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Consumer products’ outperformance continues

Bajaj Electricals’ (BEL) 4QFY23 standalone Consumer Products revenue growth of 10% was the best among peers (see Exhibit 4). This growth was led by appliances (+16%YoY; including air coolers) while fans grew by 2% YoY (vs. flat YoY for Crompton and estimated double-digit decline YoY for Havells and Orient) despite a) strong fans sales in 3QFY23 (+55% YoY),and b) high channel inventory, unseasonal rains and muted demand enviornment. Morphy Richards fell 10% as it was undergoing transformation while lighting grew 1% YoY as consumer lighting remained weak. Notwithstanding near-term demand weakness, the management remains cautiously optimistic on demand recovery and is confident of margin expansion led by a) premiumisation of portfolio (e.g., sub-economy segment of fans’ share reduced from 74% in FY22 to 67% in FY23), b) sustained investments in brand and product architecture, and c) improving mix in lighting. BEL reported the 16th consecutive quarter of positive OCF. We tweak our FY24-25 estimates by 0-3% and arrive at a Mar’24TP of INR 1,440. We maintain BUY. This remains our top pick in ECD coverage.

* 4QFY23 summary: Revenue grew 13% YoY to INR 14.9bn (-5% 4-year CAGR; flat QoQ and 21% above JMFe) as a) Consumer Products (excl. Lighting) revenue grew 10% YoY as compared to -13%/-20%/+8% in Havells/Orient/Crompton respectively, b) Lighting (including B2B) revenue grew marginally by 1% Yo Y (vs. +3%/ -12%YoY for Havells / Crompton respectively) while c) EPC revenue grew 60%YoY. EBITDA grew 50% YoY to INR 888mn (4% above JMFe) partly on account of low base and EPC improvement. Consumer Products (excluding Lighting) EBIT margin expanded 190bps YoY (+40bps QoQ) to 7.1% while Lighting (including B2B) EBIT margin contracted by 170bps YoY (+100bps QoQ) to 7.4%. EPC segment remained profitable and reported EBIT margin of 0.4%. PAT grew by 32% YoY to INR 587mn (-8% QoQ; 4% above JMFe).

* Fairly good growth amidst muted demand environment: BJE delivered fairly good growth in 4Q despite a muted demand environment, which was led by growth in appliances (+16%YoY). Fans’ performance (+2%YoY) was impacted on account of high channel inventory and unseasonal rains. Contraction in consumer lighting business owing to industry slowdown was somewhat offset by scale-up in professional lighting. Though the essential category of FMCG has seen some green shoots, the company said it is yet to see the same and remains cautious on demand in the coming quarter

* Tweak estimates; reiterate BUY: We tweak our FY24-25 estimates by 0-3% to reflect 4QFY23 performance and commentary. We continue to like BEL due to a) turnaround in the EPC business (cash flow generation; EBIT positive), b) expected margin improvement and strong cash flow generation in the CP business as it continues to invest in product rejuvenation (category presence, premium mix, etc.) as well as brand-building activities, and c) demerger of its EPC business (BEL will be a pure consumer appliances play). We value BEL’s a) CP business at 40x Mar’25EPS, and b) EPC at 5x Mar’25EPS to arrive at a Mar’24TP of INR 1,440. BUY. Key Risk: Deceleration in macro recovery and heightened

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