Bajaj Electricals - Analysis of post demerger pro forma financials - ICICI Securities

Post demerger and repayment of debt by Mar'22E, Bajaj Electricals' return ratios will inch upward by 300-400bps, resulting in higher EVA creation. We also model the pro forma FY23E earnings to be higher by ~22% compared to current estimates. With a market cap/sales valuation range of 0.25x to 1x for Bajel Projects, Bajaj Electricals' value works out in the range of Rs130bn-Rs135bn, indicating a P/E multiple of ~42x on FY23E earnings, in line with other listed durable companies. We note Bajaj Electricals (demerged) will also benefit from (1) undivided management attention, (2) likely higher investments in brand building activities and (3) focus on market share gains. We stay believers; Maintain ADD with a DCF-based TP of Rs1,300 (implied P/E 41x FY24E EPS).

• Pro forma PAT of demerged entity to be higher by ~22%, ceteris paribus: The demerged EPC segment (ex-Illumination) was generating losses and also required higher working capital. Demerger of this business will improve profitability of Bajaj Electricals post demerger. We expect PAT of Bajaj Electricals post demerger to be ~Rs3,111mn in FY23E compared to current PAT estimate of Rs2,537mn (up ~22%).
• Return ratios to improve by 300-400bps: We believe with repayment of debt by Mar'22E, transfer of Ranjangaon unit, some space at corporate office, IT hardware and working capital, Bajaj Electricals (Demerged) will have RoE and RoCE of 21% and 27%, respectively, largely in line with other listed durable companies.
• Revenue breakup of Bajaj Electricals (Demerged): Appliances will be largest segment accounting for 55% sales (Mixers, Juicers etc: 17%, Water Heaters: 10%, Room Heaters: 3%, Air coolers: 4%, Iron: 6% and Others: 16%). Fans, Lighting and Morphy Richards will account for 16%, 11% and 6% of sales, respectively and Illumination will be 12% of net sales.
• Analyzing valuation attributable to Consumer segment: Assuming EPC (ex-Illumination) is valued at Mcap/Sales range of 0.25x to 1x, we believe Bajaj Electricals (Demerged) will have market cap in range of Rs130bn to Rs135bn and is likely to trade at P/E of 42x on FY23E, largely in line with most of the Consumer Durables.
• Maintain ADD: We model Bajaj Electricals to report revenue and PAT CAGR of 12.5% and 25.5%, respectively over FY21-FY24E and RoCE to be >18% by FY24. Maintain ADD with a DCF-based TP of Rs1,300 (implied P/E 41x FY24E EPS). Key risks are prolonged inflation in input prices and higher competitive pressures.

Shares of Bajaj Electricals Limited was last trading in BSE at Rs. 1184.65 as compared to the previous close of Rs. 1189.55. The total number of shares traded during the day was 3925 in over 646 trades.

The stock hit an intraday high of Rs. 1204.80 and intraday low of 1172.85. The net turnover during the day was Rs. 4680167.00.

Source : Equity Bulls

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BajajElectricals INE193E01025 BAJAJELEC ICICISecurities Demerger