Tuesday, 29 Aug 2024

Bajel Projects (BSE:544042)

Strong BUY

Crafting Landmark Solutions for a Sustainable Future

CMP: ₹270/-

12m TP: ₹473/- Upside: 72.1%

We at Global Consilient Research are pleased to initiate coverage on
Bajel Projects Limited, a leading entity in the power transmission and
distribution sector, known for its extensive expertise in delivering
turnkey EPC solutions. Please be advised that the contents of this
report are solely for educational purposes and should not be construed
as investment advice.

Business Overview of Bajel Projects Market Data

Market Cap ₹3,113 Cr
Bajel Projects Limited, a prominent name in the power transmission Enterprise Value ₹2,975 Cr
and distribution (T&D) sector, has a rich history and a well- Book Value per Share ₹49.1/-
Debt to Equity 0.03x
established presence in delivering turnkey EPC (Engineering,
P/E 178x
Procurement, and Construction) solutions. This section provides a P/B 5.50x
comprehensive overview of the company's evolution, strategic ROE .91%
initiatives, and operational strengths, offering insights into its ROCE 6.19%
business model and market positioning.
In a nutshell
Historical Context TTM Revenues ₹1,476 Cr
Bajel Projects Limited was initially part of Bajaj Electricals Limited, a 3Y Rev CAGR N/A
diversified company known for its consumer products and EPC 3Y PAT CAGR N/A
Latest EBITDA % 1.37%
services. In early 2022, Bajaj Electricals announced a strategic
Latest PAT % 0.37%
decision to demerge its EPC business into a separate entity to 1Y Return N/A
unlock value and provide focused growth opportunities for both
segments.
250

This demerger, structured as a Scheme of Arrangement under 200

Sections 230-232 of the Companies Act, 2013, was completed in 150
2024, leading to the independent listing of Bajel Projects Limited on 100
the Bombay Stock Exchange (BSE) and the National Stock Exchange 50
(NSE). 0
3 24 4 24 4
Post-Demerger Strategy c-2 b- r-2 n- g-2
De Fe Ap Ju Au
As an independent entity, Bajel Projects Limited has honed its
strategic focus on the T&D sector, leveraging over two decades of
Exhibit 1: Bajel Project Vs Sensex in
expertise in executing large-scale EPC projects.
the last 1 Year (Rebased to 100)
Bajel Project
BSE Sensex

Engineering - Turnkey Services Sector 1

 Bajel Projects

The company has a robust order book and has secured several high-value
projects, including a ₹358.43 crore transmission line project with Power
Grid Corporation of India and international (BSE: 544131) projects in
electrification
countries such as Togo. This strategic realignment has positioned Bajel
Projects Limited as a leading turnkey solutions provider in the energy
CMP:domain.
infrastructure ₹192/-
The company's strategic initiatives and commitment to excellence
position it as a key player in the global and Indian power transmission and
distribution sector.
Industry Outlook

Global and Domestic Industry Trends:

Global Market Growth:

The global electricity transmission and distribution market is projected

to grow from USD 329.47 billion in 2023 to USD 429.43 billion by 2030,
with a CAGR of 3.9% during the forecast period. This growth is driven
by increasing investments in renewable energy infrastructure and the
shift towards a low-carbon economy1.

Renewable Energy Integration:

The integration of renewable energy sources is a key driver for the

expansion of transmission networks globally. Countries are investing
significantly in developing their electricity transmission and distribution
systems to accommodate the rising electricity demand and the
incorporation of renewable energy sources into their grids Source.

Technological Advancements:

Power and utilities companies are increasingly turning to artificial

intelligence and other digital solutions to address challenges in
transforming the grid, improving resource planning, and enhancing
operational efficiency.

India’s Power Sector

Government Initiatives:
The Government of India has introduced several policy initiatives
to boost the power sector, including the Electricity (Amendment)
Rules, 2024, which promote the development of dedicated
transmission lines and facilitate open access to the electricity grid.
Source

Significant investments are being made to expand the transmission

network to support the government's target of 500 GW of
renewable energy by 2030. This includes projects like the Green
Energy Corridor (GEC) to ensure adequate infrastructure for
renewable projects.

Engineering - Turnkey Services Sector 2

Bajel Projects

Market Dynamics:
India’s power generation increased by 6.80% to 1,452.43 billion kWh in
FY23, with the highest growth rate in over 30(BSE: 544131)
years. The peak power
demand in the country stood at 243.27 GW as of January 2024. Source

CMP: ₹192/-
The renewable energy capacity addition in India stood at 15.27 GW in
FY23, up from 14.07 GW in FY22. This growth is supported by substantial
foreign direct investment (FDI) inflows in the renewable energy sector.

