Bharat Bijlee Ltd
CMP – 1790
Market Cap – 1021cr
Industry – Engineering and Capital Goods Industry
Updated on twitter on Nov 24, 2021
Business Overview
Bharat Bijlee Ltd (BBL) is a pioneer in electrical engineering in India and one of the most trusted names in the industry today. BBL was established in 1946. The Forbes Asia Best under a Billion Company Award received in 2007 is a testimony to a history of superior performance, innovation and customer-centricity.
BBL has a sales and services network of 13 regional offices across India. Company manufacturing facilities are located in Airoli, Navi Mumbai, on a 1,70,321 square meters campus, with a working area of approximately 50,000 square meters.
The company cater to a spectrum of industries and builders of the nation’s infrastructure: power, refineries, steel, cement, railways, machinery, construction and textiles.
Company involved into two business segments.
- A power system that comprises Transformers and project divisions
- Industrial Systems segment comprising Electric Motors, Drives and Industrial Automation and elevator system division
Business Segments
- Transformers: – the production capacity of transformers is 15,000 MVA (Mega-Volt-Amp) per annum. Company offers up to 200,000kW, 200kW, 3 Phase transformers and caters to state electricity boards, Utilities, PSUs, Industries and overseas customers.
BBL specializes in manufacturing power transformers, Generator transformers, Unit Auxiliary Transformers and Special Application Transformers. Company have a large customer base both in India and Abroad.
The power systems continue to suffer from overcapacity and almost stagnant demand, making it a buyer market. Such an intensely competitive market has kept prices depressed and margins abysmally low.
- Industrial Products: – The Industrial Systems segment comprises a full range of low and medium voltage industrial electric motors, permanent magnet technology machines (MTM) and AC variable drives and drive systems.
- Electric Motors: – BBL is one of the leading Electrical Motor manufacturing in India. Company offers a complete range of motors and energy-efficient Phase 3 AC Electrical Rotating Machine from 0.12kW to 1,250kW used across industries and applications. Besides the standard rage, BBL manufactures customized motors for special applications and Medium Voltage motors up to 1,000kW.
The average life of the Electric motors is between 15 to 20 years, depending on the quality of raw material and manufacturing process. The operational cost of a motor is around 95% of the total life cycle cost. With a steadily increasing installed base of electric motors, our nation has a tremendous opportunity to save energy.
The motors are suited for all applications, i.e. Pumps, compressors, fans, conveyors, lifts, vibrators, centrifuges, stone crushers and many more. The special application of motors is Cane unloader motors, Textile motors, Railway auxiliary motors.
- Drives & Automation: – The devices used to control the speed of an electrical motor to enhance process control. Reduce energy usage and generate energy efficiently.
BBL has partnered with Karl E Brinkmann (KEB) of Germany to distribute their Variable Frequency Drives. KEBs AC (Alternating current) Variable Drives up to 900kW are also manufactured at its plant. In addition, the company provides DC (Direct Current) drive, Servo systems solution and the entire range of automated industrial solutions for enhanced precision, productivity and efficiency.
The Applications of Drive & Automation: – Plastic, Textiles, Metals, Packaging machines and Wind Energy.
- Elevator Systems: – From 1973 to 2001, BBL manufactured elevators under the brand name Olympus, which had over 15,000 installations across the country. In 2004, company divested the Elevator division.
BBL caters to every type of elevator – from tiny light to high capacity good lifts that can carry up to 5,000 Kg. BBL exports these machines worldwide via the PERMAGSA of Spain. It is the OEM supplier to elevator companies in India and Europe.
The Application of Elevator
- GreenStar: – Greenstar elevator used in Multi-storied buildings like malls.
- GreenStar Mini: – the application of this Greenstar Mini is for a Home lift for bungalows (big house).
- Greenstar Max: – this Greenstar max capacity loads up to 5000kg capacity. This kind of elevator is used for Car elevators.
Company Inflow and Outflow
Industry Overview
The turnover of the Capital goods sector was estimated at US$ 92 billion in 2019 and is forecast to reach US$ 115 billion by 2025.
The engineering industry is the largest industrial industry in India. It accounts for 27% of the total factories in the industrial sectors and represents 63% of the overall foreign collaborations. India’s engineering industry has witnessed remarkable growth over the last few years, driven by increased infrastructure and industrial production investment.
India export engineering goods mainly to the US and Europe, which account for over 60% of the total export. Engineering export was recorded at US$ 76 billion in April FY20 and reached US$ 60 billion in January FY21.
According to the National Association of Software and Services Companies (NASSCOM), India’s global engineering and research and development (ER&D) market will likely expand at a CAGR of 12-13% to reach US $ 63 billion in 2025.
Robust demand: – Capacity creation in the sector such as infrastructure, power, mining, oil and gas, refinery, steel, automotive, and consumer durables is driving demand in the engineering sector.
The Government expanded the “National infrastructure pipeline (NIP) to 7,400 projects. GOI completed around 217 projects worth ₹ 1.10 lakh crore (US$ 15.09 billion) as of 2020.
The COVID-19 outbreak during early FY2020 and the consequent lockdown imposed across India adversely affected capital spending, hence on order and revenue realization. As a result, the company profitability also came under pressure.
During the second half of FY20-21, pent up demand and festival season consumption contributed to a steady revival of the economy, supported by the Government renewed focus on ramping up infrastructure spending.
