Shekhar Bajaj, Chairman and MD, Bajaj Electricals said, “HLL is a really good source of lamps for our company since 65 years and as it is not facing any loss since few months, this is the right time to invest funds and support the HLL business. The 3-5 percent cost reduction is expected as a result of this deal which will surely lead to profitability”.
Shekhar Bajaj, Chairman and MD, Bajaj Electricals conveyed to CNBC- TV 18, that this deal will reduce the cost of borrowing for HLL from 13 percent to 10-11 percent. HLL is weak under BIFR, and hence this bond will make HLL profitable.
Bajaj said, “HLL is a really good source of lamps for our company since 65 years and as it is not facing any loss since few months, this is the right time to invest funds and support the HLL business. The 3-5 percent cost reduction is expected as a result of this deal which will surely lead to profitability”.
He made sure that once they receive approval from BIFR, there will be a drastic change in the whole scenario and HLL will give profits in H2FY16.
IIFL View on Bajaj Electricals:
Revival in consumer demand and strong spending in Transmission & Distribution (T&D) would boost Bajaj Electricals (BEL)’s earnings over the next two years. BEL’s E&P division has shown strong growth over the last six months and is expected to continue on the back of strong order book and expansion in margins. The company is trading at 10.1x FY17E P/E, which is quite lower than its peers.
BEL is a major player providing solutions in lighting, consumer durables (CD) and engineering & projects (E&P) segments through its wide network of dealers and distributors. CD, luminaries and E&P accounted for 55%, 25% and 20% of total FY15 revenues, respectively. BEL’s premium product Morphy Richards contributes 15% to total CD sales and registered a CAGR of 13% over the last five years. BEL’s sales witnessed 14% CAGR over the last 5 years on the back 15% revenue CAGR registered in CD and E&P segments, even as lower margins in CD, abnormal increase in site expenses and challenging business environment dampened profitability. Of late, the company has taken a series of steps such as monitoring of project performance and completion of projects as per schedule to avoid cost and time overrun. As a result, it has turned profitable over the last 3 quarters. Near term sales growth in CD would remain impacted due to the shift to TOC model. BEL has announced the merger of manufacturing business of Hind Lamps Limited (HLL) into BEL. HLL, an unlisted company, is a sick unit and has been a vendor for BEL since last several years. The merger will provide manufacturing capabilities and its required infrastructure of HLL to BEL, leading to more efficiency and would be more economical for the company. The management was quite confident in turning around the compan
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