IGI Logo

Weak demand and discounting results in poor performance; maintain Neutral

Result Synopsis

Consumer products (CP) business registered revenue decline of 3% owing to sustained weakness in the consumer sentiment. Appliances has seen decline, which has been offset by healthy growth in Fans. Discounting owing to weak market conditions along with increased A&P spends and negative operating leverage has resulted in operating margin contraction. BJE has done soft launch of its Nex brands which will house its premium fans and the commercial launch will be towards the next summer season. BJE is confident that products launched under Nex brand is of superior quality and will give higher perceived value to the consumer. Lighting revenue has seen decline of 7.4% on muted demand coupled with LED price erosion. Considering lower industry demand leading to discounting amongst the players to discounting would result in lower margin till the demand picks up sustainably. We have lowered our margin estimates on lower-than-expected margin in 1H and margin improvement will take longer than anticipated in weak demand environment. We maintain our Neutral rating on the stock with PT of Rs1,141 valuing the stock at 38x vs earlier of 35x as now the EPC business has been demerged into new entity and BJE has lean and strong balance sheet

We 2HFY24 to see growth as sentiments has improved from the month of September and festive season has started on positive note. BJE continues to gain market share across the product categories and new product launches will further aid in market share gain. Efficiency is expected to improve from FY25 as currently company will have to invest in its two brands. We bake in FY23-25E Revenue/EBITDA/PAT CAGR of 9%/27%/41% and maintain Neutral with PT of Rs1,141 valuing the company at 38x. We expect the stock to re-rate with a further once there is sustainable improvement in profitability and pick-up in rural demand.

Result Highlights

* Business Update – Revenue declined 4% yoy owing to weak consumer demand. Consumer products declined 2.9% while lighting segment declined 7.4%. Fans has seen strong growth, while appliances have seen decline.

* Margins – Margins have been under pressure due to price discounting in a weak demand environment. This along with negative operating leverage has resulted in EBITDA margin contraction of 365bps.

* Investments – The company continues to invest in Alternate channels and brand building resulting in higher A&P spends. The company is focusing on premium portfolio and creating sperate brand for premium products

* New launches – Company is significantly steeping up its new launches and have launched 100 SKU’s in 1H and it is ready and have done soft launch of Nex brand, while official launch is expected during the summer season.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632