Edelweiss advises to ‘hold’ Bajaj Electricals – here’s why

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Published: May 25, 2019 3:45:37 AM

In consumer business, we believe industry-leading growth over 12/24 months across fans and appliances would be key and that a lot would depend on product innovation (BJE’s key focus area).

While projects business revenue growth was strong at 58% for FY19, which led to flattish EBIT, a sharp rise in overall debt/debtor level (due to the UP projects) lead to a sharp 2x jump in interest cost to `1.1 bn.

The projects business dealt a hard blow that led BJE miss Q4 estimates on both the top and bottom lines. A much lower OPM in UP projects dragged the quarterly EBIT in projects 60% YoY and kept the FY19 flat despite strong revenue growth.

Debt/receivables shot up by 120%/55% to `16/31bn on the back of rising working capital and pending receivables pertaining to the large UP project; that latter should taper in FY20E. On the flip side, consumer business reported an uptick of 15%/23% YoY during Q4/FY19 as an overhaul of distribution helped the company regain lost ground and beat its 100bps/annum margin expansion guidance.

That said, we are trimming FY20/21E by 12/8% building in the sharp PAT miss in Q4. Maintain ‘hold/SP’ with a revised target price of Rs 570 (versus Rs 495) rolling over to September 2020 and assigning a 25x (versus 22x earlier) given a better performance in the consumer business on both revenue growth and profitability.

For the consumer business, both Q4/FY19 turned out to be good within 15/23% revenue growth driven by fans (+25% for FY19) and appliances (30%) as the company recouped lost market share. Management beat its 100bps of annual margin improvement guidance, turning in 170bps to 6.6% and has outlined a target of 7.6–8% for FY20E.

While projects business revenue growth was strong at 58% for FY19, which led to flattish EBIT, a sharp rise in overall debt/debtor level (due to the UP projects) lead to a sharp 2x jump in interest cost to `1.1 bn.

In consumer business, we believe industry-leading growth over 12/24 months across fans and appliances would be key and that a lot would depend on product innovation (BJE’s key focus area).

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