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Mixed bag 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 ~90% to the topline. Its premium brands include Morphy Richards and Nirlep. The company has over 2.3 lakh retail touch points across India

• The company has been reducing exposure to the EPC business with maximum focus on executing high margin business

Q4FY23 Results: Core segment drives topline growth.

• Revenues were up ~12% YoY to ~| 1490 crore supported by ~8.6% growth in consumer product (CP) revenues to ~| 986.5 crore. Lighting segment revenues declined marginally by 1% YoY to | 305.4 crore

• EBITDA margin improved 101 bps YoY to 5.7% led by improved profitability in E&P segment and better operating leverage. However, margin declined 111 bps QoQ due to a change in product mix

• PAT was up 34% YoY to ~| 52 crore tracking topline growth & higher other income

What should investors do? Bajaj Electricals’ share price has grown to 2.1x over the past five years (from ~| 552 in May 2018 to ~| 1185 in May 2023).

• We maintain HOLD rating on the stock

Target Price and Valuation: We value BEL at | 1245 using SOTP i.e. 35x and 8x PE for CP & lightings and EPC segments, respectively, on FY25E EPS each.

Key triggers for future price performance:

• Corporate restructuring (demerger of project business) will help BEL to focus on growing its core consumer product business

• Focus on market share gains through premiumisation, portfolio expansion, new product launches and brand strengthening

• Enhancement of channel by de-risking channel mix in favour of alternate channels

Alternate Stock Idea: We like Havells in the same space.

• Havells has a strong presence in the organised product category across its segments ranging from cables, switchgears, ACs, etc. Its market share ranges between 6% and 20% across these segments

• BUY with a target price of | 1425

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