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Muted performance; looking up for market share gain.

In Q2FY25; Bajaj Electricals (BJE) reported Rev at INR 11.2bn, flat YoY and down 3% QoQ and was in-line JMFe. ECD was at INR 8.7bn, flat YoY and down 4% QoQ. Lighting was at INR 2.5bn down 2% YoY and flat QoQ. All the above resulted in Total consumer durable 5- Year CAGR at 6%. (Havell's lighting + ECD 5-year CAGR at 11% and Orient's 5-year rev CAGR at 9%). GM was at 31.2%, up 121bps YoY and down 72bps QoQ. EBIDTA was at margins at 4.6%, down 48bps YoY and 191bps QoQ vs JMFe at 6.4%. EBITDA was at INR 516mn, down 9% YoY. PAT was at INR 129mn, down 59% YoY and 54% QoQ. PAT Margin was at 1.2% vs 2.8% YoY vs. 2.4% QoQ.

* Demand: Rural demand which was behind urban is now been started to improve. Increase in disposable income and premiumization will drive the industry. BJE has c.30% of its revenue from rural vs. Havells at 8-10%.

* Consumer Product was driven by Morphy Richard: BJE has taken price hike of c.3-5% in Q1 and Q2 across its product and its NPD were also launched at premium than the industry which resulted in muted growth and market share loss in appliances. Fans degrowth was in single digit (up 9% YoY in H1) these was largely due to increasing competition in the economy ceiling fans however Premium and BLDC fans continue to grow. It’s current Fans portfolio is 70% in economy and 30% in premium and expect to grow in line with industry. MR registered higher double-digit growth in Q2 and was up 20% YoY in H1; management continue to strengthen personal grooming portfolio and premium portfolio here. Appliances revenue was flat in Q2 and was up 1% in H1.

* Increasing focus on premium lighting: Growth in Professional lighting marginally offset by drop in Consumer lighting and it registered double digit volume growth and high single digit value growth. Lighting price eroded by 10-15% in H1 due to change in technology and hence impacting the profitability. Management expects industry to face price erosion for another 3-4 quarters. BJE is increasing its focus on commercial/professional lighting in order to improve its profitability. Professional lighting contributes 40% of portfolio.

* Outlook and valuation: In Short term: soft demand, BJE working on revamping portfolio, higher A&P and R&D cost will capped the performance for next 2-3 quarters. In Long term: Over the next 2-3 years, we expect the valuation of BJE’s CP business to improve, as it is entering the second stage of the business cycle. Now BJE is focusing on product expansion, R&D (new launches), manufacturing (supply chain) branding, leveraging its distribution network, increasing share from alternate channel mix, premium products and corporate restructuring, higher focus on CP business – resulting in strong revenue visibility, with levers for margin expansion. At CMP; BJE trades at a PE of 74x/38x/28x on FY25/26/27. We now value it at 38x on Sep’26 EPS (earlier 40x on FY26) and expect revenue/earning CAGR of 12%/40% over FY24-27 + CFO of INR 1.1bn/1.4bn/1.8bn in FY25/26/FY27. With improvement in balance sheet, cash flow and de-merged B2B and B2C business, its CP business valuation will improve. Our target price is INR 1,080, up 18% from CMP and hence we maintain BUY.

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