appliances, Fans, Lighting) and EPC (Illumination,
Power Transmission and Power Distribution). BJE is looking to gradually increase
premium offering through brands like Morphy Richards in home appliances
segment and bring diversification in cookware with Nirlep.
BJE tied up to distribute Morphy Richards branded products in India (2002) to
enter the premium segment. The foray has been a mixed success so far.
In 2018, BJE acquired Nirlep Appliances– a five-decade old non-stick
cookware company for a consideration of Rs385mn with a view to propel its
non-electrical appliances foray into cookware and related segments.
BJE follows an asset-light business model by outsourcing large portion of its
consumer products (~88% of FY20 raw material costs) by long term tie ups
with vendors for sourcing of these products.
The company operates on ethos of ‘customer first’ aimed at strengthening
brand loyalty. It has a distribution network of 20 branch offices, 514 distributors
and 220,000+ retail outlets.
BJE offers a vast portfolio of Appliances (like Kitchen Appliances, Water Heaters,
Air Coolers etc.), fans and consumer lighting products. EPC business is focusing
on power transmission and illumination projects, with increased focus on profitability
and cash flows. We believe BJE is in a sweet spot to capitalize on rising growth
opportunities in non-metros and rural India given strong market share in small
appliances, largest distribution network amongst organized players, revamped
distribution post RREP initiative and value for money focus. We believe that EPC
business will report muted growth in the near term as BJE scales down its power
distribution business. Although FY21 will be under pressure due to COVID
disruption, we estimate 16.7% sale CAGR in consumer products over FY21-23 with
~2X increase in profitability. We believe that the stock offers a decent play on small
appliances segment with VFM focus.
Margins up 250bps post RREP implementation
26 23 22 27 31
4.6% 4.3%4.9%
6.6% 6.8%
0.0%
2.0%
4.0%
6.0%
8.0%
-
10
20
30
40
FY16 FY17 FY18 FY19 FY20
Consumer Products (CP)
Revenue (Rs bn) Margin % (RHS)
Source: Company, PL
Appliances contribute ~60% of CP revenues
13 13 13 16 18
6 6 6 7
8 6 4 4
4 4
-
10
20
30
FY16 FY17 FY18 FY19 FY20
CP Revenue Split (Rs bn)
Appliances Fans Consumer Lighting
Source: Company, PL
Bajaj Electricals
July 6, 2020 5
Story in charts
CP contribution to increase to 67% by FY23
54%
47%
41% 62%
66%
66%
67%
46%
53%
59% 38%
34%
34%
33%
0%
20%
40%
60%
80%
100%
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Revenue Mix %
Consumer Products EPC
Source: Company, PL
EPC to contribute positively from FY22
41
%
36
%
48
% 12
0%
10
7%
84%
84
%
59
%
64
%
52
%
-20
%
-7%
16
%
16
%
-20%
0%
20%
40%
60%
80%
100%
FY17 FY18 FY19 FY20 FY21E FY22E FY2E
EBIT Mix %
Consumer Products EPC
Source: Company, PL
Revenue CAGR of 15.6% post FY21E
43
47
67
50
46
54
61
-7%
10%
41%
-25%
-8%
19%12%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-
10
20
30
40
50
60
70
80
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Revenue (Rs bn) YoY gr. (RHS)
Source: Company, PL
Consumer Product margins to inch up
4.3%4.9%
6.6% 6.8% 7.3%8.2%
9.0%
7.1%7.8%
5.0%
-1.8%-0.9%
3.0% 3.5%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Consumer Products EPC
Source: Company, PL
Rising CP sales to boost margins
2,4
28
2,9
34
3,4
83
2,0
69
2,3
67
3,6
14
4,4
19
5.6%6.2%
5.2%
4.2%
5.2%
6.7%7.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
-
1,000
2,000
3,000
4,000
5,000
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
EBITDA (Rs mn) Margin (RHS)
Source: Company, PL
PAT to rise steadily over FY20-23
1,077
1,730 1,671
-1
959
2,205
2,863
-500
-
500
1,000
1,500
2,000
2,500
3,000
3,500
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
PAT (Rs mn)
Source: Company, PL
Bajaj Electricals
July 6, 2020 6
BJE well placed to capture uptick in demand
BJE’s Consumer Products (CP) business comprises of Appliances, Fans and
Lighting and enjoys meaningful presence across most product categories. Within
appliances, BJE enjoys leadership position with 14-15% organized market share in
the ~Rs80-85bn kitchen appliances segment.
Mass market positioning to capture uptick in demand
BJE has created a wide product portfolio in the Appliances and lighting segments
catering largely to the mass market. With presence across all product segments
(except for Switches and switchgears), BJE’s product depth and breadth is amongst
the best in the industry. Also, majority of its products are small ticket items such as
fans, irons, food preparation/ cooking appliances (mixers, food processors, juicers,
cookers etc), LED bulbs, battens etc which are used on a daily basis.
BJE is present across large range of product categories; matches Crompton; superior than Polycab
Players Fans Lightings Switches Switchgears Water Heaters Home App Kitchen App
Bajaj Electricals Ltd
Crompton Consumer
Finolex Cables Ltd Havells India Ltd
Orient Electric Ltd
Philips India
Polycab India Limited
Surya Roshni Ltd
TTK Prestige Ltd
Usha International Ltd
V-Guard Industries Ltd
Source: PL
With people becoming more self-reliant due to the incidence of Covid-19 pandemic,
there is likely to be a substantial change in the lifestyle and habits of people which
shall lead to increased demand for small appliances. In addition to this, rural
demand for products like fans, lights, mixer grinder, air coolers etc. is increasing
given 1) last mile connectivity due to Rural electrification undertaken by government
2) Improving quality of power supply (Availability) and 3) rising disposable income
on the back of improving agricultural income due to good harvest season.
BJE’s products are present across price points (Classic, Majesty, Morphy Richards)
under each category which enables consumer stickiness. For example, in the
Mixer-Grinder segment (500W - price range Rs1,899-Rs2,995), BJE’s products are
priced 5-20% lower than other players like Havells, Crompton, Phillips, Usha,
Wonderchef etc. for VFM positioning. Industry leader Havells, Philips and
Wonderchef have premium positioning where as USHA, Prestige and Crompton
are at mid-market segment.
Given its presence across small ticket daily use products, wide range of product
offerings and deep distribution network, we believe BJE is well place to capture the
increase in demand for these products.
Bajaj Electricals
July 6, 2020 7
Appliances (60% of CP sales): Distribution expansion & product differentiation key to growth
BJE is amongst the leader in kitchen appliances segment; strong share in water heater and air cooler segment
Product Market size
(Rs bn)* BJE's share (%)
Market Position
Major Competitors Organized Penetration
Level
Kitchen Appliances 80-85 14%-15% #1 Philips, TTK Prestige, Stove Kraft Medium
Water Heater 15-18 18%-20% #1-2 Racold, Havells, Crompton, AO Smith Medium
Air Cooler 15-17 11%-12% #3 Symphony, Kenstar, Voltas, Crompton Low
Source: Company, PL *Organized market
Mixer-grinders, water heaters, irons and air coolers major contributors to appliances segment
Source: Company, PL
Kitchen Appliances: high competition; large regional players
The segment largely includes products like mixer-grinder, gas
stoves, induction cooktops, Toasters, Hand Blenders, rice
cookers, non-stick cookware and other small appliances. The
space is further divided into 1) cooking appliances and 2) other
kitchen aids. 60-65% of market is catered by organized players
largely dominated by BJE and Philips. Other players include
Morphy Richards (BJE), Kenstar and Usha. The category has
seen entry of Prestige, Pigeon and Wonderchef and a host of
other kitchen ware brands. Philips clearly dominates the premium
segment and by acquiring Preethi has consolidated its position in
South India. Also, Wonderchef, riding on the popularity of chef
Sanjeev Kapoor is one of the fast emerging brands in kitchen
appliance segment and has recorded sales of Rs3bn, further
targeting ~Rs8bn in next five years.
