There are 100,000 RREP outlets, which account for around 60% of BJE’s outlets. It has been rolled out in 240 of 400 districts. 90% sales will be via this model from March 2018. Revenue guidance of R5,000 crore. In the EPC segment, BJE is targeting 20-25% growth and 10% in consumer durables. RREP has been rolled out fully in Tamil Nadu, Bihar and Maharashtra. Post roll out, sales in these 3 states have jumped 15 % in August. July was bad because of GST and some vendors being non compliant. New supply has commenced only from July 17-18. Post RREP, BJE’s retailers will now make 8-10% margin compared to 3-5% by those of Philips and Havells. This has been a weak point for BJE—total number of SKU has reduced significantly from 1,200 in FY13 to 700 in FY17.
The company is trying to address this lacuna by setting up a R&D centre. Post RREP, management envisages debtors to reduce and net borrowing to also dip.BJE’s growth/profitability over the past several quarters has been below large listed peers as the company is currently focusing more on executing its new distribution strategy. We believe, the company should also focus on product innovations/ramp up and brand positioning, which according to us is a key challenge. At CMP, the stock trades at 18x FY19E.
We maintain ‘HOLD/SP’ with target price of Rs 310 (23x PE to consumer business). RoCE has increased because of RREP execution. In Tamil Nadu, Bihar & Maharashtra this model has been rolled out fully. In Delhi, RREP has been rolled out by end August. The company had 2,000 distributors, which by March 2018 end will reduce to 400 RREP Compliant distributors. The company has entered into a factoring agreement with Axis Bank (at a cash discount of 1.5% and interest of 9%) which the management believes will be able to improve the working capital significantly.