Buy Bajaj Electricals - Latin Manharlal Securities

Incorporated in 1938, Bajaj Electricals Ltd (BEL) - part of the Bajaj Group - is a consumer electrical equipments manufacturing company with interests in lighting, luminaries, appliances, fans, LPG based Generators, engineering and projects.

The domestic consumption story: betting on rural India to keep fuelling growth

The growth of BEL is correlated to the domestic consumption story and the company is betting big on rural India to keep fuelling growth in small appliances business. With over 40,000 multi-brand outlets and over 400,000 outlets for lightings and lamps, BEL is looking at towns with over 50,000 populations. It has also plans to add about 50-70 "Bajaj World" stores in rural India by the end of FY13E and all these outlets will be opened through the franchisee route.

Enjoys significant market share across its products

BEL commands substantial market share in its consumer appliances segment. Under the lighting segment the company's market position is 3rd, with Philips (26%), Surya (12%) taking the top two positions. The company's position is 2nd under the Luminaires segment with ~16% market share while Philips (26%) is the no. 1 in the Luminaires segment.

Strong Distribution Network + Tie-ups

It has 19 branch offices spread in different parts of the country with a chain of ~1000 distributors, ~4000 authorized dealers, over 4,00,000 retail outlets and over 282 Customer Care centers. BEL has distribution arrangements with Trilux Lenze of Germany, a tie-up with Delta Controls of Canada and Securiton of Switzerland, Morphy Richards of UK and Nardi of Italy, Disney of USA & Midea of China. The company has also invested in Starlite Lighting for manufacture of energy saving lamps (CFL).

Confident of 20% Y-o-Y growth in revenue for next 3 years: LPG price hike to benefit appliances biz

BEL eyes 20% growth in revenue in FY13E to report Rs.3,700 Crs as compared to Rs.3,200 Crs reported in FY12. The company is betting big on induction cooker sales as the Union Government announced a cap on domestic use of LPG. BEL is already No.2 in terms of induction cooker sales in India and the management believes the cap on LPG decision will certainly boost its sales further.

Planning Acquisitions: Electricals and Lighting Brands on Radar

BEL is hunting for brands and has earmarked nearly Rs.1,000 Crs for acquisition to strengthen its presence in areas such as home appliances and lighting. The company had been exploring acquisition opportunities since last year.

Engineering and Projects (E&P) business likely to improve

Order flow for the company's Engineering and Projects (E&P) business expected to improve now as power sector reforms put the investments in the sector back on track. The E&P business unit contributes 27% of overall sales of the company. The management claims that Q1 tends to be tepid for the E&P division and there has been a loss of Rs.70mn in the segment during 1QFY13 compared to a loss of Rs.76mn in the year-ago period. However, it is hopeful of staging a comeback in this segment in the 2HFY13E.

At the CMP of Rs.201 the stock is trading at 10.4x its FY14E EPS of Rs.19.33. We recommend BUY on the stock with a 12-18 months target price of Rs.271, providing an upside of 34.8% from the current levels.

Source : Equity Bulls

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