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Tough times; market share continues to rise in core categories

Bajaj Electricals’ (BEL) standalone revenue declined 4% YoY in 2QFY24 largely on account a) general consumption weakness, particularly in rural markets (significant for BEL) and b) heightened competitive intensity driving higher discounts/schemes and delay in pass-through of cost inflation (particularly in fans). Appliances declined 10% YoY, with the fall partially offset by strong double-digit growth in fans. Lighting revenue declined 7% YoY as consumer lighting remained weak, aggravated by price reductions. As per 3rd party data, BEL has seen gains in market share in fans, mixers and coolers, largely led by alternate channels. Fans and coolers’ growth over 2 years has been consistent, translating into market share gains (strong double digit-growth). BEL reaffirmed that it is well on track on long-term objectives such as a) premiumisation of portfolio, b) improving mix in lighting segment (higher growth in professional lighting), and c) logistics optimisation. The company has demerged its EPC segment to Bajel Projects Ltd w.e.f. 1st Sep’23. We cut FY24-26EPS estimates by 9-14% to reflect delayed recovery in growth/margins. We roll forward to Dec’24 TP of INR 1,410, basis 40xDec’25EPS (excl value assigned to EPC business). We maintain BUY. The stock remains our top pick in ECD coverage.

* 2QFY24 summary (excluding EPC): Revenue declined marginally 4% YoY to INR 11.1bn (flat QoQ) as a) Lighting (including B2B) revenue declined by 7% YoY, and b) Consumer Products revenue fell 2% YoY, with drop in appliances offset by double-digit growth in fans. Consumer products EBIT margin fell 180bps YoY/+10bps QoQ to 5.1% on account of adverse operating leverage (as the company continued to invest in A&P, R&D and other distribution cost). Lighting margin declined 380bps YoY/-240bps QoQ to 5.6%. PAT down by 37% YoY/28% QoQ to INR 378mn and was 19% below JMFe.

* Demand environment subdued, improvement seen in Oct: Muted macro variables like savings growth rate, employment generation, and discretionary spending coupled with price erosion in the consumer lighting business impacted ECD companies including Bajaj Electricals in 2QFY24. The company talked of market share gains in some of its key categories such as fans, mixers and coolers in the past 4 quarters and also categorically pointed to improvement in margins (at both gross and net levels) vs. 2 years ago. However, most of that got offset due to a) heavy discounting by competition across region and categories, and b) adverse operating leverage. Once growth revives, the company is confident about meeting its objectives on double-digit margins in 2 years.

* Cut estimates; maintain BUY: We cut our FY24-26 estimates by 9-14% to reflect the current weakness and delayed recovery in growth and margins. We roll forward to Dec’24 TP of INR 1,410, basis 40xDec’25EPS. We continue to like BEL due to a) expected margin improvement and strong cash flow generation in the CP business as it continues to invest in product rejuvenation (category presence, premium mix, etc.) as well as brandbuilding activities. BUY. Key Risk: Deceleration in macro recovery and heightened competitive intensity.

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