The stock of appliances maker Bajaj Electricals appears to be a good investment option at the current market price of Rs 247. The stock discounts its estimated FY-12 earnings by 14 times.

The company's increasing market share in the small consumer appliances market, a strong order pipeline of the engineering and projects (E&P) business unit and the company's ability to pass on input cost increases are arguments in favour of the stock.

Despite the pressure of rising input prices, the company held its operating profit margins at 10 per cent (at the same level of last year) in the recent December quarter.

As prices of key metallic inputs rose, the company managed to effect 5-10 per cent price increases across product categories over the last two quarters and rationalise costs through strategic sourcing of inputs.

Metal prices on the London Metal Exchange, have however come off their peaks after the recent turbulence in North Africa and the twin disaster in Japan. While zinc is down 6 per cent and copper dipped 5 per cent from its high in February.

This dip in metal prices, if sustained for a while, may offer Bajaj Electricals an opportunity to build up low cost inventory. The price increases already undertaken may buttress margins if material prices stay down.

However, even if commodity prices rise from this point, the company may be able to comfortably pass it on to consumers. The company's focus on small-value utilitarian appliances and the strong demand for the same, makes consumers quite willing to absorb price increases.

Bajaj Electricals' consumer business is growing on the back of new product launches, the expanding retailer network and entry into towns and rural markets. Bajaj's electrical lanterns have taken off well in rural markets.

The company's launches of appliances – pressure cooker, induction cookware, microwave ovens (under Morphy Richard brand) – are also doing well. For the nine months ending December-10, the consumer durables business unit has reported a revenue growth of 36 per cent.

The E&P segment (which handles rural electrification projects, building transmission line towers, street and stadium lighting), which has been showing lacklustre performance in the recent quarter, will do better from FY12 with improved project mix in the order book.

The segment's order book stands at Rs 1,050 crore now, 0.7 times the segment's revenue in FY-10. Also, 60 per cent of the current order book is made up of contracts that have a price escalation clause, so margins appear protected to an extent.

For the nine months ended December-10, the company reported a 22 per cent growth in overall revenues. Net profit growth for this period was 8 per cent – the growth is subdued because of cost pressures in E&P business from past fixed price contracts, in the September quarter.

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