Strategy/Outlook: Distribution expansion holds key
BJE is a market leader in cooking and kitchen appliances having
an organized market share of 14-15%. BJE has presence in the
premium segment through Morphy Richards (licensed brand). In
2018, BJE entered the non-stick cookware segment through
acquisition of Nirlep. Initially, BJE was not able to scale up Nirlep’
s distribution as it couldn’t target utensil stores. However, Nirlep
can yield better results with change in distribution strategy.
Availability of power, changing lifestyle, change in cooking
methods, health concerns (non-stick pans) and ease of
availability through e-commerce is expected to result in steady
demand for BJE’s products. Mass market offerings are likely to
continue being the mainstay of business.
Water Heaters: Competitive intensity on the rise
BJE is the second largest player in the ~Rs15-18bn market where
Havells is the leader closely followed by Racold. Crompton and
Orient who are increasing their offerings will gradually increase
competition. Rising disposable income and energy-efficient
products will drive growth
Strategy/Outlook: Product differentiation is key
BJE is largely present in the mass segment. However, in a bid
to cater premium segment, it has launched IoT based Calenta
water heaters. The category offers huge growth potential given
presence of large local/unorganized players and huge scope of
innovation and branding.
Air Cooler: Shift from unorganized to organized segment
Residential air cooler market is largely unorganized. Some
organized players are gaining share by offering technologically
advanced and energy efficient products. Symphony (50% market
share) is the largest player in organized market. Other players
include Orient Electric, V-Guard, Crompton. Voltas & Blue Star
are the new entrants in this space.
Strategy/Outlook: To benefit from first upgrade from fans
BJE is the third largest player in air cooler market. BJE is
focused on offering features like high air delivery, big water tank
and energy efficiency at an economical price. With increasing
demand for air coolers basis rising income levels and need for
cheaper cooling solutions due to rising temperatures, a strong
distribution reach will act positively for BJE.
Bajaj Electricals
July 6, 2020 8
Fans (26% of CP sales): Grow faster than the market; recoup lost market share
Focus on mass market segment; with 8-10% market share BJE’s market position a distant #5
Product Market size (Rs bn)* BJE's share (%) Market Position Competitors Organized Penetration Level
Fans 80-85 10-11% #4-5 Crompton, Havells, Orient High
Source: Company, PL * Organized market
BJE has entered the premium segment through launch of Anti Germ, Designer series
Source: Company, PL
Fans: Industry eying Premiumisation
Crompton leads the overall market with a share of ~25-27%.
Whereas Havells has redefined fans with its premium offering in
an old and laid back category. Nevertheless, Industry dynamics
are changing as all key players like Crompton, orient etc. focus
on premium segment providing multiple offerings.
Fans account for ~26% of BJE’s Consumer Products sales and
with a market share of 10-11% BJE is the 4-5th largest player,
having a mass presence. We expect industry to witness steady
demand as Rural electrification and improved power availability
is a key trigger.
Strategy/Outlook: Regain lost market share; mass focus
With RREP implementation unsettling its distribution network,
BJE’s fans sales de-grew by 4.5% over FY15-18 resulting in
market share loss.
However, with new distribution system now in place (220,000+
retail touchpoints), BJE is focusing on 1) growing faster than the
market to recoup lost share 2) leverage deep distribution reach to
capitalize on growth opportunity in rural India as well as small
towns and 3) launching premium models to tap into high growth
premium segment (Harrier Anti Germ, Ornio etc). Although BJE
stands to benefit from the deep distribution network, but rising
competition can impact sales growth, pricing and limit scope of
margin expansion.
BJE’s portfolio is largely focused on serving the mass segment. With easy access
to electricity, it is likely that demand for certain essentials (like fans) will increase.
Also, by leveraging deeper penetration in rural markets (post RREP
implementation) we expect BJE to capitalize such growth opportunities arising out
of rural India and smaller towns.
Bajaj Electricals
July 6, 2020 9
Lighting (14% of CP sales): To remain a filler product
BJE is a fringe player with a market share of less than 5%
Product Market size (Rs bn)* BJE's share (%) Market Position Competitors, Market Share (%) Organized Penetration Level
LED 100-110 3-4% #7 Philips, Crompton, Bajaj, Wipro, Havells Medium
Source: Company, PL *Organized market
Lighting segment largely dominated by LED bulbs
Source: Company, PL
Competitive Landscape: Intense price based competition
With a market share of ~3-4%, BJE ranks meagre #7 in India’s
lighting industry. Phillips (#1), Crompton, Havells, Syska & Wipro
are the other large players in the market.
Now-a-days LED is a dominant lighting technology across all
applications, as sustained price reduction and Govt push (Ban on
fluorescent lamps and free/subsidised distribution) have resulted
in consumer shift. Innovation, Premiumization and aesthetics act
as a key to offer differentiated value proposition (Eg. Anti-
bacterial bulbs by Crompton) in markets that are flushed with
Chinese imports and easy product imitations.
Strategy/Outlook: To remain a filler product
With LED products, particularly bulbs now being commoditized,
BJE continues to view Lighting segment (entirely B2C) as a
complement to its distribution network. BJE does not intend to
have a special team or advertise in order to promote lighting
sales, but it shall continue to be offered as a filler product.
Rapid technological change in lighting is driving value erosion and need for
continuous re-evolution. With lighting being a low entry-barrier business there is a
constant deluge of new players thereby leading to increased competitive intensity.
BJE shall continue to view this as a filler product with no special team or ad spends
to push sales. Leveraging its vast distribution network, BJE shall try to capitalize
from increased demand due to rural electrification.
Bajaj Electricals
July 6, 2020 10
Industry leading distribution network in Appliances
With a legacy of over 80 years and on successfully implementing RREP program,
BJE has one of the strongest distribution network spanning across both urban and
rural markets amongst all consumer electrical companies.
BJE has Industry leading retail network
1,50,000
1,25,000 1,25,000
1,00,000
2,20,000
Havells Polycab Orient Crompton Bajaj
Retail touchpoints
Source: Company, PL
BJE’s products are currently sold through +514 distributors and +220,000 retail
touchpoints covering 94% of total districts in India. BJE products are also sold
through 88 exclusive Bajaj World showrooms. Havells, with the second largest
distribution network has been an urban centric company focusing on premium and
mass premium segment.
Distributor breadth has increased post RREP
382 400 478 514
1,30,000 1,44,000
2,00,000
2,20,000
-
50,000
1,00,000
1,50,000
2,00,000
2,50,000
-
100
200
300
400
500
600
FY17 FY18 FY19 FY20
No of Distributors Retail touchpoints (RHS)
Source: Company, Company, PL
Apart from General Trade channel (~69% of consumer product sales), BJE also
sells through alternate channels like E-commerce, Modern Format Retail (MFR),
Institutional sales, Canteen Stores Department (CSD), Central Police Canteens
(CPC) and Government E-Marketplace portal (GEM).
