Buy Bajaj Electrical Ltd For Target Rs.1340 - ICICI Direct
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Favourable base, price hikes drive performance…
About the stock: Bajaj Electricals' business portfolio spans across consumer products (CP) and EPC (illumination, power transmission and power distribution).
* CP (appliances, fans, lighting) contributes ~78% to topline. Its premium brands include Morphy Richards and Nirlep. The company has over 2.3 lakh retail touch points across India
* The company has been reducing exposure in the EPC business with maximum on executing high margin business
Q1FY23 Results: Favourable base and price hike help drive margins in Q1; new launches and market share gains drive topline
* Revenues were up 43% YoY to | 1229 crore on a favourable base and new product launches in the consumer product segment. Consumer product revenue increased 58% YoY to ~ | 973 crore
* EBITDA margin was up 602 bps YoY (135 bps QoQ) to 6.1% supported by price hikes and improved operating leverage
* BEL reported PAT of | 42 crore against loss of | 25 crore in Q1FY22 led by improved EBITDA margins and topline growth in Q1FY23
What should investors do? Bajaj Electricals’ share price has grown to 3.5x over the past five years (from ~| 332 in August 2017 to ~| 1144 in August 2022).
* We revise our rating from HOLD to BUY on the stock
* Target Price and Valuation: We value Bajaj Electrical (BEL) at | 1340 using SOTP i.e.45x and 6x PE for CP and EPC respectively on FY24E EPS each
Key triggers for future price performance:
* Corporate restructuring (demerger of project business) will help Bajaj Electricals to focus on growing its core consumer product business
* Continuous focus on driving growth through CP categories (revenue contribution increased from 42% in FY19 to 78% in FY22). Rural electrification, urbanisation and housing for all (~11.2 mn new houses under PMAY) are key catalysts for CP revenue growth, going forward
* Focus to increase CP margins by 1% every year
Alternate Stock Idea: We also like Polycab in the same space
* Polycab is a leader in the wire & cable industry with organised market share of ~24%. Robust b/s with average RoE, RoCE of 18%, 22%, respectively
* BUY with a target price of | 2680
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