01-01-1970 12:00 AM | Source: ICICI Direct
Hold Bajaj Electrical Ltd For Target Rs.1,050 - ICICI Direct
News By Tags | #1489 #872 #5958 #3961 #1302

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Delay in price hike slows margin recovery…

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

Q4FY22 Results: High input costs pressure drags overall EBITDA margin.

* Higher raw material costs dragged gross margins down ~309 bps YoY in Q4FY22. EBITDA margin fall was restricted to ~105 bps YoY to 4.7%, supported by savings in employee costs and other expenditure

* Revenues were up 6% YoY (flat QoQ) to | 1334 crore supported by CP segment revenue growth of ~6% YoY to ~| 1038 crore

* PAT declined ~29% YoY tracking lower EBITDA margins in Q4

What should investors do? Bajaj Electricals’ share price has grown at a CAGR of 22.43% over the past five years (from ~| 349 in May 2017 to ~| 960 in May 2022).

* We maintain HOLD rating on the stock

Target Price and Valuation: We value Bajaj Electrical at | 1050 using SOTP i.e.38x 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 24%, 27%, respectively

* BUY with a target price of | 2850

 

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