Bajaj Electricals
July 6, 2020 11
Alternate channels are 30-35% of sales
69% 65% 69%
31% 35% 31%
FY17 FY19 FY20
Trade Alternate Sales Channel
Source: Company, PL
Alternate channel mix - E-com gaining traction
52%42% 39%
32%30% 29%
10%21% 29%
6% 7% 3%
FY17 FY19 FY20
CSD, CPC, GEM Modern Format Retail
E-Commerce Institutional Sales
Source: Company, PL
Strong after-sale service network
Efficient after-sales service has now become an integral aspect in today’s
consumer-centric world. BJE’s country wide network of dedicated consumer care
centres is one of its major strengths and is second to none in the industry. Over the
last 5 years, BJE’s has almost doubled its authorised service centres. BJE’s home
service facility extends to over 17,400 pin codes thus covering 91% of national pin
codes. All these centres provide timely service to consumers at their doorstep, even
in remote and rural areas.
BJE 536 service centres cover ~91% pin codes in India
287 315
376 400 418
489 504 536
-
100
200
300
400
500
600
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Authorised Service Centres
Authorised Service Centres
Source: Company, PL
Given its varied mass market centric product portfolio, good after sale service,
strong brand recall and deep penetration in small towns and rural India, BJE is well
set to capitalize on the sustained growth opportunity arising from these pockets.
No of authorised service centres have
almost doubled to 536 over the last 6
year
Bajaj Electricals
July 6, 2020 12
Premiumisation through international tie ups
Although BJE has positioned Bajaj as a mass market brand, it is mindful of the rising
trend of premiumization across products in urban areas. To keep up with the
growing needs of consumers, BJE has forged tie-ups with international brands like
Morphy Richards (MR), Disney & Marvel to tap opportunities arising from premium
markets.
Morphy Richards (MR) is a prominent home and kitchen appliances brand in UK
which entered into an agreement with BJE in 2002 to distribute MR branded
products in India. MR has presence in 22+ categories ranging across kitchen
appliances, air coolers, water heaters and personal care. Positioned as a premium
offering, MR products are priced close to Phillips and Havells. Ever since the tie-
up, MR has been a consistent performer for BJE & accounted for Rs2.1bn, ~12%
of appliances revenues in FY20. BJE is looking at improving the product line and
capitalising on the distribution network of +514 distributors/ 220,000+ dealers in
coming years which will increase sales from premium segment.
BJE has less dependence on seasonal products
Covid-19 led nationwide lockdown is likely to significantly impact 1HFY21 demand.
We don’t rule out demand pressures in near term especially in discretionary
segments, given that MSME sector can result in job losses with consequent
impairment of purchasing power. However, given lesser dependence on seasonal
products and with majority products catering to every day needs of people (fans,
kitchen appliances, LED bulbs etc), we believe BJE is better placed than most of
its peers in the current demand scenario. We expect relatively faster recovery in
demand in its consumer products segment.
Nirlep acquisition yet to be exploited fully
Sensing opportunities in non-electrical kitchen appliances, BJE entered the space
in 2012-13 targeting a market share of 5% by 2014. BJE’s non-electrical portfolio
comprises of pressure cookers, non-stick cookware, gas stoves, induction cooktops
etc. With the distribution network for these products being vastly different from
BJE’s core electrical portfolio, BJE struggled to scale up the business. With a view
to propel its non-electrical appliances foray, in 2018 BJE acquired Nirlep Appliances
– a five-decade old non-stick cookware company for a consideration of Rs385mn.
The acquisition provides BJE access to Nirlep’s 1) brand 2) people 3) distribution
network 4) state of the art manufacturing facility and 5) intellectual property rights.
Acting as an OEM, Nirlep also sells to players like D-Mart, Amazon and IKEA
(exports). With distribution network of these products different to that of BJE’s core
network, post-acquisition BJE was unable to scale up distribution of Nirlep leading
to dip in revenues from Rs447mn in FY18 to Rs392mn in FY19. We believe that
current scenario of increased demand for cookware post COVID-19 is a major test
for BJE. We shall keenly watch the sales trend for next 12-18 months as BJE tries
to get the entire distribution and manufacturing in sync with that of its consumer
appliances business.
Bajaj Electricals
July 6, 2020 13
Increase ad-spends to improve Brand visibility
With a legacy of over 8 decades and mass awareness of the Bajaj brand, BJE’s ad
spends have generally been lower than that of its competitors. However, company
has plans to improve brand visibility in today’s competitive environment. Some
initiatives taken by the management are:
Shift from a ‘Mother Brand’ focus to ‘Product Centric’ focus with clear emphasis
on product USP and features.
Sponsorship of Pro Kabbadi – most watched sport in India after cricket
From inspiring partner for Pinkathon to becoming Presenting/Title partner
Slow innovations and lack of product refresh has impacted demand for BJE’s
products. To fill this need gap and develop new products, BJE has set up a modern
R&D center ‘AB Square’ at Navi Mumbai to focus on product refreshment, new
product development, R&D, design and testing capabilities. Improved products and
advertising will change consumer perception and sales growth.
Increases in ad-spends over the years
1.3%
2.4%
3.3%
2.8%
3.3% 3.4%
4.7%
3.6%
3.0%3.4%
4.5% 4.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21EFY22EFY23E
Ad spends as % of CP sales
Source: Company, PL
BJE sustains quality focus despite outsourcing
With majority of products outsourced, BJE has a full-fledged & equipped Quality
team that works across manufacturing locations in India and abroad. It performs
quality checks right from incoming stage as well as works towards enhancing
product quality. In the last couple of years, BJE has undertaken three projects
aimed at improving quality of products which has enabled 16-17% YoY reduction in
market complaints. They are:
Project Lakshya: aimed to improve & upgrade manufacturing process and put
in place mechanism to control quality of raw materials used at vendor’s place.
Project Bajaj Booster: aimed to reduce the chronicle issues as well as the
consumer complaints.
Project Purge: aimed at eradication of the defects in working products such
as motor of mixer grinders, element of water heaters & drivers.
Bajaj Electricals
July 6, 2020 14
RREP to improve efficiency, sales and margins
Earlier, BJE followed the traditional distribution model which focused on driving
primary sales to wholesalers by offering additional discounts/ credit period to those
who later pushed products to dealers. This led to pile up of slow moving products
lowering the channel’s return on investments. These products also attracted higher
discounts in order to clear the inventory which impacted margins. BJE had no
information in which region a product got sold by the wholesaler. Moving away from
the deals driven wholesaler model to a distributor led model (akin to FMCG
company), BJE rolled out the its Range and Reach Expansion Program (RREP) in
April 2016. Under RREP, focus was on secondary sales while increasing the depth
and breadth of distribution network. Key initiatives undertaken are:
A distributor is appointed for a particular district/geography along with 4-5 direct
sales officers (DSO). The DSO’s/distributor periodically visit each retail outlet
in the assigned geography and looks to increase shelf space for BJE products.
Retailers make purchases from the distributor appointed for their geography
for which they are rewarded with loyalty points
Distributor’s sales are synced with BJE’s system every night. This discourages
inventory build-up through timely replenishment of products, resulting into
lower investments and better return on investments (RoI).