Strategic Focus:
India's strategy includes building local supply chains, expanding green
hydrogen/ammonia production, securing domestic fuel resources, and
deepening power sector reforms to address structural issues. The focus
remains on balancing energy security, affordability, and the clean energy
transition.

Key Growth Drivers:

Rising Energy Demand:

Both globally and domestically, the demand for electricity is rising, driven
by economic growth, urbanization, and increased electrification across
various sectors. Source

Infrastructure Development:
The need for robust and reliable transmission and distribution
infrastructure to support the growing energy demand and the integration
of renewable energy sources is a critical growth driver. Projects like the
Green Energy Corridor and international transmission line projects
highlight this focus.e

Policy Support:
Government policies and reforms aimed at enhancing grid reliability,
promoting renewable energy, and facilitating open access to the
transmission network are significant enablers of growth in the T&D sector.

Engineering - Turnkey Services Sector 3

Bajel Projects

Main Sources of Energy in India:

Thermal power remains the dominant source (BSE: 544131)generation in

of electricity
India, accounting for 64.7% of the total installed capacity as of April 30,
2024. Within the thermal segment, coal is the largest contributor, with a
CMP: ₹192/-
total installed capacity of 210.96 GW. India's abundant coal reserves
support this significant capacity. The heavy reliance on coal underscores
the challenges India faces in transitioning to cleaner energy sources,
despite efforts to increase renewable energy capacity.

Renewable energy sources account for 25.2% of India's total installed

capacity. Solar energy is the largest renewable energy source, driven by
initiatives such as the Jawaharlal Nehru National Solar Mission.

India's energy landscape is characterized by a diverse mix of thermal,

renewable, hydro, and nuclear power sources. While thermal power
continues to dominate, the increasing share of renewable energy reflects
the country's commitment to sustainability and climate goals. The
expansion of solar and other renewable capacities, along with the
untapped potential in hydro and nuclear power, presents opportunities
for a balanced and resilient energy future.

Business Model of Bajel Projects Ltd:

Bajel Projects Limited operates primarily in the EPC (Engineering,

Procurement, and Construction) industry, focusing on Power
Transmission and Power Distribution. The company's business model
revolves around delivering turnkey projects encompassing the design,
engineering, testing, manufacturing, and execution of high-voltage
transmission lines, substations, and underground cabling systems. They
have over 20 years of experience in this sector and offer customized
solutions to meet the specific needs of their clients.

Bajel Projects Limited generates revenue by undertaking large-scale

EPC projects for various state, central, and private utilities. Their
revenue comes from the construction and maintenance of power
transmission and distribution infrastructure, including EHV (Extra High
Voltage) transmission lines and substations.

They also engage in international projects, such as electrification efforts

in Africa, and supply distribution poles to various countries. The
company's financial performance is driven by the successful completion
of these projects, adherence to project schedules, and effective
management of costs and resources.

Engineering - Turnkey Services Sector 4

Bajel Projects

Business Segments:

Power Transmission: (BSE: 544131)

vTransmission Lines: Engineering, design, manufacturing, and
CMP:
execution ₹192/-
of EHV transmission lines up to 765 kV AC/±800 kV HVDC.
They have completed over 7,000 circuit kilometers (Ckms) of EHV
transmission lines and 40 EHV projects.

vSubstations: Designing and constructing both Air Insulated

Substations (AIS) and Gas Insulated Substations (GIS). They have
completed over 40 AIS substations and offer turnkey projects for GIS
substations up to 400 kV.

vUnderground Cabling: Managing turnkey projects for underground

cabling systems up to 220 kV, collaborating with EHV cable
manufacturers, and executing projects spanning over 700 km in various
states.

Power Distribution:

vPrimary Distribution: Construction of primary distribution

substations and lines (33 kV Lines, 33/11 kV substations).

vDistribution Feeders: Construction of distribution feeders (11 kV)

and distribution substations (11/0.433 kV).

vLT Lines: Construction of LT (Low Tension) lines and connections to

consumer premises, including both overhead and underground cabling
systems.

Monopoles:

Bajel Projects is a pioneer in designing and manufacturing steel

monopoles, which offer numerous advantages over traditional lattice
towers, including lower space utilization, shorter construction times,
and environmental benefits. The company's monopoles are used in
both transmission and distribution networks.

New Segments Company is Venturing into:

Data Centers

Bajel is venturing into the construction and maintenance of data

centers, recognizing the growing demand for data storage and
processing facilities driven by the digital transformation across
industries.

