Hold Bajaj Electricals, target price Rs 419: ICICI Securities

ICICI Securities has given a hold rating to Bajaj Electricals with a target price of Rs 419. The share price moved down by -0.11 per cent from its previous close of Rs 413.25. The stock’s last traded price is Rs 412.80.

Bajaj Electricals reported 0.5 per cent and 12.7 per cent growth in its consumer durables (CD) segment while EPC revenues declined 46 per cent and 52 per cent in Q4FY20 and FY20, respectively. This combination has led to deleveraging of the balance sheet which we reckon will continue further in FY21E/FY22E.

The management outlook of flat CD revenues and breakeven EPC EBIT in FY21 is a positive surprise leading to increase in our estimates. The brokerage has factored in a further 50 per cent reduction in debt and 16 per cent CAGR in CD EBIT between FY20E-FY22E.

Maintains hold with a revised target price of Rs 419 (earlier Rs 311).

Investment Rationale

The brokerage expects EPC revenues of Rs 19 billion in FY21E (flat vs FY20) and Rs 20 billion in FY22E with EBITbreakeven in FY21E and modest EBIT of Rs 400 million in FY22E. ECD revenues are expected to remain flat in FY21E (Rs 31 billion) as per management guidance. This is a positive surprise driven by gradual business restoration trends seen in Q1FY21. While there were no sales in April, business revived to 65 per cent and 80 per cent in May and June respectively.

The brokerage has built in around 15 per cent growth in consumer topline in FY22E and expects CD EBIT margin to gradually increase from 6.5 per cent in FY20 to 7 per cent/7.5 per cent in FY21E/FY22E.

Q4FY20 Result Review (Consolidated)


Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1293.27 crore, up 1.39 per cent from last quarter sales of Rs 1275.60 crore and down -26.55 per cent from last year's same quarter sales of Rs 1760.83 crore. The company reported net profit after tax of Rs -.12 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 63.17 per cent stake in the company as of March 31, 2020, while FIIs held 7.96 per cent, DIIs 12.46 per cent and public & others 16.41 per cent.