Angel Broking recommends Buy on Bajaj Electricals with a Target Price of Rs. 441

Bajaj Electricals (BEL) reported a disappointing set of numbers for 4QFY2014. Its top-line reported a growth of 15.3% yoy to Rs. 1,271cr, higher than our estimate of Rs. 1,214cr, mainly led by the E&P segment (yoy growth of 54.1%). On the EBITDA front, BEL reported a profit of Rs. 5.5cr, lower by 58.5% yoy, while margins contracted by 77bp yoy to 0.4% owing to higher other expenses. Following the poor operating performance, BEL reported a PAT loss of Rs. 10.7cr.

Increased ad spends and leveraging on strong brands to lead growth: BEL elaborated its ad spends to Rs. 63cr in FY2014 and is expected to spend Rs. 60cr in FY2015, thereby increasing its visibility substantially and creating consumer pull. Moreover, BEL has known brands in its basket like Morphy Richards, Disano, Trilux to name a few, which would lead the growth for the company.

Selective order intake & timely execution in E&P segment to be a game changer: E&P, which contributes ~30% to the total revenue, has a current order book of Rs. 2,200cr. Despite strong inflows historically, the segment has been posting losses since the last 3-4 years mainly due to poor margins, coupled with delay in project completion leading to cost overruns. However, the company has now become very selective in order intake by focusing more on profitability rather than revenue growth and has its mechanism in-place to ascertain timely execution of the projects. Hence, going forward, we expect the segment to rebound its EBIT profitability gradually from current year loss of Rs. 103cr to a profit of Rs. 16cr and Rs. 23cr in FY2015E and FY2016E respectively.

Outlook and Valuation: Consistent growth in Consumer durables (CD) and Lighting and Luminous (LnL) segments, coupled with revival in the E&P segment, is expected to aid top-line and EBITDA CAGR of 16.4% and 106% (due to low base) respectively over FY2014-16E. The bottom-line is expected to come in at Rs. 189cr in FY2016E. We continue to maintain our Buy rating on the stock with a revised target price of Rs. 441 based on target Ev/Sales of 0.8x for FY2016E.

Shares of BAJAJ ELECTRICALS LTD. was last trading in BSE at Rs.320.55 as compared to the previous close of Rs. 319.45. The total number of shares traded during the day was 54547 in over 2966 trades.

The stock hit an intraday high of Rs. 329.45 and intraday low of 316.8. The net turnover during the day was Rs. 17656907.

Source : Equity Bulls

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