RREP implementation has increased retail touchpoints as well shelf-space
Pre RREP Post RREP
Push Sales: Sales driven on the basis of target and giving deals Pull Sales: Sales driven by improving availability and other enablers
Focus on Primary sales Focus on Secondary/ Retail sales
Monthly billing to Distributors/ Wholesalers Regular billing on the basis of replenishment
Higher inventory level in the channel Lower channel inventory and faster turns
Little effort by channel partners to develop secondary market Direct Sales Officer initiates market development
No tracking of secondary sales Tracking of secondary sales
Source: Company, PL
Benefits derived through Range and Reach Expansion Program (RREP):
Expansion of reach via addition of more retail outlets. Distributors have
increased from 382 to 514 and retail touchpoints from 130,000 to 220,000.
The retailers are now keeping wider product range at their outlets which
improves consumer response and sales.
Abolishing volume-led discount and uniform prices Pan-India provides security
and confidence to channel partners to accept wider product range
Doing away with additional discount and reduced credit period to the
distributors since they no longer fund inventory for a longer period.
~70% of retailers are being billed every month
Bajaj Electricals
July 6, 2020 15
RREP is pushing growth higher
5 6 6 6 5 5 6 6 6 6 8 7 8 7 9 7
-8%
-6%
-15
%
-15
%
-14
% -9%
2% 6
%
27
%
25
%
27%
15
%
31
%
9% 1
3%
0.6
%
-20%
-10%
0%
10%
20%
30%
40%
-
2
4
6
8
10
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Q4F
Y18
Q1F
Y19
Q2F
Y19
Q3F
Y19
Q4F
Y19
Q1F
Y20
Q2F
Y20
Q3F
Y20
Q4F
Y20
Revenue (Rs bn) YoY gr % (RHS)
Source: Company, PL
Improvement in margins
25
2
11
5
37
7
24
7
33
28
7
39
1
37
6
42
0
36
9
55
2
46
0
54
5
35
5
70
7
47
6
5%
2%
6%
4%
1%
6%7%
6%7%
6%
7%6%
7%
5%
8%
6%
0%
2%
4%
6%
8%
10%
- 100 200 300 400 500 600 700 800
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Q4F
Y18
Q1F
Y19
Q2F
Y19
Q3F
Y19
Q4F
Y19
Q1F
Y20
Q2F
Y20
Q3F
Y20
Q4F
Y20
EBIT (Rs mn) Margin (%) (RHS)
Source: Company, PL
After showing a dip in sales in FY17 and FY18, consumer product sales have shown
a strong bounce back in FY19 and FY20. We believe that BJE is yet to fully capture
the gains from distribution expansion and revamp as retail sales/outlet (0.14m/outlet
versus Rs0.18mn/outlet in FY17) are still 21% lower than pre RREP levels even as
the distributor sales are now at par. Consequently, we expect Consumer Products
segment sales to grow at a CAGR of 10% over FY20-23E (16.7% over FY21-23)
and margins to expand by 225bps to 9%
Revenues to grow by 10% over FY20-23E
23
22 27 31 30 36 41
-11%
-4%
23%
13%
-3%
19%15%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-
5
10
15
20
25
30
35
40
45
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Consumer Products (Rs bn) YoY gr. (RHS)
Source: Company, PL
Margins to expand by 225bps over FY20-23E
990
1,0
87
1,8
01
2,0
82
2,1
76
2,9
02
3,6
80
4.3%4.9%
6.6% 6.8%7.3%
8.2%9.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
-
1,000
2,000
3,000
4,000
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Consumer Products EBIT (Rs mn) Margin (RHS)
Source: Company, PL
Bajaj Electricals
July 6, 2020 16
Outsourcing model to remain at its core
BJE follows an asset-light business model as it outsources a large portion of its
consumer products (traded goods at ~88% of FY20 RM costs). BJE manufactures
a small percentage of fans in-house while most of the LEDs are sourced through
its affiliate/ associate company. Other products (incl majority of fans) are procured
from vendors (incl dedicated vendors) largely based in India and China (~15% of
sourcing), many of whom have a strong long-term relationship with BJE.
BJE relies heavily on vendors for sourcing Consumer products
Product In-House manufacturing Sourcing Arrangements
Fans BJE India, China
Appliances Starlite, Nirlep India, China
Consumer Lighting Products Starlite, Hind Lamps India, China
Illuminations BJE -
High Masts, Poles & Towers BJE India, China
Source: Company, PL
Purchases from related parties
Particulars (Rs mn) FY16 FY17 FY18 FY19
Starlite Lighting 1,185 510 818 1,114
Hind Lamps 297 280 287 581
Nirlep - - - 253
Total 1,482 790 1,105 1,948
% of traded goods purchased 5% 3% 4% 4%
Source: Company, PL
In order to have better control over supply chain and working capital, BJE has
always endeavoured to increase local sourcing of products evident from its limited
movement in imports (from 8% in FY11 to 10% in FY19).
Substantial portion of products outsourced
95%
93%
95%
94% 94%
95%
93%
89%
95%
88%
86%
88%
90%
92%
94%
96%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Traded Goods as % of RM cost
Source: Company, PL
Imports % stable on increased local sourcing
8%
11%12%
11%
10%
11%
13%12%
10%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Imports as a % of RM Cost
Source: Company, PL
Outsourcing provides flexibility in lean demand periods, lowers fixed costs and
helps in avoiding complexities related to various laws (incl labour law). This allows
BJE to focus on its core competencies of distribution, marketing and product
innovation. Although BJE’s margins are lower than Peers and industry average,
outsourcing model will still remain a cornerstone of its strategy in the medium term.
Bajaj Electricals
July 6, 2020 17
EPC drag to remain despite rights issue
The EPC business undertakes projects in Power Distribution (PD)/Rural
Electrification (RE), Transmission Line Tower (TLT) and Illumination. BJE’s order
book stands at Rs17.3bn of which PD accounts for 48% of total order book followed
by TLT (41%) and Illumination (11%).
Between FY13-15, BJE’s EPC business suffered losses due to 1) aggressive
bidding resulting in low margin orders 2) delayed execution and 3) slowdown in
power transmission sector. After 3 years of losses in FY16 BJE successfully turned
this business profitable as it undertook several mitigating steps including
implementation of Theory of Constraints.
Order book (Rs bn)
7 7 7 14 8 7
1 1 2 2
1 2
25 17
28
73
17 8
33 25
37
89
26 17
FY15 FY16 FY17 FY18 FY19 FY20
TLT Luminaries Power Distribution
Source: Company, PL
To focus on TLT & Illumination, Luminaries
74% 67%77% 82%
64%48%
22% 27%19% 16%
32%41%
4% 6% 5% 2% 4%11%
FY15 FY16 FY17 FY18 FY19 FY20
Power Distribution TLT Luminaries
Source: Company, PL
After 3 years of losses, EPC business turned profitable in FY16
8 8 7 12 13 20 20 25 39 19
9%
3%
-18%
-9%-7%
8% 7% 8%5%
-2%
-20%
-10%
0%
10%
20%
-
10
20
30
40
50
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Revenue (Rs bn) EBIT margin %
Source: Company, PL
BJE aggressively bid for rural electrification tenders in UP, under centrally
sponsored Saubhagya Scheme. Against the expectation of bagging 4-5 orders, in
April 2018 BJE received orders worth Rs59.7bn to be executed within 15 months,
which was a tall order for the company. Execution of such a large order in a time
bound manner led to increase in execution costs (unavailability of cheap manpower
and raw materials) which impacted margins and profitability. Also, delay in
payments and order closure led to rise in working capital requirements which
negatively impacted cash flows & balance sheet. The scope of work was later
reduced to Rs23bn of which majority has been executed and balance Rs4.2bn is
likely to be completed by H1FY21.
