IGI Logo

Recovery to start from Q1; maintain ADD

Result Synopsis

Consumer products (CP) business registered growth of 9.5% as company had push inventory of non?star rated fans in Q3; while appliances saw decline on subdued demand and slowdown in off take of water heaters on delayed setting off winter. Gross Margins have expanded by 420bps mainly driven by margin expansion in core FMEG business. EBITDA margins were impacted on higher other expense which shot up on RBP loyalty program, high brand investments and bringing logistics in?house. EPC business has started generating profits and it is expected to see further improvement going forward. BJE has carved out lighting solutions as separate vertical to focus on the lighting segment to improve efficiencies. We continue with our positive stance on the company; however, we maintain our ADD rating as company as we feel inventory push in fans will result in muted Q4 and margins will be lower as company has not passed on complete price increase for star rated fans. Although we are seeing green shoots in rural demand, we will become outwardly bullish on the stock once we see strong signs pick?up in rural demand

We expect growth momentum in the consumer business to re?start from Q1FY24 as BJE has been launching new SKUs across the categories at the premium end. This has resulted in market share increase in urban markets which was been a weak area for BJE. EPC business is now generating profits and efficiency is expected to improve further. We however have trimmed our FY24 earnings on delay in passing on increased costs and some follow through expense of bringing logistics in?house. We build in FY22?25E Revenue/EBITDA/PAT CAGR of 13%/37%/54% and maintain ADD with PT of Rs1,253 continuing to value the company at 35x. We expectthe stock to re?rate with a further with improvement in profitability and pick?up in rural demand.

Result Highlights

* Business Update – Despite challenging quarter the company has been delivered 12.5% growth. Green shoots are witnessed in rural demand which is making company more optimistic of demand going forward.  

* Margins – Consumer products margin was impacted on account of moving logistics in?house, pushing inventory of fans by giving additional discounting and change in product mix towards fans vs appliances. All these factors have led to margin of consumer products being lower by 150bps.  

* In?house manufacturing – There should be pick up in inhouse manufacturing for fans, especially in premium fans. Inhouse manufacturing for lighting is 20% currently.

* A&P Spends – Company has incurred higher A&P spends which in Q3 stood at Rs510mn which translates into 4.4% of B2C sales, with incremental spends of Rs140mn in the current quarter

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer