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[mehak1]

BEL is a part of the $3 bn "Bajaj Group" and enjoys strong brand positioning. It has a respectable market share in appliances and luminaries business of about 15% - 30% in various categories. We expect current exhaustive product range along with expected entry into inverters, other cooking range products, to give further bonus to sales and improve margins from current 7% in appliances and 5% in lighting to 7.3% and 5.1% respectively by FY09E.
The stock is available at 0.6x on market cap to sales ratio based on FY09E sales. At the current price of Rs 615, the stock trades at 13.6x its FY09E earnings, and is citing at a discount to its peer group on most parametric quantity.
We believe improvement in margins and strong earnings growth at 41.3% CAGR over FY07-09E, along with return ratios at 30% plus make the stock surpass a value buy candidate. We assume BEL to be a brand play and hence market capital to sales (atleast 0.8x FY09E sales) should be considered
a better methodology to value BEL giving a target price of Rs.801, an upside of 30% within a time frame of 12 to 18 months. We have attempted valuing individual business segments also as there is no company with all business as of BEL, but that gives an affirmative target of Rs.972, which we confine to give in current market scenario. Even at 20% discount to this value, value per share can be close to Rs.777 giving a return of 26%.
BEL has a leading market share in most of its business segments. Rising disposable incomes and rapid urbanisation will drive the growth of its consumer durables and lighting businesses. Apart from business
potential, company has a huge distribution network of 19 branch offices, a chain of 600 distributors, 3000 authorised dealers, over 1,20,000 retail outlets and over 200 service franchises spread across the
country.
BEL is the leading player with a 20% market share in appliances business followed by Kenstar (12%) and Philips (10%). The appliances industry has current market size of Rs. 4400 crore (65% organised) and is currently growing at 20%. BEL occupies the no. 1 position in Iron, Ovens Toasters
Grillers (OTG) and Mixer from the below products leading with 20% – 30% market share.
Major products offered by the company include Iron, OTG, Water Heaters, Room Heaters & Heat Converters, Toasters & Sandwich makers, Mixers Grinders, Juicers, Food Processors, Hand Blenders, Water Purifiers & Filters, Microwave Ovens, Gas stoves, Air Coolers, Electric Kettles, Coffee Makers and Tea Makers.

Company Background-

Bajaj Electricals Limited (BEL) is a part of the US $ 3 billion "Bajaj Group" which is in the business of steel, sugar, two wheelers & three wheelers besides an impressive range of consumer and electrical products. The company is the largest player in the small appliances segment with a market share of 15%-30% in diverse categories. The company directs to be Rs.2001 crore company in the
next couple of years. Bajaj Electricals has 19 branch offices, a chain of 600 distributors, 3000 authorised dealers, over 1,20,000 retail outlets and over 200 service franchises spread all over the country. BEL today has five major Strategic Business Units comprising of Home Appliances, Fans, Lighting, Luminaries and Engineering & Projects. The company is also in the business of manufacturing,
erecting and commissioning of Transmission Line Towers, Telecom Towers, Mobile Telecom Towers and Wind Energy Towers. Export of all BEL's products except its Engineering and Projects Business unit is taken care of by group company Bajaj International Pvt. Ltd.


Report card

PE ratio    13.80               10/01/08
EPS (Rs)   44.62              Mar, 07
Sales (Rs crore) 304.89             Sep, 07
Face Value (Rs)  10   
Net profit margin (%) 3.54        Mar, 07
Last bonus   1:1                 29/05/07
Last dividend (%)    80               05/03/07
Return on average equity 36.08    Mar, 07