Bajaj Electricals
July 6, 2020 18
Stress on CFO during FY18/19
3 4
-1
-6
2 3
4 5
-8
-6
-4
-2
-
2
4
6
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
CFO (Rs bn)
Source: Company, PL
Working cap requirements leads to rise in debt
22.0 22 25
41
32
27 25 25
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Borrowings (Rs bn)
Source: Company, PL
In March 2020 BJE raised ~Rs3.5bn via rights issue. Of the total amount raised,
BJE has already repaid debt of Rs3.3bn bringing debt/equity ratio below 1x.
EPC to drag profitability in near term
With a large chunk of UP order being executed in FY19 and no subsequent new
orders, EPC has seen a substantial dip in FY20 sales. BJE is in the midst of scaling
down its Power Distribution business. We expect higher overhead costs and
declining revenues to continue impacting the EPC business for next 2-3 quarters.
Going ahead TLT and illumination projects (short-cycle, lesser challenges, better
margins and lower capital intensity) will remain at the core of EPC business.
Although Illumination/luminaires business will likely be negatively impacted by
Covid-19 due to reduced private sector spends, it still has good long term prospects.
With Covid-19 likely to further impact project closures and receivables payment, we
expect EPC margins to remain under pressure for majority of FY21. BJE plans to
focus on completing existing projects and reducing capital employed. Additionally,
it shall be selectively bidding for new orders with strong focus on profitability and
cash flows.
We estimate EPC business revenues to remain around the Rs16-20bn levels over
FY20‐23E. Rights issue, realization of receivables and focus on projects with strong
profitability & flows will help strengthen the balance sheet and cash flows.
Bajaj Electricals
July 6, 2020 19
Financials & Valuations
Estimate CAGR of 6.9% in Sales over FY20-23
We expect Sales CAGR of 6.9% over FY20-23. We expect Consumer Products to
continue outperforming the industry growth rates and grow at 10% CAGR (16.7%
over FY21-23) while EPC revenues to remain stable around Rs16-20bn
Consumer Products: Benefitting from the RREP implementation, we expect
Consumer Products to grow at 10% CAGR over FY20-23 (16.7% over FY21-
23) with Appliances/Fans/Consumer lighting growing at 10.9%/10.5%3.8%
respectively.
EPC: With BJE selectively bidding for projects with a strong focus on
profitability and cash flows, we expect EPC segment revenues to be stable at
around Rs16-20bn
Revenues to grow at CAGR of 6.9% over FY20-23
22
27
31
30
36
41
25
39
19
16
19
20
10%
41%
-25%
-8%
19%
12%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-
5
10
15
20
25
30
35
40
45
FY18 FY19 FY20 FY21E FY22E FY23E
Consumer Products EPC YoY gr. (RHS)
Source: Company, PL
CP revenue to grow at 10% CAGR over FY20-23
22 27 31 30 36 41
-4%
23%
13%
-3%
19%15%
-10%
0%
10%
20%
30%
-
10
20
30
40
50
FY18 FY19 FY20 FY21E FY22E FY23E
Consumer Products (Rs bn) YoY gr. (RHS)
Source: Company, PL
EPC revenue to grow at 1.8% CAGR over FY20-23
25 39 19 16 19 20
25%
58%
-52%
-18%
19%8%
-60%
-40%
-20%
0%
20%
40%
60%
80%
-
10
20
30
40
50
FY18 FY19 FY20 FY21E FY22E FY23E
EPC (Rs bn) YoY gr. (RHS)
Source: Company, PL
Bajaj Electricals
July 6, 2020 20
Commodity price have bottomed out
Coupled with rising share of EPC segment revenues with aggressive project
timelines, BJE has been impacted by sharp commodity price inflation over the past
few years. Key commodity prices – Copper/Aluminum/Brent Crude have increased
at a CAGR of 9%/11%/14% over FY16-19 thereby impacting gross margins by
415bps. However, commodity price pressure had abated in 9MFY20 and the
incidence of Covid-19 pandemic led to a further softening of commodity prices. With
resumption of economic activities, commodity prices have inched back near pre-
Covid levels. However, pace of recovery in demand & INR/USD rates will determine
the trend in the prices of key inputs like Copper, Aluminum, Paints & Plastics. We
expect BJE’s gross margins to expand by 220bps over FY20-23 given 1) increase
in share of consumer products 2) gains from cost optimizing initiatives and 3) benign
commodity price inflation
Copper prices have risen to pre-Covid levels
2,00,000
2,50,000
3,00,000
3,50,000
4,00,000
4,50,000
5,00,000
5,50,000
Jun-1
7
Aug-1
7
Oct-17
Dec-
17
Feb
-18
Apr-
18
Jun-1
8
Aug-1
8
Oct-18
Dec-
18
Feb
-19
Apr-
19
Jun-1
9
Aug-1
9
Oct-19
Dec-
19
Feb
-20
Apr-
20
Jun-2
0
Copper Spot (INR/MT)
Source: Company, PL
Aluminium price back to pre-Covid levels
60,000
80,000
1,00,000
1,20,000
1,40,000
1,60,000
1,80,000
Jun-1
7
Aug-1
7
Oct-17
Dec-
17
Feb
-18
Apr-
18
Jun-1
8
Aug-1
8
Oct-18
Dec-
18
Feb
-19
Apr-
19
Jun-1
9
Aug-1
9
Oct-19
Dec-
19
Feb
-20
Apr-
20
Jun-2
0
Aluminium Spot (INR/MT)
Source: Company, PL
Crude price down by 39% over Dec-19 high
-
20
40
60
80
100
30-J
un-1
7
31-A
ug-1
7
31-O
ct-1
7
31-D
ec-
17
28-F
eb-1
8
30-A
pr-1
8
30-J
un-1
8
31-A
ug-1
8
31-O
ct-1
8
31-D
ec-
18
28-F
eb-1
9
30-A
pr-1
9
30-J
un-1
9
31-A
ug-1
9
31-O
ct-1
9
31-D
ec-
19
29-F
eb-2
0
30-A
pr-2
0
30-J
un-2
0
Brent Crude (US$/barrel)
Source: Company, PL
INR has depreciated by 5% since Feb20
60
65
70
75
80
30-0
6-2
017
31-0
8-2
017
31-1
0-2
017
31-1
2-2
017
28-0
2-2
018
30-0
4-2
018
30-0
6-2
018
31-0
8-2
018
31-1
0-2
018
31-1
2-2
018
28-0
2-2
019
30-0
4-2
019
30-0
6-2
019
31-0
8-2
019
31-1
0-2
019
31-1
2-2
019
29-0
2-2
020
30-0
4-2
020
30-0
6-2
020
USD/INR
Source: Company, PL
Bajaj Electricals
July 6, 2020 21
EBITDA CAGR of 28.8% over FY20-23
We estimate EBITDA CAGR of 28.8% over FY20-23 led by improving revenue mix
based on high contribution from Consumer Products segment and various cost
efficiency measures. We estimate margins to improve by 310bps over FY20-23.
We estimate PBT to grow 17x to R3.8bn over FY20-23 helped by improving mix
and lower interest burden. Although PAT recovery is likely to be subdued in FY21
due to impact of Covid-19, we estimate PAT to grow by 73% CAGR over FY21-23
BJE raised ~Rs3.5bn via rights issue in March 2020. BJE has repaid debt close to
Rs3.3bn taking the debt/equity ratio below 1.