Engineering - Turnkey Services Sector 5

Bajel Projects

Energy Storage Solutions

(BSE: 544131)
With the increasing integration of renewable energy sources, Bajel is
exploring opportunities in energy storage solutions. This includes
CMP:
developing ₹192/-
systems that can store excess energy generated from
renewable sources for use during periods of high demand or low
generation.

Metro Rail Projects

Bajel is also expanding into the metro rail sector, leveraging its
expertise in large-scale infrastructure projects. This involves the
construction of metro rail networks, which are critical for urban
transportation and reducing traffic congestion in cities.

Renewable Energy

Bajel continues to sharpen its focus on renewable energy projects,

including solar and wind energy. The company aims to provide
comprehensive solutions that include the design, installation, and
maintenance of renewable energy systems, aligning with global
sustainability goals.

Key Projects executed in FY24:

vPower Transmission:

765 kV Ghatampur-Hapur Line (Mohanlalganj-Chandausi):

Successfully executed a major high-voltage transmission line project,
demonstrating expertise in handling complex infrastructure.

First-ever TL&SS Order from Tata Power: This includes the 400 kV
Jalpura – THDC TPS Khurja double-circuit transmission line.
Construction of two 400/220 kV Greenfield GIS Substations at Jalpura
and Metro Depot Greater Noida.

220 kV Greenfield GIS Order from PGCIL in Lakhisarai: Successfully

bagged and executed the first-ever 220 kV greenfield GIS order from
Power Grid Corporation of India Limited (PGCIL).

Two 765 kV Brownfield Substation Packages in Rajasthan:

Awarded by PGCIL, this project underscores Bajel’s capability in
handling high-voltage substation projects.

Type testing of 14 Lattice Towers: Successfully completed the

typetesting of 14 lattice towers in FY24, enhancing the company’s
infrastructure capabilities

Engineering - Turnkey Services Sector 6

Bajel Projects

v Power Distribution

RDSS Scheme in Jammu & Kashmir: Expanded (BSE: 544131)

presence in J&K by
securing an order under the Revamped Distribution Sector Scheme
(RDSS).
Order from Tata Power and Central Odisha Distribution Limited:
Expanded the customer base in the private sector by securing significant
orders from Tata Power and Central Odisha Distribution Limited.
Rural and Urban Electrification: Extensive involvement in rural and
urban electrification projects across multiple states, including Uttar
Pradesh, Bihar, West Bengal, Odisha, Karnataka, Rajasthan, Jammu &
Kashmir, Chhattisgarh, and Madhya Pradesh.
Primary Distribution Substation and Underground Cabling: Executed
projects involving the construction of HV substations (33 kV to 66 kV)
and extensive underground cabling, improving aesthetics and
infrastructure reliability.

v International EPC

Electrification of 46 Villages in Togo: Secured a significant EPC

contract in Togo for the electrification of 46 villages, funded by the EXIM
Bank of India. This project underscores Bajel’s commitment to
enhancing access to electricity in Africa.
Supply of Distribution Poles: Secured purchase orders for the supply of
distribution poles in the Democratic Republic of Congo (Africa),
Suriname (South America), and Ghana.

Engineering - Turnkey Services Sector 7

Bajel Projects

Order Book & Future Outlook

The Company’s current order book stands at(BSE: 544131)

₹4,000+ Crores as of 7th
August 2024 and the order execution cycle is of 18-24 months, which
gives a great revenue visibility to the company. And as a result, the
company is well-positioned for sustained growth and value creation,
driven by its strategic focus on core segments, expansion into new
product areas, commitment to renewable energy, and international
expansion. The company's robust project execution capabilities,
technological innovation, and commitment to sustainability will be key
drivers of its future success. With a diverse project portfolio and strong
market positioning, Bajel is poised to capitalize on emerging opportunities
and navigate the dynamic landscape of the power infrastructure sector.

Downside Risks

Modest but Improving Profitability

Bajel Projects Limited (BPL) operates in a highly competitive Power
Transmission and Distribution (T&D) sector characterized by low entry
barriers, leading to intense competition. Historically, the company has
faced challenges with cost overruns and operational inefficiencies that
have impacted its profitability. However, BPL has implemented several
corrective measures aimed at enhancing performance and profitability.

•Cost Efficiency Improvements: BPL has focused on improving cost

efficiencies, which is expected to positively impact margins.
•Prudent Counterparty Selection: The company has adopted a more
selective approach in choosing counterparties to mitigate risks.
•Robust Pre-Bid Assessment: Enhanced pre-bid assessment of
contracts is anticipated to support margin improvement.

