First, we must come to terms with Neha Majithia’s credentials. In September 2012, Neha issued a report recommending 9 small and mid-cap stocks for investment. It included a few stocks like La Opala which were unknown to the masses at that time.
I last checked the status of her stock picks in January 2014 and was astonished to find that they were giving a return of 118%.
Let’s do a quick status check of the stocks at the present valuations:
| Stock Picks | Stock price on 09.09.2012 | CMP on 23.05.2014 | Gain/ Loss (%) |
| Amara Raja Batteries | 193* | 397 | 105 |
| Cera Sanitaryware | 356 | 1193 | 235 |
| Dhanuka Agritech | 92 | 324 | 252 |
| La Opala | 123 | 940 | 665 |
| PI Industries | 108* | 299 | 178 |
| Somany Ceramics | 44 | 226 | 414 |
| Tide Water Oil | 7872 | 9836 | 25 |
| Wimplast | 332 | 814 | 145 |
| Zensar Tech | 256 | 349 | 36 |
| Simple Average Return | 228 | ||
A return of 228% in just 18 months is simply mind-blowing. There is one six-bagger, one four-bagger, two two-baggers and three one-baggers in the portfolio. What this also means is that if I had just cloned her portfolio in January 2014, my portfolio would have doubled in just a couple of months.
So, there is no question that Neha Majithia is an ace stock-picker and we need to treat her stock recommendations with due respect.
Now, let’s pay attention to Neha’s latest stock pick Whirlpool. Neha first homed in on Whirlpool on 28th November 2013 when the stock was languishing at Rs. 171. At the CMP of Rs. 304, investors are already looking at a fabulous gain of 74%.
In her latest report, Neha has reiterated a “strong buy” of Whirlpool. Her logic is simple and compelling:
“We continue to recommend Whirlpool of India Ltd a “STRONG BUY”. Whirlpool of India is the subsidiary of world’s largest consumer durables company Whirlpool Corporation, USA. The parent company is
headquartered at Michigan, USA having global presence over 170 countries and manufacturing operation in 13 countries with 11 major brand names such as Whirlpool, KitchenAid, Roper, Estate, Bauknecht, Laden and Ignis. Diversification of products in a single segment, launching of new models and rupee appreciation/ stable commodity prices to increase margins and ease pricing pressure, new stable government to lead to well balanced economy and ensure level playing field.
Debt Free Company; Increasing free Cash flows and scope for dividend payment in future: We believe Whirlpool India can leverage on its debt‐free status to improve net profit margins in the coming years also. The company generates healthy cash flows. Its cash balance has gone up from INR155cr in FY13 to Rs 292cr in FY14. Hence, healthy cash flows leave much scope for the company to consider dividend payments going ahead”.
While Neha’s analysis cannot be faulted, there are a couple of downsides to Whirlpool that I can think of. The first is that it operates in the ultra-competitive segment of air-conditioners, washing machines, refrigerators etc where the margins are wafer-thin. Also, you have the aggressive Korean behemoths Samsung & LG and a host of domestic companies like Godrej, Videocon etc breathing down your neck for a slice of the market share.
Secondly, a large (25%) component of Whirlpool’s raw material is imported and it has gained as a result of the rupee appreciation. However, if the currency turns the other way, Whirlpool’s margins, which are already wafer-thin, will be sent tumbling.
An alternative to Whirlpool that I can think of is Bajaj Electricals. If you read Motilal Oswal’s report, you will find that while the consumer electronics division is minting money and is an “enviable consumer franchise“, the projects division is/was bleeding cash but is on the verge of a “strong turnaround“. This was confirmed by Shekhar Bajaj who has come on record to confirm that the project division is/will be also profitable now. Bajaj Electricals also recently (22nd May) announced (pdf) that it has won an order from Power Grid worth Rs. 323 crore.
In the report, Motilal Oswal have predicted that Bajaj Electricals’ earnings will “quadruple” over FY 14-16 and that a “re-rating is imminent”.
Sharekhan has, in its’ report on 20 top-quality stocks for NAMO made three salient points about Bajaj Electricals:
(i) The turnaround in the project business and continued momentum of the consumer business are likely to catapult its earnings to 8x in the next two years.
(ii) With a turn-around of the project business where almost 50% of the total capital is deployed could improve the
RoE significantly from 7% in FY2014 to 20% in FY2016.
(iii) The consumer business is generating a significant cash and return ratios, which would continue to add value for the investors. With an improvement in the market sentiment, the stock could touch Rs450 in the next two years.
If what Motilal & Sharekhan say comes true, Bajaj Electricals will be an unstoppable juggernaut. Also, it is a multi-year opportunity.
