PL Stock Report: Bajaj Electricals (BJE IN) - Q1FY24 Result Update - Soft performance in challenging environment - Accumulate

Bajaj Electricals (BJE IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs1,220 | TP: Rs1,337

Q1FY24 Result Update - Soft performance in challenging environment

Quick Pointers:

♦ CP segment grew 2.7%, mainly with 10.1%/12.2% growth in appliances/MR.

♦ Lighting segment declined mainly with muted consumer lighting business.

BJE reported soft numbers with sales decline of 1.0% and PAT decline of 4.7% YoY on account of muted demand environment and unseasonal rains (impacting summer products). The scheme of EPC segment’s demerger has been approved by NCLT and accordingly the segment is discontinued. Growth in CP mainly came from appliances segment (up 10.1% YoY) and contraction in margin was due to negative operating leverage and investment in growth, which will drive future growth. BJE is expected to see improvement in business from Q3FY24 with strong festive season and improvement in margin alongside growth, product mix & logistics cost saving. We estimate FY23-25E Revenue/EBITDA/PAT CAGR of 8.9%/16.2%/21.4%, excluding EPC segment. Our current estimates are not comparable to earlier estimates, as we have removed EPC business estimates in our future projection given the business demerger. We value the stock at 37x FY25 EPS (earlier on SOTP, CP business value at 35x) and arrive at TP of Rs1337 (earlier 1326). Maintain ‘Accumulate’ rating.

Sales decline by 1.0%, PAT decline by 4.7% YoY: Revenue decline by 1.0% YoY to Rs11.1bn, excl. EPC business. (PLe: Rs11.7bn, excl. EPC) Consumer Products/Lighting revenue grew by 2.7%/-12.5% YoY respectively. (PLe: CP segment/Lighting +5.2%/+3%). Consumer Products segment reported growth despite demand slowdown and pricing constraints. The lighting segment facing demand headwinds, resulted in revenue decline. Gross margins expanded by 80bps YoY to 29.5% driven by lighting segment with better product mix. EBITDA decline by 5.1% YoY to Rs693mn. EBITDA margin contracted by 30bps YoY to 6.2%. (PLe:6.2%) mainly with increase in overhead expenses due to demerger expenses, R&D expenses and investment in digital. Consumer Products reported contraction in EBIT margin by 20bps YoY to 5.0%, while Lighting reported expansion in EBIT margin by 10bps YoY to 8.1%. PAT came at Rs430mn (down 4.7% YoY). Net Cash balance stands at Rs4.1bn. In terms of product category, appliances grew 10.1% YoY, Fans declined 8.4% YoY and Morphy Richards grew 12.2% YoY. Reduction in overall receivables to Rs8.85bn (down 10.2% QoQ).

Con call highlights: 1) CP segment growth was impacted due to fan segment where volume declined by 10-11%, while BJE maintain its market share. 2) Appliance segment growth was broad based in Q1FY24, driven by healthy growth in Kitchen (mixer grinder etc), cooler and water heater segments. 3) Lighting segment reported decline in consumer division, while professional division saw flat YoY excluding ESL order executed in Q1FY23. 4) Mgnt expects growth in business will come from Q3FY24 with improvement in demand scenario. 5) EBITDA margin expected to be in single digit range in FY24, however, with demand pickup, logistics saving and improvement in product portfolio will bring operating leverage and thereby lead to margin improvement. 6) In-house manufacturing expected to improve in coming years, currently CP/Lighting at 15-20%/30% will increase to ~30%/40-45%. 7) Planned capex for FY24 is Rs 1.5bn and capacity expansion capex will come from FY25 onwards.

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