While the EPC business segment achieved breakeven in fiscal 2023,

substantial profitability growth remains a critical area to monitor. Future
profitability will depend significantly on BPL's ability to avoid large-scale
project deferrals and maintain efficient project execution. These risks are
mitigated by the company's strong execution capabilities within the
power T&D EPC segment.

Engineering - Turnkey Services Sector 8

Bajel Projects

Working Capital-Intensive Operations:

(BSE: 544131)
BPL's operations are inherently working capital-intensive due to the nature of
the business and the long project execution cycles, typically ranging from 18
to 24 months. High receivables are a common issue in this sector, primarily
due to the sizeable retention money blocked in completed projects until the
defect liability period is concluded.

•Receivables Management: The risk associated with receivables is partially

mitigated, given that a majority of BPL's projects are backed by central public
sector undertakings, which provides a level of security in payment recovery.
•Efficient Working Capital Management: Efficient management of working
capital, particularly as the scale of operations grows, will be essential. This
remains a key area to monitor moving forward.

Financial Performance

1.Revenue Growth:
Sales increased significantly from Rs. 664 Crores in March 2023 to
Rs. 1,169 Crores in March 2024, reflecting a growth of 76%. The TTM
(Trailing Twelve Months) sales stand at Rs. 1,476 Crores.

2.Expense Management:
Total expenses rose from Rs. 694 Crores to Rs. 1,153 Crores, in line
with the increase in sales. The TTM expenses amount to Rs. 1,456
Crores.

3.Operating Profit:
The company turned an operating loss of Rs. 30 Crores in March 2023
into an operating profit of Rs. 16 Crores by March 2024. The Operating
Profit Margin (OPM) improved from -5% to 1%.

4.Other Income and Interest:

Other income declined from Rs. 54 Crores to Rs. 18 Crores, impacting
the overall profitability. Interest expenses increased from Rs. 18
Crores to Rs. 24 Crores, with the TTM interest at Rs. 25 Crores.

5.Profitability:
Profit Before Tax (PBT) improved from a breakeven figure in March
2023 to Rs. 4 Crores in March 2024, and Rs. 13 Crores on a TTM
basis. The dramatic change in tax rate from 468% to -17% is notable,
indicating a significant shift in tax-related adjustments.

6.Net Profit:
Net Profit improved from a loss of Rs. 2 Crores in March 2023 to a
profit of Rs. 4 Crores in March 2024, with the TTM net profit at Rs. 12
Crores. The Earnings Per Share (EPS) increased from zero to Rs. 0.37,
and further to Rs. 0.99 on a TTM basis.

7.Dividend Payout:
There has been no dividend payout in both March 2023 and March
2024.

Engineering - Turnkey Services Sector 9

Bajel Projects

Valuation

(BSE: 544131)
In valuing Bajel Projects, we have employed a Discounted Cash Flow (DCF)
approach, which is well-suited given the company’s growth trajectory and
strategic initiatives. The DCF method allows us to capture the intrinsic value
of Bajel by forecasting future cash flows based on key financial assumptions
and discounting them to present value using an appropriate cost of capital.
This approach provides a comprehensive view of the company’s long-term
earnings potential, factoring in both revenue growth opportunities and
operational efficiencies. Our valuation reflects the expected performance of
Bajel Projects in a dynamic market environment, positioning the company as
a key player in its industry.
1 2 3 4 5 6 7 8 9 10 Terminal year
Revenue Growth 30.00% 25.00% 25.00% 25.00% 25.00% 21.40% 17.80% 14.20% 10.60% 7.00% 7.00%
Revenue ₹ 1,918.80 ₹ 2,398.50 ₹ 2,998.13 ₹ 3,747.66 ₹ 4,684.57 ₹ 5,687.07 ₹ 6,699.37 ₹ 7,650.68 ₹ 8,461.65 ₹ 9,053.96 ₹ 9,687.74
Operating Margin 5.00% 15.00% 20.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00%
Operating Income ₹ 95.94 ₹ 359.78 ₹ 599.63 ₹ 936.91 ₹ 1,171.14 ₹ 1,421.77 ₹ 1,674.84 ₹ 1,912.67 ₹ 2,115.41 ₹ 2,263.49 ₹ 2,421.94
EBIT (1-t) ₹ 71.79 ₹ 269.22 ₹ 448.70 ₹ 701.09 ₹ 876.37 ₹ 1,050.17 ₹ 1,220.93 ₹ 1,375.82 ₹ 1,501.22 ₹ 1,584.44 ₹ 1,695.35
Reinvestment ₹ 319.80 ₹ 399.75 ₹ 499.69 ₹ 624.61 ₹ 668.33 ₹ 674.87 ₹ 634.21 ₹ 540.65 ₹ 394.88 ₹ 422.52 ₹ 1,068.18
FCFF ₹ -248.01 ₹ -130.53 ₹ -50.99 ₹ 76.48 ₹ 208.03 ₹ 375.31 ₹ 586.72 ₹ 835.17 ₹ 1,106.35 ₹ 1,161.93 ₹ 627.17
₹ 15,259.72

