Buy Bajaj Electricals; target of Rs 500: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Bajaj Electricals

We initiate coverage on Bajaj Electricals (BJE) with BUY rating and a target price of Rs500 on SOTP basis. We believe BJE is a play on immense growth opportunity in mass market consumer electricals given 1) strong brand with wide portfolio in kitchen appliances 2) deep distribution network (covers 94% of districts in India) 3) leadership position in high potential small kitchen appliances and 4) expected gains in profitability, reach and working capital due to RREP implementation. Although near term looks challenging due to COVID, however, less dependence on seasonal products, mass market positioning and deep distribution makes BJE ideal candidate to gain from expected surge in demand from 2HFY21. We believe strengthening of balance sheet through rights issue (Rs3.5bn), realization of receivables and renewed focus on profitability & cash flows in EPC bidding are positives.

Outlook

We estimate Sales/EBITDA to grow at CAGR of 6.9% / 28.8% over FY20-23E due to improving business mix, operating leverage, gains from RREP & benign commodity prices. 72% decline in interest burden (improving cash flows and Rs3.5bn right issue) over FY20-23 will enable EPS to expand from Rs8.4 in FY21 to Rs25.2 in FY23. We value the stock on SOTP and arrive at a target price of Rs500 (derived P/E of 22.7x on Sep-22 EPS, Consumer business valued at 24x). We initiate coverage with BUY rating.

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