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Impacted due to rural slowdown

Bajaj Electricals reported mere 6% YoY revenue growth, impacted by rural slowdown and reducing traction on alternate channels (e-commerce and modern trade). Fans and lighting grew 22.3% and 31.9% YoY in Q4FY22, but weak show from appliances adversely affected the growth mix. Due to steep inflation in input prices and no price hikes in Q4, gross margins declined 309bps YoY. We note the company took one round of price hikes in Apr’22. It needs additional price hikes to improve profitability. New product launches and efforts to drive premiumisation will likely result in higher realizations. We model Bajaj Electricals to report an earnings CAGR of 38.5% over FY22-FY24E and maintain ADD rating on the stock with a revised DCF-based target price of Rs1,035 (40x FY24E; earlier TP: Rs1,160).

* Q4FY22 performance: Bajaj Ele reported revenue growth of 6% YoY. While EBITDA and adjusted PAT declined 13.1% and 26.1 YoY. Gross and EBITDA margins were down 309bps and 104bps due to inflation in input material costs and limited price hikes. Lower other expenditure partially arrested decline in EBITDA margin.

* Segment-wise performance: Revenues of Appliances and Morphy Richards were down 5.3% and 35% YoY, respectively. Revenues of Fans and Lighting were up 22.3% and 31.9% YoY, respectively. Consumer products reported 6.4% YoY revenue growth. The company carries order book of Rs1.6bn in Illumination segment.

* Steady launch of new products continues: Bajaj Electricals launched 56 new SKUs in fans, to make its product portfolio BEE compliant. It also expanded its appliances and lighting portfolio with 25 launches during the quarter. We believe strong product innovation will likely lead to strong volume growth for the company.

* Slowdown in rural and e-commerce channel: We note the company’s revenues were impacted by slowdown in rural markets and reduced traction on e-commerce channel. We model steady recovery in rural markets from H2FY23E.

* Steep inflation and limited price hikes: While the prices of the input material are moving north, Bajaj Ele did not take any price hikes from Aug’21 to Mar’22. We believe higher exposure to rural markets has limited the price hike potential of the company. We note, it has taken 12-15% price hikes in CY21 and one round of price hike in Apr’22.

* Maintain ADD: We model Bajaj Electricals to report revenue and PAT CAGR of 14.1% and 38.5%, respectively over FY22-FY24E and RoCE to be >16% by FY24. Maintain the stock to ADD rating with a DCF-based target price of Rs1,035 (implied P/E 40x FY24E EPS).

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