Though we are positive on BEL’s CD business (with revenue CAGR of ~19% in FY19-21E) led by expansion in dealer network, lumpiness of EPC business would dent overall profitability of BEL with high debt level. We believe the poor performance of the EPC business and higher interest cost would overshadow the profitability of CD business. On an SOTP basis, we cut our multiples owing to flattish growth for the company and value BEL’s CDsegment at MCap of 1.1x FY21E sales (~55% discount to peers) and E&P segment at 4x FY21E EV/EBITDA. We revise our rating downward from HOLD to REDUCE with a target price of | 320/share.
We expect the durable segment to post a growth of 20-25% on the back of strong volume pick up from Tier II and Tier III cities. We maintain our revenue estimates but tone down the margins as impacted by EPC segment UP orders which wouldpartially be offset by marginal increase in consumer segment margins. We revisedown the rating to “HOLD” and value the company at 24x for FY21E and arrive at a target price of Rs. 589 giving an upside of 8%.
We tweak our FY20 earnings estimate downwards to factor in margin pressure in T&D business. We arrive at a SOTP based revised target price of Rs 530 (Rs 550 earlier); move recommendation to ‘SELL’ from ‘ACCUMULATE’ earlier on company’s stock.
We expect BJE to post 21% adjusted earnings CAGR over FY19-FY21E led by margin expansion and a favorable revenue mix. The SOTP-based target price of Rs605 is based on a P/E of 30x FY21E EPS to consumer product segment (15% discount to peers) and 10x to E&P segment.