Speaking for myself, I had a chunk of Whirlpool stock which I sold (before I read Neha Majithia’s report) and invested a part of the proceeds in Bajaj Electricals. Now, I am eager to see whether Bajaj does outpace Whirlpool or not over the next six months!
I think that Whirlpool and Bajaj Electricals cannot be put in the same category, as the former is into consumer electronics, whereas the latter is into basic electrical goods. Also, I am not impressed by the R&D, or rather the lack of it, of Bajaj companies. Look at what happened to Bajaj scooters, they continued with a 30-40 year old design until they were driven out of the market and were forced to make bikes instead, and even then their bread and butter comes from entry level models like Platina and Discover. One can see the same lack of innovation and drive in Bajaj Electricals as these guys have yet to make their airconditioners and refrigerators and stick to making fans instead. The “project business” that the research report mentions are what all Indians know very well, it’s nothing but old fashioned “jugaad”, or using one’s contacts to make sales. The miserable 7% ROE that is supposed to turn into 20% by using contacts only reflects on the poor quality of management that is unable to compete in the free market.
Just my two cents 🙂 I don’t own any stock of Whirlpool or Bajaj, but looking at Ms. Majithia’s impressive record, I’d rather go with Whirlpool.
I am extremely buliish on Bajaj Electricals and have been buying since 190 levels. The company was suffering due to projects business and now they have got new Projects business hed fron LNT who has long proven record………Cpmpany is on the verge of turnaround………..Look at the portfolio of prodcucts they have right from Iron to Geysers anything and everything…..Compare this products portfolio with that of Vguard or Havells or crompton etc……..Look at the management of bjaj, they acan never do wrong in any company………… basic research @ 190 levels was company was availble at throwaway Mktcap of 1800 Crores compared to Havells, VGuard, Crompton etc’s mkt cap of anywehre between 5000 to 20000 Crores…………Further, u visit any of the electrical shoppe or any big shop like Dmart, Big Bbazaar……. U will find only bajaj products availble there………………so, it was a no brainer stock available at throw away valuation……………. I am sure that stock will be approx 1000 (approx 10K Mktcap) in max 2 yers time frame and 2000-3000 (approx 20K mktcap) in max 3-5 years………….. Next multibagger I see is HSIL..same story of bajaj electricals…Glass divisoon spoiling ROE’s…but sanitaryware is the king…..I hve bought this at 150 levels and now already its 220 levels…….I see a price of 500 in 1 year and 1000 in 2 year………see the mkt cap of company at current price and the brand value of Hindware………
Bajaj Electricals turnaround will be based on how the EPC business does and here the amounts involved are huge. so, there will be some swings since a single project going south can spoil a quarterly result. That said, there is going to be a complete re-rating and looking at various research reports, it seems to be a low risk buy, even after the stupendous run in recent times
as usual, I seem to late to the party in Bajaj (looking at Ajay’s level). In fact, if I touch any recent research report and compare the targets, the 1 year targets given are already achieved in 2 days or so in NaMo rally and there lies the fallacy for me
When I say 1 year targets..not necessarily for BajEle but for any stock
Well Kalyan, you’re not alone 🙂 it’s happened to lots of people. The current NaMo rally has most stocks hitting their 52 week highs and the man hasn’t even started on his job.
@Ajay – Havells has a complete range of electrical goods that you mention, and they don’t do big-store selling but are setting up their exclusive stores nationwide along with service centres. Thanks for HSIL reminder, I’d forgotten this stock and it’s hitting new highs as well.
Whirpool Iam watching and invested since 2004 on and off
Not a co for investments unless one have huge patience to sleep over it for years
in a nutshell. Inconsistent performer
AVOID
Massacre today (as it often happens to anything which I buy!!)
Bajaj electricals is going down the tube – 18% down
Bajaj Electricals today reported a loss of Rs 10.65 crore for the quarter ended March 31. It had posted a net profit of Rs 63 lakh in the January -March period of last fiscal, Bajaj Electricals said in a BSE filing. However, its net sales during the quarter under review increased to Rs 1,269.51 crore, against Rs 1,099.74 crore in the year-ago period. For the financial year 2013-14, the company had a net loss of Rs 5.31 crore. It had reported a profit of Rs 51.21 crore in the previous fiscal. The net sales for the year increased to Rs 4,024.04 crore from Rs 3,370.58 crore in 2012-13. Shares of Bajaj Electricals were trading at Rs 345 per scrip during afternoon trade at BSE, down 6.82 percent from their previous close.
