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One of the leading players in electric engineering industry in India BBL primarily has two primary business segments: Power Systems that comprise Transformers and Projects divisions, and Industrial Systems segment comprising Electric Motors, Drives & Industrial Automation and Elevator Systems divisions. BBL has a strong presence in 220-KV transformers to 200 MVA in its power transformer segment. It’s motor segment includes manufacturing and selling of low tension (below 6.6 KV) motors. The company has also ventured into manufacturing high tension motors, operating at 3.3–11KV. At present, it is involved in manufacturing motors ranging from 0.18KW (fractional kilo watt motors) to 1,250KW.

Strong demand from Industries and Policy support from Government likely to drive the growth The uptick in the capital expenditure in various industries coupled with increasing population along with increasing electrification will lead to increase in per capita usage of electricity, is likely to support the growth in Power Industry. Further, the industry is getting a boost from Central Government’s schemes and policies like Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY), Ujwal DISCOM Assurance Yojana (UDAY), and Integrated Power Development Scheme (IPDS).

Robust fundamentals provide financial cushion for propel top-line growth BBL’s revenues have witnessed a steady increase over the last several years from Rs.774 cr in FY18 to Rs.1,419 cr in FY23 with EBITDA in the range of 4.3% to 8.3% (highest EBITDA margins in FY23) through same period. The debt was at Rs.289 cr and equity of Rs.1,378 cr as on 31 March, 2023, the debt-equity remains at reasonable 0.21x. BBL also has an investment in equity to the tune of Rs.859 cr as on 31 March, 2023.

OUTLOOK & VALUATION

BBL is one of the leading transformer players in the industry; the company has 2 business segments Power Systems and Industrial Systems. The company has a robust financial profile with negligible debt and strong cash flows. The EBITDA margins and PAT margins has increased to 8.3% and 5.9% respectively in FY23. The likely increase in capex and supportive Government schemes such as DDUGJY and UDAY may benefit the long term growth in power sector. The company has an equity investments of Rs.859 cr and ICDs of Rs.267 cr as on 31 March, 2023. We believe, the investments and ICDs are present since more than a decade and the management may not liquidate. Going forward, we expect the company to deliver an EPS of Rs.198.7 in FY25; assigning a target multiple of 17.0x for the core business and 50% discount on valuation of investments and ICDs while we arrive at a target price of Rs.4,460 showcasing an upside potential of ~47% from current levels with an investment horizon of 18-24 months.

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