Hold Bajaj Electricals Ltd For Target Rs. 641 - Prabhudas Liladhar Capital Ltd
Focus on profitability with margin expansion and cost efficiencies
Quick Pointers:
* Consumer Products (CP) up 8.4% in Q4FY25, Coolers, Morphy Richards and domestic appliance up double digits, Fans reported low single digit growth
* Lighting was flat in Q4FY25 with single digit growth in Consumer lighting offset by degrowth in professional lighting
CP segment grew 8.4% YoY (accounted for 79% revenue), with strong growth across all products segment except fans which grew in low single digits in Q4FY25. Expansion in CP EBIT margin was supported by volume growth as well as gross margin expansion. Lighting revenue was flat, impacted by a decline in the professional lighting due to delays in order execution. BJE has guided CP EBIT margin of 6% for FY26 and aims to achieve double digit EBIT margin in next three years. Company has recorded an exceptional item as a one-time gain of Rs301.3 mn from the liquidation of immovable properties. The company targets gross margin improvement through VAVE initiatives and price hikes with a cost savings of 2-3%. We estimate FY25-27E revenue/EBITDA/PAT CAGR of 11.1%/18.6%/38.4%. We tweaked Bajaj Electricals (BJE) FY26/27E earnings. We value the stock at 34x FY27 EPS and arrive at TP of Rs641 (earlier Rs552). Retain ‘HOLD’ rating.
Sales grew 6.5%, PAT grew by 28.6% YoY: Revenue grew by 6.5% YoY to Rs12.7bn (PLe: Rs12.5bn). CP grew by 8.4% on account of Morphy Richards, domestic appliances and strong growth in coolers. Lighting revenue grew by 0.2% YoY . Gross margins expanded by 270bps YoY to 31.1% (PLe: 30.9%). EBITDA grew by 87.0% YoY to Rs930mn (PLe: Rs798mn). Margins expanded by 320bps YoY to 7.3%. (PLe:6.3%). CP EBIT margin expanded by 210bps YoY to 3.9%, margins expanded due to volume growth and gross margin expansion, while Lighting EBIT margin contracted by 70bps YoY to 7.8%. Adj PAT grew by 28.6% YoY to Rs377mn (PLe: Rs302mn).
Con call highlights: 1) In Q4FY25, Coolers recorded high double digits growth, while Domestic Appliances and Morphy Richards delivered double digit growth. Fans grew at low single digit rate. 2) As per the management, Gross margin are expected to improve through VAVE initiatives and price hikes, with 2–3% savings expected from each. 3) A&P spend stood at 3% of total revenue in FY25 and is expected to increase to 3.5–4% in FY26. 4) Alternate channels contributed 45% to overall sales, while general trade accounted for remaining 55%. 5) Company reduced its logistics costs by 100 bps in FY25, though they continue to remain at high levels. 6) Brand investment stood at 2.4% of its revenue and is expected to remain high for the next few quarters. 7) For Consumer products, company has guided EBIT margin of 6% for FY26 and aims to achieve double digit EBIT margin in next three years. 8) The company has planned capex of Rs1bn and has received board approval of Rs 3bn for setting up a new factory. 9) Order book for professional lighting stands at Rs2.48bn. 10) Company launched 72 new products in Consumer Products, 4 in Morphy Richards, 32 in Consumer Lighting, and 129 in Professional Lighting. 11) Company has proposed a dividend of Rs 3 per share.
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