Read more at: http://www.moneycontrol.com/news/results/bajaj-electricals-reports-rs-1065-crore-lossq4_1095077.html?utm_source=ref_article
I am averaging as usual. no other go. This may go down all the way to 150 or 175 from the looks of it
First, I saw the dividend announcement of 1.5 for Rs 2 share (75%) and then this bombshell…seems the financing cost is the culprit and anyway, the gross profit was nothing great either. Can the gurus here figure out what happened?
This seems to be a disaster written all over
Ajay/Arjun
Looks like the old levels of Ajay (190) is just days away. I wish someone clarifies how could this happen, after so many ‘analyst’ reports touting / tom toming the stock and a turn around in their ‘EPC’ business.
just went through the interview of Shekar Bajaj
http://www.moneycontrol.com/news/results-boardroom/see-fy15-revenues-at-rs-4600-crore-bajaj-electricals_1095153.html
Not at all inspiring. How can one come to an interview like this and not know he order book number?
Deeply regretting the investment(actually drain) in this, based on all these analyst reports on Bajaj Electricals. It looked too good to be true and as usual, I end up holding another lemon!!
I am hugely disappointed with the results announced. I think one will get to see the levels of 150 again!!!.. I thought it is a value buy at 370!!.. though the turnaround is just around the corner. What happened today made me realize my mistake.. Can someone please give advice as to what i should do with the stock?? book losses and reenter at lower levels or average it ?
This sentence is a shocker “The first quarter results are very critical because that will show us whether we have got back our margins or is it something which is still going to be a problem”
Read more at: http://www.moneycontrol.com/news/results-boardroom/see-fy15-revenues-at-rs-4600-crore-bajaj-electricals_1095153.html?utm_source=ref_article
Instead of speaking with authority on what will happen on first quarter ( we are on 29th of May ..damn it….and there is just 1 month left in Q1), Bajaj still speaks in vague terms. He knows what is going to happen esp when 2/3 rd of Q1 is done.
We are definitely holding a lemon and all analysts have sold us short.
I have started averaging but looked foolish when I reread the interview.
AJAY. Ur buying levels are from 170 and hence I recommend that u get out with whatever u can take and don’t even sleep in this direction.
As far as me, I know how it will go. I will keep averaging and then stop 1 day when I run out of dough. Some other joker analyst will swing by and produce another cool PDF and some new ‘ullus’ will buy it. I will then get out with break even after cursing myself for 2 years. Opp lost cost will cheese me off but that is how these lemons go.
Looking for Arjun to comment.
BTW. There is some decent MF holding in this stock. The stats are from Mar. For all you know, they might have quietly got out in May by fuelling these analysts and leaving us retail wallahs in the lurch
BAJELE will definitely outpace Whirlpool but in reverse gear. The fall will be so sharp that it will leave a gash of red, even with averaging. I expect to be here for looooooooooooooooong
If we coolly analyze the results in the light of Shekhar Bajaj’s interview, we can understand the following:
(i) The net sales during the Q4 quarter increased to Rs 1,269.51 crore as against Rs 1,099.74 crore in the same quarter last year (15.46%). The sales for the year increased to Rs 4,024.04 crore from Rs 3,370.58 crore in 2012-13 (19.40%). This is quite a healthy growth in the top-line by any standards;
(ii) All three segments of the business (i.e. consumer durables, lighting & projects) are EBITDA positive;
(iii) The losses in the consumer durables and lighting division was caused by higher ad spend which did not translate into higher sales. I suspect the culprit is the new “Hakka Bakka” campaign (view on youtube). The ad is so third-rate that I am not surprised it did not attract new customers. In fact, apart from gobbling up crores of rupees, it may have antagonized/ irritated customers. However, with a better ad, the customers will come flocking back;
(iv) The loss in the Projects division is because of write off of old projects/ closure of sites. This is not recurring. There will be no losses in the next & coming quarters;
(v) A part of the loss is because of the weak rupee at ~ Rs. 61/62. The appreciation in the rupee to Rs. 58/59 will lead to some gains;
(vi) The order book of the Projects division is a healthy Rs. 2000 crore. This will lead to profits in the coming quarters;
(vii) On a conservative basis, the consumer durables & lighting division will grow at 10% while the Projects division will grow at 25%. The expected turnover is Rs. 4600 crore (from the present Rs. 4000 crore) though the target is Rs. 5000 crore.
We must also remember that:
(a) The steep fall today is because the stock has also had a steep rise in a short time;
(b) Any business can have a nasty surprise in a Quarter or two. However, what we have to see is whether the underlying business is sound. Here, there is no question of Bajaj Electricals’ brand & distribution strength in the consumer durables and lighting division. The Projects division has been the drain in the past and we may have seen the last of the losses in this;
(c) It is also a good thing that the business is not yet fully turned around and there is still uncertainty around. Once the business is turned around and profitable, you obviously won’t get these prices.
