I have taken a position in Bajel Products Ltd.
It was formed by the demerger of Bajaj Electricals Ltd. This is from their website:
“Bajel Projects Limited (BPL), formerly a division of Bajaj Electricals Limited, is a leading company in the Engineering, Procurement and Construction (EPC) business. The company operates through its four business verticals – Power Transmission, Power Distribution, Monopoles, International EPC and has its own world-class manufacturing facility with state-of-the-art machineries at Ranjangaon MIDC, Pune.
With over two decades in business, Bajel Projects is the go-to partner for high voltage and extra high-voltage transmission line projects, substations, UG cabling, poles, monopoles, high mast and electrification projects along with feeder separation and lift irrigation projects on a full turnkey basis.
BPL has a proven track record for its national and international business with an enviable clientele consisting of Power Grid Corporation of India Ltd (PGCIL), Madhya Pradesh Power Transmission Company Ltd (MPPTCL), Haryana Vidyut Prasaran Nigam Ltd (HVPNL), Torrent Power Ltd , Zambia Electricity Supply Corporation (ZESCO), Kenya Power & Lighting Company (KPLC), North Bihar Power distribution Company Ltd (NBPDCL), South Bihar Power distribution Company Ltd (SBPDCL) and West Bengal State Electricity Distribution Company Ltd (WBSEDCL) among others.”
https://bajelprojects.com/about-us.html
Quote from credit rating report:
“Strengths:
- Track record in the EPC business: The EPC business has been in existence for more than 15 years and due to the track record, it is qualified to execute complex projects.
- Strong order book: The company has been able to increase the order book to ~Rs 1600 crore as on March 31, 2023 from reputed customers like Power Grid Corporation of India Ltd ensuring revenue visibility for the next 1.5 to 2 years.
- Backward integration: The company is also backward integrated through its manufacturing of towers and poles, which can help the company improving cost efficiencies going forward.
- Comfortable capital structure: The company is expected to remain debt free in the near term and healthy liquidity is expected to support the financial risk profile.
- Expected financial support from parent: The company is expected to get financial support from the strong profile of the Bajaj group and expected financial support, as may be required from one of the group holding companies, Jamnalal Sons Private Limited (JSPL). JSPL has a healthy financial flexibility as reflected in its holding in various companies of Bajaj Group and low debt obligations or contingent liabilities.
Weaknesses:
2. Modest but improving profitability: Power T&D business is exposed to intense competition due to low entry barriers. Additionally, cost overruns in the past and some inefficiencies impacted profitability of the company. The company has taken several corrective actions which is expected to improve the performance going forward. Cost efficiency improvements, prudent selection of counter parties and robust pre-bid assessment of contracts are expected to support the margins going forward. While the EPC business has achieved breakeven in fiscal 2023, material expansion in profitability remains a key monitorable.
2. Execution risk: Any large-scale project deferrals or slow project execution could lead to cost overruns impacting profitability. However, these risks are mitigated by the execution capabilities of the company in the power T&D EPC segment.
3. Working capital-intensive operations: Operations of BPL are working capital intensive owing to the inherent nature of the business and the long project execution cycle of 18-24 months. Receivables are typically high in the business due to the sizeable retention money blocked in completed projects till the defect liability period is over. Receivable recovery risk is partially mitigated as majority of projects are backed by central public sector undertakings. Efficient working capital management, especially with growing scale of operations will remain a key monitorable.”
The stock seems to have consolidated after heavy selling due to demerger. Fundamental picture will be clear after the quarterly result.
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