Cost of Capital 15.00% 15.00% 15.00% 15.00% 15.00% 14.22% 13.44% 12.67% 11.89% 11.11%
Cumulated WACC 0.8696 0.7561 0.6575 0.5718 0.4972 0.4353 0.3837 0.3406 0.3044 0.2739

Sales to Capital 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50
ROIC 16.77% 36.00% 39.10% 42.56% 38.58% 35.72% 33.77% 32.38% 31.34% 30.56% 11.11%

In our valuation of Bajel Projects, we have incorporated several key

assumptions that align with the company’s strategic outlook and market
dynamics:

1. Revenue Growth: We have assumed a 30% revenue growth for the

next year, moderating to 25% over years 2-5, and stabilizing at 7%
beyond year 10. This growth trajectory reflects an initial aggressive
expansion phase, driven by Bajel’s focus on high-growth segments such
as T&D, followed by a natural deceleration as the company transitions
into a mature business phase.
2. Operating Margins: Our assumptions project operating margins
improving from 1.36% in the base year to 5% in the next year, and
ultimately reaching 25% from year 6 onward. This significant margin
expansion aligns with the company’s efforts to enhance operational
efficiencies, scale benefits, and cost control measures, positioning Bajel
for sustained profitability as it grows.
3. Sales to Capital Ratio: We have maintained a consistent Sales to
Capital ratio of 1.5x, reflecting efficient capital utilization in line with
industry standards. This assumption underscores Bajel’s ability to drive
revenue growth without requiring excessive capital investment, which is
critical for maintaining financial flexibility.
4. Return on Capital and Cost of Capital: The return on capital is
assumed to start at 3.5%, indicative of current low-margin operations,
but is projected to improve to a marginal ROIC of 30.3% as the company
scales.

We have set the cost of capital at 15%, which reflects the company’s risk
profile and market positioning. This spread between ROIC and WACC
suggests strong potential for value creation if the company meets its
strategic targets.

Engineering - Turnkey Services Sector 1

0
Bajel Projects

What should Investors do?

Bajel Projects Limited’s financial performance (BSE:from
544131)
FY21 to FY24
showcases the company’s strong growth and operational efficiency. The
substantial improvements in sales, profitability margins, and earnings
per share reflect the successful implementation of its strategic
initiatives. Based on our DCF valuation approach, we have derived a
target price of ₹473 per share, indicating significant upside potential
given the company’s robust financial foundation and strategic market
positioning. Bajel Projects is well-positioned for continued growth,
bolstered by its ability to leverage market opportunities effectively.

As the Founder and Head of Investment Research & Strategist at Global

Consilient Research, it is recommended to maintain a positive outlook
on Bajel Projects Limited. The company's solid financial health,
consistent performance improvements, and strategic market
advancements make it a compelling investment for long-term value
creation. Investors should find Bajel’s growth trajectory and profitability
metrics particularly attractive in the evolving power infrastructure
sector.
About the Analyst

Piyush Kumar is the head of investment research and strategist, as

well as the founder of Global Consilient Research, a prominent global
equity research firm. With 5 years of extensive experience in capital
markets, equity research, and analysis, Piyush has established
himself as a knowledgeable and skilled professional in the financial
sector. Under his leadership, Global Consilient Research provides in-
depth equity analysis and strategic insights, helping investors make
informed decisions in the global market. Piyush's expertise and
strategic vision continue to drive the firm's success and reputation in
the industry.

Bharat Jhamb, a highly motivated financial professional with an MBA

in Finance and a Bachelor's degree in Commerce, the analyst is
skilled in financial analysis, budgeting, and forecasting. He is proficient
in trends analysis, report preparation, and financial modeling.
Additionally, the analyst has a proven track record in volunteer
coordination for events such as the Uttarakhand Global Investor
Summit, which demonstrates their effective teamwork and
communication skills. With certifications in NISM Series VIII for
securities markets and Reading Financial Statements by CFI, he
possess comprehensive knowledge of financial instruments and
advanced skills in analyzing company financial health for strategic
decision-making. Proficient in Tally Prime and MS Office, this
individual combines analytical prowess with practical financial
management expertise.

Engineering - Turnkey Services Sector 11