Buy Bajaj Electricals; target of Rs 416: ICICIdirect

“BEL reported 13% YoY revenue growth of ~Rs 888 crore during Q1FY15, led by CD and E&P business. Lighting segment reported subdued revenue growth of 7% YoY due to 13% YoY decline in CFL sales. However, luminaries segment recorded growth of 17% YoY. The consumer durable (CD) segment recorded ~16% YoY revenue growth led by appliances and fans business, which recorded ~14% and ~19% YoY revenue growth, respectively. However, revenue from Morphy Richards (MR) recorded tepid growth of 7% YoY. The E&P segment witnessed 13% YoY revenue growth as the company has largely focused on maintaining margin. EBIT loss narrowed down substantially QoQ from Rs 26 crore to ~Rs 6 crore in Q1FY15. The EBIT also includes incremental depreciation charges of Rs 2 crore due to a change in the depreciation policy. The current order books stands at Rs 2240 crore. Although a reduction in losses in E&P helped the margin recovery (at 4.2%), other two segment, lighting, CD saw a decline in EBIT margin by ~340 bps and ~238 bps YoY, respectively, due to subdued CFL sales, higher stocking & various dealer incentive programmes.”

“With an expected turnaround in the E&P business from FY15E onwards and continued dominance in the lighting & CD business, we expect BEL to generate EBITDA of Rs 315 crore in FY15E and Rs 430 crore in FY16E. We believe the stock is trading at attractive multiples considering the turnaround in the E&P segment. We have valued CD, lighting and E&P business at 12x, 6x and 6x FY16E EBITDA, respectively, to arrive at a target price of Rs 416/share with a BUY recommendation,” says ICICIdirect.com research report.

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