Atul Mehra & Niket Shah of Motilal Oswal have issued a detailed research report on Bajaj Electricals in which they have explained the entire dynamics of the company and why it is a great buy now.
The essence of the report is that Bajaj Electricals has a great business in the small appliances market with a strong brand, customer loyalty, distribution network and high margins. However, the Engineering & Projects (E&P) business has been a huge flop and has dragged the performance of the company down.
Bajaj Electricals has taken several remedial steps which will cause the E&P business to witness a sharp turnaround. If that happens, then the consolidated earnings will quadruple over FY14-16 and there will be a re-rating of the stock, the savvy analysts say.
This bullish stance was endorsed by the statements made by Shekhar Bajaj, CMD. Shekar Bajaj said that owing to the corrective actions taken last year, FY 2014-2015 would be very good for the project business and also that there would be substantial growth in the lighting and consumer durable segment. “So 2014-2015 should be good in terms of topline and bottomline” he added.
With specific reference to the project business, Shekhar Bajaj pointed out that the order book was at Rs 2,253 crore and that FY15 would definitely be a year of positive EBITDA.
Interestingly, ICICIDirect had earlier recommended a Buy (pdf) on Bajaj Electricals in November 2013 when it was languishing at Rs. 192 and had promised a price target of Rs. 195. The stock has nearly doubled since then.
Now, the big problem is that the savvy investors have already cornered the shares by driving the stock price up 70% YOY and 46% in 3 months.
However, a bit of juice is still left because as against the target price of Rs. 370 set by Motilal Oswal, the CMP is only Rs. 305. Also, if the E&P division does witness a turnaround as promised by Shekhar Bajaj, we are talking about a multi-year re-rating opportunity here. So, I don’t think it is too late to dive into the stock.