Investment rational
Industrial Systems: – This segment comprises a wide range of low and medium voltage industrial motors, Synchronous Permanent Magnet machines, and AC Variable speed drives and drive systems.
The Industrial segment’s revenue grew from FY2015 to FY2020, which is ₹ 260cr to ₹ 475cr (CAGR of 13%). The cash flow has been positive for the last 10 years, which is a good indicator.
| Industrial Products (Cr) | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| Sales | 221 | 290 | 248 | 250 | 260 | 280 | 323 | 319 | 429 | 475 | 438 |
| EBIT | 25 | 47 | 24 | 12 | 11 | 16 | 12 | 24 | 59 | 78 | 69 |
| EBIT Margin | 11% | 16% | 10% | 5% | 4% | 6% | 4% | 8% | 14% | 16% | 16% |
| ROCE | 44% | 53% | 28% | 13% | 15% | 20% | 14% | 28% | 57% | 56% | -1% |
| Power Systems (Cr) | |||||||||||
| Sales | 476 | 421 | 287 | 232 | 346 | 359 | 427 | 471 | 503 | 454 | 294 |
| EBIT | 61 | 15 | -8 | -2 | -14 | 23 | 28 | 34 | 27 | 32 | -2 |
| EBIT Margin | 13% | 4% | -3% | -1% | -4% | 6% | 6% | 7% | 5% | 7% | -1% |
| ROCE | 49% | 11% | -6% | -2% | -10% | 15% | 19% | 31% | 13% | 13% | -1% |
Industrial system division – the elevator segment will boost company revenue because the size of the building increasing year-on-year, infra boost in tier 2 and tier 3 cities.
Q2FY22, Total revenues in the quarter were increased by ₹ 159cr in Q2FY22 at ₹ 305cr. Last year Q2FY21 revenue was ₹ 146cr (up 109% growth YoY).
Internationally, a standard stipulates the energy efficiency of low voltage AC motors, namely the International Efficiency (IE). The purpose is to promote higher energy efficiency to reduce the energy consumption and the energy cost of low voltage AC motors. IE1 (Standard efficiency), IE2 (High efficiency), IE3 (Premium efficiency), IE4 (Super premium efficiency).
India has a vast opportunity size in terms of IE (International efficiency) motors. In India, most industries have IE1 motors, and a shift to IE2 motors can create a huge demand for BBL. Many countries turn their motors from IE1 to IE2 and IE2 to IE3 motors. The US and Europe are using IE4 motors while China, Mexico and Brazil use IE3 motors.
The Government’s focus on improving water infrastructure and sustainable water management practices has led to growing investment in large pumping stations for distribution and irrigation. Motors business participates actively in this sector and secured essential orders for medium voltages motors for water projects in Madhya Pradesh and Meghalaya. BBL also supplied medium voltage motors for a water scheme project for Utter-Pradesh, Jal Nigam.
In FY2011, the company generated revenue from the Power transformer, and Industrial products are 68% and 32%. After ten years in FY2021, revenue generation from the Power transformer and Industrial product is 40% and 60%. Company creating a new division in terms of Industrial System. Interestingly, the ROCE in the industrial product is upward of 40% vs. 12-15% in the power system.
As of November 2021, the market capitalization of the company is ₹ 1,060cr, out of which company have investment in Siemens India ltd ₹ 394cr, HDFC ltd ₹ 128cr, ICICI bank ltd ₹ 5cr and Hindustan Oil Exploration ltd ₹ 3cr (total is ₹ 530cr)
Risk
The company has an only plant in Aroli, Navi-Mumbai. COVID cases were highest in Maharashtra compared to other states. Due to the highest cases, the Government imposed strict lockdown; that’s why the plant was shut down. This kind of Deses, lockdown, labour strikes and natural disasters can impact company revenue.
The power systems continue to suffer from overcapacity and almost stagnant demand, making it a buyer market. Such an intensely competitive market has kept prices depressed and margins abysmally low.
Financial
We are most bullish on the Industrial Products segment, its key to note that industrial products have 2-3x higher margins & ROCE vs the power systems segment.
Consistent growth in EBIDTA & EBIDTA MARGINS. FY22 PAT can be the highest PAT, BBL has achieved in last 10 years.
FY22 revenues growth to be at an impressive 50% yoy, its interesting to know inspite of 2nd lockdown, the company is set to record highest revenues in last 10 years.
BBL is a Net Cash company with a debt at 324 cr and investments at 650 cr. BBL has done 30 cr capex in the last 2 years, but the business segments enjoy a very high
Fixed Asset turnover of 8-10x. Previous peak revenues at 930 cr in FY19 had a fixed asset of mere 65 cr.
Valuation & Outlook
Multibagger in the making
- Higher fixed asset turnovers
- Growth capex in the last 2 years
- Net Cash company
- Massive sector tailwinds in Cap goods space
- Economic & GDP revival
- Industrial products segment is the highest margin segment and expect higher growth vs the power systems segment.
We estimate a PAT of 100-120 cr in FY23-24, at current market cap of 1,035 cr BBL is available at an inexpensive valuation of 8-10x FY23-24 PAT. Strong tailwinds in sector and higher growth in the profitable industrial products, we feel the PAT can surprise on the upside.
Phoenix Capital 