Revenue/EBITDA to grow at CAGR of 6.9%/28.8% over FY20-22E
Particulars (Rs mn) FY19 FY20 FY21E FY22E FY23E
Revenue from Operations 66,731 49,771 45,582 54,146 60,865
YoY gr. 41.5% -25.4% -8.4% 18.8% 12.4%
Gross Profit 15,155 13,351 12,763 15,432 17,666
Margin 22.7% 26.8% 28.0% 28.5% 29.0%
Other Expenses 11,672 11,282 10,396 11,817 13,247
% of sales 17.5% 22.7% 22.8% 21.8% 21.8%
EBITDA 3,483 2,069 2,367 3,614 4,419
Margin 5.2% 4.2% 5.2% 6.7% 7.3%
YoY gr. 18.7% -40.6% 14.4% 52.7% 22.3%
Other Income 654 526 635 662 720
Depreciation 385 680 734 772 830
Interest 1,159 1,692 986 556 482
PBT 2,594 224 1,283 2,948 3,827
Tax 924 225 323 743 964
Adj PAT 1,671 -1 959 2,205 2,863
Margin 2.5% 0.0% 2.1% 4.1% 4.7%
Exceptional item 0 0 0 0 0
Reported PAT 1,671 -1 959 2,205 2,863
Adj EPS (Rs) 16.3 0.0 8.4 19.4 25.2
YoY gr. -3.8% NA NA 129.9% 29.8%
Source: Company, PL
Consumer products sales to grow by 10% over FY20-23
Particulars (Rs mn) FY19 FY20 FY21E FY22E FY23E
Revenue
Consumer Products 27,408 30,846 30,015 35,603 40,890
YoY gr. 23.0% 12.5% -2.7% 18.6% 14.8%
EPC 39,319 18,918 15,560 18,536 19,968
YoY gr. 58.1% -51.9% -17.7% 19.1% 7.7%
EBIT
Consumer Products 1,801 2,082 2,176 2,902 3,680
Margin 6.6% 6.8% 7.3% 8.2% 9.0%
YoY gr. 65.7% 15.6% 4.5% 33.3% 26.8%
EPC 1,953 -346 -140 556 699
Margin 5.0% -1.8% -0.9% 3.0% 3.5%
YoY gr. 0.4% NM NM NM 25.7%
Source: Company, PL
Bajaj Electricals
July 6, 2020 22
Quarterly snapshot: In 4QFY20, Revenues declined by 26.7%; reported no profit/loss
Particulars (Rs mn) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
Revenue from Operations 11,399 15,984 21,618 17,729 12,978 10,918 12,815 12,996
YoY gr. 11.7% 70.9% 88.8% 10.4% 13.8% -31.7% -40.7% -26.7%
Gross Profit 3,057 3,631 4,567 3,900 3,566 2,981 3,706 3,034
Margin 26.8% 22.7% 21.1% 22.0% 27.5% 27.3% 28.9% 23.3%
Other Expenses 2,438 2,834 3,189 3,207 2,816 2,743 3,023 2,700
% of sales 21.4% 17.7% 14.8% 18.1% 21.7% 25.1% 23.6% 20.8%
EBITDA 619 797 1,378 694 750 238 684 335
Margin 5.4% 5.0% 6.4% 3.9% 5.8% 2.2% 5.3% 2.6%
YoY gr. 36.8% 85.7% 96.0% -48.6% 21.1% -70.1% -50.4% -51.8%
Other Income 272 60 55 263 179 116 100 194
Depreciation 92 94 100 99 161 167 170 182
Interest 177 230 333 419 495 446 394 358
PBT 623 533 1,000 439 273 -259 220 -11
Tax 218 192 361 153 99 71 66 -11
Adj PAT 405 341 639 285 174 -330 155 0
YoY gr. 97.7% 79.6% 73.6% -70.5% -57.1% NA -75.8% -100.0%
Source: Company, PL
Quarterly snapshot: In 4QFY20, Consumer products revenue grew by 0.6%; margins at 6.4%
Particulars (Rs mn) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
Revenue
Consumer Products 5,969 6,423 7,606 7,410 7,834 6,977 8,579 7,457
YoY gr. 27.1% 24.9% 26.7% 15.0% 31.2% 8.6% 12.8% 0.6%
EPC 5,430 9,559 14,012 10,318 5,143 3,938 4,235 5,538
YoY gr. -3.0% 126.9% 157.1% 7.3% -5.3% -58.8% -69.8% -46.3%
Other 1 3 1 1 1 3 2 1
YoY gr. 120.0% 92.3% 75.0% -53.3% -9.1% 24.0% 171.4% 57.1%
Total 11,399 15,984 21,618 17,729 12,978 10,918 12,815 12,996
YoY gr. 10.7% 70.9% 88.8% 10.4% 13.8% -31.7% -40.7% -26.7%
EBIT
Consumer Products 420 369 552 460 545 355 707 476
Margin 7.0% 5.7% 7.3% 6.2% 7.0% 5.1% 8.2% 6.4%
YoY gr. 1181.1% 28.7% 41.2% 22.1% 29.8% -3.9% 28.1% 3.5%
EPC 333 397 790 434 208 -182 -138 -234
Margin 6.1% 4.1% 5.6% 4.2% 4.0% -4.6% -3.3% -4.2%
YoY gr. -16.2% 171.5% 146.4% -59.9% -37.6% NA NA NA
Others -1 1 -2 -2 -1 1 1 -3
Margin -90.9% 56.0% -271.4% -271.4% -120.0% 41.9% 47.4% -227.3%
YoY gr. NA NA NA NA NA -7.1% NA NA
Source: Company, PL
Quarterly Sales Distribution: 1Q and 4Q contribute 50-55% of annual sales
Particulars (Rs mn) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
Consumer Products 21.1% 23.1% 26.9% 28.9% 21.8% 23.4% 27.8% 27.0% 25.4% 22.6% 27.8% 24.2%
EPC 22.5% 16.9% 21.9% 38.7% 13.8% 24.3% 35.6% 26.2% 27.2% 21.2% 22.4% 29.3%
Total 21.8% 19.8% 24.3% 34.1% 17.1% 24.0% 32.4% 26.6% 26.1% 22.1% 25.7% 26.1%
Source: Company, PL
Bajaj Electricals
July 6, 2020 23
Valuations: Strong execution can re-rate the stock
With time bound execution of UP project and delay in receivables putting pressure
on margins and cash flow, BJE saw a de-rating. It reported a PAT CAGR of 4.4%
over FY16-19 as consumer products segment revenues were impacted due to
overhaul of distribution network. We estimate Sales/EBITDA CAGR of 6.9% 28.8%
over FY20-23 led by improving business mix, operating leverage and benign input
costs. With reducing interest burden on the back of debt reduction (improving cash
flows and ~Rs3.5bn rights issue), we estimate EPS to expand from Rs8.4 in FY21
to Rs25.2 in FY23. At 20x FY22 EPS, BJE trades at a huge discount (20-50%) to
its peers. However, margin expansion led by improving CP business mix will enable
rerating.
We initiate coverage on BJE with a BUY rating and a SOTP derived target price of
Rs500. Our implied target multiple of 22.7x (Sept-22 earnings) is at a 31% discount
to the industry leader Havells and 24% discount to Crompton Consumer.
