Making strides in its transformation journey
We initiate coverage on Bajaj Electricals (BJE) with a BUY rating and target price of INR 1,200. We believe BJE is a play on the growth opportunity in FMEG and anticipated rural recovery, given (1) its diverse product offerings along with a leadership position within key categories in home and kitchen appliances; (2) its well-entrenched distribution network; and (3) its higher rural saliency vs peers (c.2x of peers). After turning net cash (after four decades) and simplifying its corporate structure under Phase 1 of its transformation journey, in its next phase, BJE is focused on industry-leading growth and aims to achieve it through (1) refreshing the product portfolio; (2) offering products across the consumer value chain via a multi-brand strategy; and (3) stepping up investments in branding and innovation. We expect BJE’s revenue/EBITDA/PAT to grow at a CAGR of 14/38/47% over FY24-27. At CMP, BJE trades at 28x FY27 EPS (10-40% discount to peers). We value the stock at 40x Jun’26 EPS to arrive at a TP of INR 1,200. Initiate coverage with a BUY rating.
▪ Diverse product offerings with deep distribution reach: With a comprehensive portfolio encompassing Consumer Products (Appliances, Fans, non-electrical Kitchen aids) and Lighting Solutions (Consumer, Professional), BJE’s product depth and breadth are amongst the best in the FMEG industry. Moreover, it boasts one of the strongest distribution networks (200,000+ retail touchpoints across urban and rural markets) and a leadership position in key categories (Water Heaters, Mixer family, Irons). Given its higher saliency from rural regions (c.2x of peers), BJE is well-placed to benefit from the anticipated recovery in rural markets in H2FY25.
▪ Striding along in its transformation journey: In 2020, BJE embarked upon a multi-year transformation journey to build a future-ready Bajaj Electricals and has made considerable progress. Under Horizon 1, BJE has (1) turned net-debt free after four decades; (2) scaled up its FMEG core along with market-share gains in key categories; (3) simplified corporate structure (incl EPC demerger); and (4) transitioned into a professionally driven organization. Now in Horizon 2, BJE is focused on industry-leading growth through (1) refreshing the entire product portfolio (80-90% of the portfolio in the next 18 months); (2) evolve into a house of brands with offerings across the consumer value chain; (3) stepping up investments in branding and innovation; (4) improving weighted distribution; and (5) structurally improving margins.
▪ Valuation and outlook: We estimate revenue/EBITDA/PAT will grow at 14/38/47% over FY24-27E with 20%+ RoE and 30% RoCE. Notwithstanding the near-term softness in demand (barring summer portfolio), we believe BJE is well-placed to gain from the much-anticipated improvement in demand (especially from H2FY25) along with margin expansion, led by (1) presence across small ticket daily use products; (2) offerings across the consumer value chain; (3) deep distribution network; (4) higher saliency to rural markets (3- 4x of peers); and (4) cost efficiency measures along with higher oplev. We value the stock at 40x Jun’26 EPS to arrive at a target price of INR 1,200. Initiate coverage with a BUY rating
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