Add Bajaj Electricals Ltd For Target Rs.1,320 - ICICI Securities
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Success of new brand Nex and relaunch of Nirlep are key drivers for rerating
While Bajaj Electricals reported weaker Q1FY24 than peers and our expectations, we note, (1) the EPC business is likely to be demerged very soon (3-4 months) and Bajaj Electricals has repaid the debt and has net cash balance sheet. Hence, it can leverage the cash flows to grow the consumer business in FY24-25, (2) it plans to invest in Nex (new brand) and Nirlep (relaunch). Success of these two brands will create new revenue streams in premium products and kitchen appliances and (3) as the issue of disruption in trade due to regulatory changes in fans is largely over, the company is likely to report healthy revenues from festive season in H2FY24. We remain constructive and maintain ADD rating with DCF based revised target price of INR 1,320 (implied P/E 44x FY25E; Earlier TP: INR 1,300).
Q1FY24 results
Bajaj Electricals reported revenue, EBITDA and PAT decline of 1.5%, 7.8% and 5.7%, respectively YoY. While gross margin expanded 90bps due to lower commodity prices, EBITDA margin contracted 40bps due to lower negative operating leverage and higher logistics cost.
Segment-wise performance
Consumer products reported 2% revenue growth but Lighting revenues declined 12.5% YoY. Unseasonal rains and muted demand environment impacted demand for consumer products. While appliances reported revenue growth of 10.1% YoY, Fans reported 8.4% revenue decline YoY.
Investments in new brands
Bajaj is planning to invest in (1) new brand Nex and (2) relaunch of Nirlep. We believe success of these two brands will create new revenue streams as (1) premium products and (2) kitchen appliances. As both the brands are likely to be differentiated offerings, they also provide margin tailwinds.
Valuation and risks
We model Bajaj Electricals to report revenue and PAT CAGR of 4.8% and 16.7%, respectively over FY23-25. We value the stock at DCF based target price of INR 1,320 (implied P/E 44x FY25E). Key risks are steep increase in competition and raw material prices, failure of new product launches.
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