Buy Bajaj Electrical Ltd For Target Rs.1280 - ICICI Direct
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CP business: Key catalyst for good 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 ~72% to topline and its premium brands includes Morphy Richards and Nirlep. The company has over 2.18 lakh retail touch points across India
* The company has been reducing exposure in the EPC business with maximum on executing high margin business
Q2FY22 Results: Better-than-expected performance in CP category, EPC stays a drag.
* Revenues were higher by 7% YoY to | 1302 crore (up 52% QoQ)
* EBITDA margin down 136 bps YoY to 7.2% mainly due to higher raw material costs
* PAT increased ~18% YoY to | 63 crore tracking higher sales in Q2
What should investors do? Bajaj Electricals’ share price has grown by ~5x over the past five years (from ~| 209 in November 2016 to ~| 1092 in November 2021).
* We maintain our BUY rating on the stock
Target Price and Valuation: We change our valuation method from EV/EBITDA to P/E and roll over our valuation on FY24E. We value Bajaj Electrical at | 1280 using SOTP i.e.37x and 7x PE for CP and EPC respectively on FY24E EPS each
Key triggers for future price performance:
* Continuous focus on driving growth through CP categories. CP contribution in topline increased from 42% in FY19 to 72% in FY21.
* Rural electrification, urbanisation and housing for all (~11.2 mn new houses under PMAY) will drive growth for home appliances
* Focus to increase CP margins by 1% every year
Alternate Stock Idea: We also like Crompton Greaves consumer in the same space
* CGCEL is the market leader in the fan industry and increasing its presence in the small appliance category. The company has a strong balance sheet with RoCE, RoEs of 34% & 39% respectively
* BUY with a target price of | 525
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