Hold Bajaj Electrical Ltd For Target Rs.1280 - ICICI Direct
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High base, input cost pressure drags profit…
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
Q3FY22 Results: High base and lower volume offtake of consumer products weigh on overall performance
Revenues declined 12% YoY to | 1320 crore. CP & EPC revenues declined 6% & 31% YoY to | 1080 crore & | 240 crore, respectively
EBITDA margin down 286 bps YoY to 7%, mainly due to higher raw material costs
PAT declined ~51% YoY tracking lower sales and EBITDA margins in Q3
What should investors do? Bajaj Electricals’ share price has grown by ~4.6x over the past five years (from ~| 264 in February 2017 to ~| 1210 in February 2022).
We revised our rating from BUY to HOLD
Target Price and Valuation: We value Bajaj Electrical at | 1280 using SOTP i.e.40x 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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