Valuation summary: At 20x FY22 earnings; BJE trades at 20-50% discount to its peers
Name Sales growth (%) PAT growth (%) RoE (%) EPS (Rs) P/E (x)
FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E
Amber Enterprises -6.7 29.2 9.4 -32.1 82.7 15.1 9.3 14.8 15.2 36.6 65.4 71.9 40.5 22.7 20.6
Bajaj Electricals* -8.4 18.8 12.4 NA 129.9 29.8 6.7 14.0 16.0 8.4 19.4 25.2 45.6 19.8 15.3
Blue Star -7.1 17.4 6.4 -23.7 74.7 25.6 14.5 21.9 24.8 11.4 19.9 25.0 43.8 25.1 20.0
Crompton Consumer* -3.3 17.9 11.9 -5.6 35.3 14.6 24.6 26.9 25.8 6.6 8.9 10.2 35.9 26.6 23.2
Dixon Technologies 10.7 25.8 19.3 8.6 51.2 29.9 21.4 25.5 26.6 110.5 171.4 222.3 54.2 34.9 26.9
Finolex Cables -6.8 14.1 22.8 -25.7 25.8 6.8 10.6 12.2 12.6 20.3 25.7 29.2 14.4 11.4 10.0
Havells* -1.2 18.8 12.5 -10.1 39.5 15.5 14.2 17.4 18.0 10.5 14.7 17.0 55.1 39.5 34.2
KEI Industries -4.0 15.5 10.0 -16.6 40.6 5.3 13.4 15.9 15.6 24.6 34.0 35.2 14.5 10.5 10.1
Orient Electric -1.6 20.4 13.8 -8.0 70.5 35.0 18.2 27.5 33.5 3.8 6.3 7.8 50.2 30.8 24.7
Polycab -7.4 17.9 3.5 -21.0 31.9 13.1 14.5 16.4 14.7 40.5 53.2 60.2 20.8 15.9 14.0
Symphony -10.2 23.2 12.2 -17.3 38.2 23.2 21.9 25.7 27.2 21.8 29.6 36.6 41.4 30.4 24.6
TTK Prestige -1.8 16.5 15.3 -19.2 33.6 14.0 12.3 14.2 14.3 131.8 156.2 176.2 41.6 35.1 31.1
V-Guard -3.3 14.2 1.5 -8.1 29.5 0.9 15.5 18.1 16.4 4.0 5.2 5.2 42.7 33.0 32.7
Voltas* -3.0 18.7 10.1 -11.6 41.7 14.9 11.3 14.5 14.9 15.2 21.5 24.7 36.8 26.0 22.6
Whirlpool -5.0 18.9 7.0 -3.7 35.7 12.8 16.1 19.7 20.4 35.9 48.4 55.3 60.0 44.6 39.0
Source: Company, Bloomberg, PL * PL Estimates
SOTP – Implied P/E of 22.7x
Sept - 22 EPS Basis Multiple Per Share Value (Rs) Valuation %
Consumer Products P/E 24.0 20.5 492 98%
EPC P/E 5.0 1.7 8 2%
Target Price 500 100%
Source: Company, PL
Bajaj Electricals
July 6, 2020 24
RoE to improve from FY21
19.0%16.5%
0.0%
6.7%
14.0%16.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
FY18 FY19 FY20 FY21E FY22E FY23E
RoE %
Source: Company, PL
RoCE to stage gradual recovery
20.3%
17.4%
8.0%
11.4%
18.5%
21.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
FY18 FY19 FY20 FY21E FY22E FY23E
RoCE %
Source: Company, PL
D/E ratio comfortably below 1
0.8
1.5
0.5
0.3 0.2 0.1
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
FY18 FY19 FY20 FY21E FY22E FY23E
D/E (x)
Source: Company, PL
Debt to reduce substantially over FY19-22
25
41
32
27 25 25
-
5
10
15
20
25
30
35
40
45
FY18 FY19 FY20 FY21E FY22E FY23E
Borrowings (Rs bn)
Source: Company, PL
Improvement in cash flows
-1
-6
2 3
4 5
-8
-6
-4
-2
-
2
4
6
FY18 FY19 FY20 FY21E FY22E FY23E
CFO (Rs bn)
Source: Company, Company, PL
Consistent dividend payouts
32%
25%
26%
0%
24%
26%
2.8
3.5 3.5
-
2.0
5.0
-
1.0
2.0
3.0
4.0
5.0
6.0
0%
5%
10%
15%
20%
25%
30%
35%
FY18 FY19 FY20 FY21E FY22E FY23E
Payout Ratio (%) DPS (Rs)
Source: Company, Company, PL
Bajaj Electricals
July 6, 2020 25
Annexure:
Board of Directors & KMP
Board of Directors
Name Management Role
Family Member Representation on Board of Directors
Shekhar Bajaj Chairman & Managing Director Yes
Madhur Bajaj Non-Independent, Non-Executive Director
Rajiv Bajaj Non-Independent, Non-Executive Director
Pooja Bajaj Non-Independent, Non-Executive Director
Other Board of Directors
Anuj Poddar Executive Director Yes
Harsh Vardhan Goenka Independent Director
Dr Indu Shahani Independent Director
Munish Khetrapal Independent Director
Dr Rajendra Prasad Singh Independent Director
Siddharth Mehta Independent Director
Source: Company, PL
Auditors list
Name
S R B C & Co LLP Auditors
R Nanabhoy & Co Cost Auditors
Anant B Khamankar & Co Secretarial Auditors
Source: Company, PL
Bajaj Electricals
July 6, 2020 26
Financials
Income Statement (Rs m)
Y/e Mar FY20 FY21E FY22E FY23E
Net Revenues 49,771 45,582 54,146 60,865
YoY gr. (%) (25.4) (8.4) 18.8 12.4
Cost of Goods Sold 36,420 32,819 38,715 43,199
Gross Profit 13,351 12,763 15,432 17,666
Margin (%) 26.8 28.0 28.5 29.0
Employee Cost 3,834 3,555 3,790 4,200
Other Expenses 5,027 4,360 4,720 5,258
EBITDA 2,069 2,367 3,614 4,419
YoY gr. (%) (40.6) 14.4 52.7 22.3
Margin (%) 4.2 5.2 6.7 7.3
Depreciation and Amortization 680 734 772 830
EBIT 1,389 1,633 2,842 3,588
Margin (%) 2.8 3.6 5.2 5.9
Net Interest 1,692 986 556 482
Other Income 526 635 662 720
Profit Before Tax 224 1,283 2,948 3,827
Margin (%) 0.4 2.8 5.4 6.3
Total Tax 225 323 743 964
Effective tax rate (%) 100.6 25.2 25.2 25.2
Profit after tax (1) 959 2,205 2,863
Minority interest - - - -
Share Profit from Associate - - - -
Adjusted PAT (1) 959 2,205 2,863
YoY gr. (%) NA NA 129.9 29.8
Margin (%) - 2.1 4.1 4.7
Extra Ord. Income / (Exp) - - - -
Reported PAT (1) 959 2,205 2,863
YoY gr. (%) NA NA 129.9 29.8
Margin (%) - 2.1 4.1 4.7
Other Comprehensive Income - - - -
Total Comprehensive Income (1) 959 2,205 2,863
Equity Shares O/s (m) 114 114 114 114
EPS (Rs) 0.0 8.4 19.4 25.2
Source: Company Data, PL Research
Balance Sheet Abstract (Rs m)
Y/e Mar FY20 FY21E FY22E FY23E
Non-Current Assets
Gross Block 7,502 7,934 8,463 9,057
Tangibles 7,412 7,804 8,293 8,847
Intangibles 90 130 170 210
Acc: Dep / Amortization 3,460 3,916 4,411 4,947
Tangibles 3,398 3,827 4,284 4,772