So, ultimately, my sense is that there is no reason to despair because the underlying theme is still intact. On the other hand, if there is a deep correction, it is a cue to load up on the stock – provided, of course, one has the confidence, stomach and the nerve to hold on despite the volatility.
There is an earlier interview on youtube of Shekhar Bajaj in Nov 2013 where he clearly says that the old losses of the Project division would continue to be written off till Q4. The only surprising aspect is the loss in the consumer durable and lighting division. However, that appears to be an one-time event owing to heavy ad spend.
Thanks Arjun. Exactly the kind of analysis which we expect from you. Hope you are right. I certainly did not derive any confidence from Bajaj’s interview but when I look at the old one, I can see what you are saying
Hi everyone, thanks for your replies.. Good analysis Arjun. I have a specific question to Arjun actually. How do u think the company will be able to turn profitable?. As it is it is facing tough competition from a lot of domestic and MNCs. So how will it maintain its margins going forward? .. It is also unlikely that its E&P business will turn profitable next fiscal.. Thanks
Religare has issued a sell call for Bajaj Electricals:
“BJE posted below-expected Q4FY14 results with a net loss of Rs 107mn (vs. a profit of Rs 6mn/Rs 200mn in Q4FY13/Q3FY14) on continued E&P losses and lower margins in the lighting/consumer durables businesses. In our view, the recent ramp-up in the company’s engineering project business (order book touches Rs 19.8bn in FY14; capital employed expands to Rs 6.3bn on rural electrification orders) may not lead to value creation and remain a drag on its returns profile. Reiterate SELL with a TP of Rs 250”.
You can download the report here
Motilal Oswal have reiterated a Buy:
– E&P turnaround on track; worst of margins in consumer business is behind: Bajaj Electricals (BJE) reported revenue of INR12.7b (est. of INR13.2b), compared to INR11.1b in 4QFY13, marking a YoY growth of 14.1%. While E&P division reported robust 54% growth, poor demand environment impacted growth in Lighting (4% growth YoY) and Consumer Durable (-2% growth YoY) businesses. EBITDA margin for 4QFY14 stood at 0.4% (est. 6.2%), against 1.2% in 4QFY13. While E&P posted a strong turnaround with margins for the quarter standing at -4.7%, against -17.8% in 4QFY13, margins for the Lighting (3% v/s 7.9%) and Consumer Durable (3.6% v/s 8%) were weak due to large discounting during the quarter and unfavorable operating leverage.
– FY15 to witness strong improvement in profitability: BJE’s management guided for 15% growth in Lighting and Consumer Durable divisions and 25% growth in E&P business for FY15. With most legacy contracts for E&P division concluded in FY14, coupled with strict timeliness in execution of new projects, E&P is set to turn profitable from 1QFY15. Management is confident on improving E&P division’s RoCE to 20%, thus improving overall RoCE profile. We believe the worst of decline in margins in consumer facing businesses is behind and with favorable exchange rate environment and recovery in demand, margins will bounce back. We expect earnings to grow from INR-53m in FY14 to INR1.8b in FY15E / INR2.3b in FY16E.
– Valuation and view: Over the last three years, E&P division’s dismal performance clouded BJE’s robust underlying consumer franchise. With expected turnaround of E&P business, we believe BJE will continue to get re-rated thus reducing the valuation gap with peers. We cut the earnings estimate for FY15E and FY16E by 13% and 7% respectively to factor the lower margins. We value BJE at 16x FY16E EPS of INR23 and arrive at a target price of INR370. Maintain Buy.
You can download the report here
People always get worked up with short-term moves.If you buy a stock,doesn’t mean it will start rising from the next day.A quality stock bought at high valuations(like Infy at 3700-4000) will give pain,while a poor stock bought at low valuations(Suzlon at 7-9 bucks) may give a lot of gains.In any case,its advisable to hold horses for stocks that have seen a sharp rise(unless the stock is Aurobindo! :D) And it always helps to know as much as possible about a company,its operations,management,etc.
BE management is a good one & quiet alright that they have not committed a number for Q1Fy15.Personally,I am looking to add positions in Finolex Cables…similar story,foreign derivatives driving down margins & valuations over the past 2 years.However,the company should be easily able to do 20-25% CAGR from here now.Quality company,low valuations.
Thanks.. The only million dollar question is which one of the two reports should one believe!
Orient did better than Bajaj in the market ,it is @ 70 from 22