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Soft demand and rural stress impacts topline and margin

BJE’s Q3FY24 revenue fell 6% YoY to Rs12.3bn, 7%/12% below our/consensus estimate amidst weak consumer sentiments. Consumer Products revenue fell 8% YoY to Rs9.6bn affected by tepid demand in fans and appliances category. Lighting sales were flat YoY at Rs2.7bn amid demand weakness and LED price erosion. While sales from general trade was down 7% YoY, growth was healthy in alternate channels like modern retail (+28%), Institutional (+28%), E-commerce (+21%) and exports (+119%). Discounting by industry peers and various trade schemes for channel partners led to 460bps YoY decline in gross margin 29.1%. However at product and category level, gross margin was up 150bps YoY due to portfolio premiumization and savings in COGS. Reported EBITDA margin stood at 4.7%. Other expenses included a one-time warranty provision worth Rs230mn, excluding which adjusted EBITDA margin would have been 6.6% (broadly in-line with our/consensus estimate of 6.7%/6.9%). Reported PAT fell 40% YoY to Rs374mn. Amidst demand softness in rural and semi-urban areas, BJE is focusing on product premiumization and distribution reform. The management feels that they can achieve double digit margin in 2 years, if revenue grows in double digits. Factoring in the one-offs, we cut our FY24E EPS by 26% while EPS for FY25E/26E gets marginally trimmed by less than 2%. Retain ADD rating with revised target of Rs1,100 (Rs1,120 earlier) based on unchanged P/E of 35x H1FY26E EPS.

Consumer Products: Fans and appliances de-growth impacts performance Consumer Products sales fell 8% YoY to Rs9.6bn with EBIT margin of 1.7%, down 580bps YoY. Sales were impacted owing to muted consumer sentiment and high base effect in (1) fans (3QFY23 had seen +60% YoY growth amid channel filling of non-BEE rated fans) and (2) RBP Points redemption contributing to Rs500mn in sales. In 3Q/9M FY24, fans reported de-growth in high teens/high-single digit. While Appliances de-grew in low single digit in 3QFY24, Morphy Richards grew in mid-single digit. In fan, large brands have resorted to discounting for market share gains. BJE undertook price hike of 2.5% in fans during Dec’23-Jan’24. With focus on portfolio premiumization, share of premium fans in rose by 6% while water heater rose by 2%. In Fans, BJE expects heathy value growth in long term due to (1) rise in ASP post BEE norms and (2) reducing replacement cycles. Kitchen appliances is witnessed slowdown, but BJE is focusing on more value offering under Bajaj brand while upgrading Morphy Richards to aspirational lifestyle brand.

Lighting: LED price erosion impacts growth but margin recovers

Lighting sales were flat YoY at Rs2.7bn as negative impact of muted volume growth and LED price erosion offset portfolio premiumization efforts (premium share up by 4%). However, EBIT margin rose 200bps YoY to 8.4% aided by gross margin improvement. BJE expects benefit of GTM in the segment to accrue in next 6 months.

Retain ADD rating with a revised target price of Rs1,100

We expect BJE to post 11% revenue CAGR over FY23-26E, while 140bps operating margin expansion and lower tax rate will drive 23% earnings CAGR. Maintain ADD with revised target of Rs1,100 based on unchanged P/E of 35x H1FY26E EPS.

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