Intangibles 62 89 127 174
Net fixed assets 4,042 4,018 4,053 4,110
Tangibles 4,014 3,977 4,009 4,074
Intangibles 29 41 43 36
Capital Work In Progress 109 66 66 66
Goodwill - - - -
Non-Current Investments 6,091 5,610 5,127 4,891
Net Deferred tax assets 453 447 432 413
Other Non-Current Assets 2,008 2,042 2,085 2,288
Current Assets
Investments - - - -
Inventories 6,908 6,869 6,676 6,670
Trade receivables 20,490 17,068 16,692 17,663
Cash & Bank Balance 1,047 1,101 1,490 2,624
Other Current Assets 4,364 4,513 4,873 5,174
Total Assets 45,585 41,808 41,573 43,984
Equity
Equity Share Capital 228 228 228 228
Other Equity 13,565 14,524 16,502 18,796
Total Networth 13,793 14,752 16,730 19,024
Non-Current Liabilities
Long Term borrowings 799 799 - -
Provisions 956 957 1,056 1,141
Other non current liabilities 714 729 758 791
Current Liabilities
ST Debt / Current of LT Debt 6,576 2,963 2,572 2,435
Trade payables 9,003 8,092 7,425 7,693
Other current liabilities 13,729 13,492 13,006 12,870
Total Equity & Liabilities 45,585 41,808 41,573 43,984
Source: Company Data, PL Research
Bajaj Electricals
July 6, 2020 27
Cash Flow (Rs m)
Y/e Mar FY20 FY21E FY22E FY23E Year
PBT 224 1,283 2,948 3,827
Add. Depreciation 680 734 772 830
Add. Interest 1,692 986 556 482
Less Financial Other Income 526 635 662 720
Add. Other (357) (25) 80 (86)
Op. profit before WC changes 2,239 2,977 4,356 5,053
Net Changes-WC 4,486 2,617 (485) (1,002)
Direct tax (451) (323) (743) (964)
Net cash from Op. activities 6,274 5,271 3,128 3,086
Capital expenditures (284) (667) (807) (888)
Interest / Dividend Income 49 - - -
Others (228) (1) (9) 73
Net Cash from Invt. activities (462) (668) (815) (815)
Issue of share cap. / premium 3,482 - - -
Debt changes (6,532) (3,613) (1,190) (137)
Dividend paid (432) - (228) (569)
Interest paid (1,426) (986) (556) (482)
Others - - - -
Net cash from Fin. activities (4,908) (4,599) (1,974) (1,188)
Net change in cash 904 4 339 1,084
Free Cash Flow 5,990 4,604 2,321 2,198
Source: Company Data, PL Research
Quarterly Financials (Rs m)
Y/e Mar Q1FY20 Q2FY20 Q3FY20 Q4FY20
Net Revenue 12,978 10,918 12,815 12,996
YoY gr. (%) 13.8 (31.7) (40.7) (26.7)
Raw Material Expenses 9,412 7,938 9,109 9,962
Gross Profit 3,566 2,981 3,706 3,034
Margin (%) 27.5 27.3 28.9 23.3
EBITDA 749 238 684 334
YoY gr. (%) 21.1 (70.1) (50.4) (51.8)
Margin (%) 5.8 2.2 5.3 2.6
Depreciation / Depletion 161 167 170 182
EBIT 588 71 513 153
Margin (%) 4.5 0.6 4.0 1.2
Net Interest 495 446 394 358
Other Income 179 116 100 194
Profit before Tax 273 (259) 220 (11)
Margin (%) 2.1 (2.4) 1.7 (0.1)
Total Tax 99 71 66 (11)
Effective tax rate (%) 36.3 (27.5) 29.8 100.0
Profit after Tax 174 (330) 155 -
Minority interest - - - -
Share Profit from Associates - - - -
Adjusted PAT 174 (330) 155 -
YoY gr. (%) (57.1) (196.8) (75.8) (100.0)
Margin (%) 1.3 (3.0) 1.2 -
Extra Ord. Income / (Exp) - - - -
Reported PAT 174 (330) 155 -
YoY gr. (%) (57.1) (196.8) (75.8) (100.0)
Margin (%) 1.3 (3.0) 1.2 -
Other Comprehensive Income - - - -
Total Comprehensive Income 174 (330) 155 -
Avg. Shares O/s (m) 102 102 102 114
EPS (Rs) 1.7 (3.2) 1.5 -
Source: Company Data, PL Research
Key Financial Metrics
Y/e Mar FY20 FY21E FY22E FY23E
Per Share(Rs)
EPS 0.0 8.4 19.4 25.2
CEPS 6.0 14.9 26.2 32.5
BVPS 121.2 129.7 147.1 167.2
FCF 52.7 40.5 20.4 19.3
DPS 3.2 - 2.0 5.0
Return Ratio(%)
RoCE 8.0 11.4 18.5 21.1
ROIC 0.0 6.5 12.2 15.1
RoE 0.0 6.7 14.0 16.0
Balance Sheet
Net Debt : Equity (x) 0.5 0.2 0.1 0.0
Net Working Capital (Days) 135 127 107 100
Valuation(x)
PER NA 45.6 19.8 15.3
P/B 3.2 3.0 2.6 2.3
P/CEPS 64.4 25.8 14.7 11.8
EV/EBITDA 24.2 19.6 12.4 9.8
EV/Sales 1.0 1.0 0.8 0.7
Dividend Yield (%) 0.8 - 0.5 1.3
Source: Company Data, PL Research
Bajaj Electricals
July 6, 2020 28
Notes:
Bajaj Electricals
July 6, 2020 29
Notes:
Bajaj Electricals
July 6, 2020 30
Notes:
Bajaj Electricals
July 6, 2020 31
Price Chart
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Asian Paints Accumulate 1,722 1,689
2 Avenue Supermarts Reduce 1,658 2,398
3 Britannia Industries BUY 3,744 3,510
4 Colgate Palmolive Reduce 1,224 1,313
5 Crompton Greaves Consumer Electricals BUY 267 199
6 Dabur India Hold 422 431
7 Emami Hold 287 205
8 Future Retail Under Review - 332
9 GlaxoSmithKline Consumer Healthcare Hold 9,377 9,247
10 Havells India Reduce 485 511
11 Hindustan Unilever Hold 2,017 2,195
12 ITC BUY 251 195
13 Jubilant FoodWorks Hold 1,392 1,530
14 Kansai Nerolac Paints BUY 487 389
15 Marico Hold 318 284
16 Nestle India Reduce 13,127 17,462
17 Pidilite Industries Hold 1,317 1,391
18 Titan Company Hold 936 997
19 Voltas Accumulate 564 539
PL’s Recommendation Nomenclature
Buy : >15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
267
369
471
573
675
Jul -
17
Jan
- 1
8
Jul -
18
Dec -
18
Jun
- 1
9
Dec -
19
Jun
- 2
0
(Rs)
Bajaj Electricals
July 6, 2020 32
ANALYST CERTIFICATION
(Indian Clients)
We/I, Mr. Amnish Aggarwal- MBA, CFA, Mr. Paarth Gala- B.Com Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
(US Clients)
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.
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