Result Update: Bajaj Electricals Ltd - SELL - TP Rs.545 - Kotak

BAEL reported Q1FY19 PAT in line with our estimate; consumer durable (CD) business grew 27.1% y/y on the low base of Q1FY18 (affected by GST implementation). E&P business revenue/PBIT normalized after a robust Q4FY18.

Key Highlights

- BAEL reported net revenues of Rs 11.4 Bn (+11.7% y/y) in Q1FY19 driven by 27.1% y/y growth (aided by low base of Q1FY18) in the CD business. Management highlighted that nearly 10% of volume growth in the quarter can be attributed to the GST effect in the quarter.

- In E&P segment, BAEL reported revenues of Rs 5.4 Bn (-3% y/y) with EBIT margins at 6.1% against 7.1% in Q1FY18.

Valuation & Outlook

- We revise FY20 earnings estimate; build higher margin in consumer business in FY20, driven by operating leverage. However reiterate our negative view driven by expensive valuations; remain cautious on 1/ sales and margin come back in the consumer business post RREP implementation and 2/ deterioration in working capital requirement and debt accretion on balance sheet driven by higher proportion of E&P business. We still maintain BAEL valuation discount vis-à-vis the peer group due to 1/ lower margin/return ratios and 2/ company's presence in capital intensive E&P business. We arrive at a SOTP based target price of Rs 545 (Rs 505 earlier; earning revision driven by improved margin outlook going forward); maintain 'SELL' rating on company's stock.

Shares of BAJAJ ELECTRICALS LTD. was last trading in BSE at Rs.605.6 as compared to the previous close of Rs. 624.5. The total number of shares traded during the day was 66719 in over 2916 trades.

The stock hit an intraday high of Rs. 636.1 and intraday low of 601. The net turnover during the day was Rs. 40965487.

Source : Equity Bulls

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