Buy Bajaj Electricals; target of Rs 495: ICICI Direct

ICICI Direct's research report on Bajaj Electricals

Bajaj Electricals’ (BEL) Q4 revenue declined ~27% YoY led by E&P segment wherein revenue declined ~46% YoY while consumer durable (CD) revenue remained flat YoY despite revenue loss of last 10 days in March 2020. While sales in April were impacted by a complete lockdown, the sales recovery in May, June was better than the company’s estimate due to pent up demand in the home & kitchen appliances categories. As a result, the company does not see a major dent on annual sales from the CD segments. On the EPC front, focus on reducing proportion of loss making projects would lead flattish revenue of the segment. However, it would benefit in terms of margin in the long term. The company did manage to improve D/E from 1.5x in FY19 to 0.6x in FY20 by substantial repayment of debt. As a result, interest cost declined ~14% in Q4FY20. The company plans to reduce debt by ~ Rs 300 crore by FY21E and refinance existing debts by issuing NCDs that would reduce interest cost substantially, going ahead. We believe focus on strengthening balance sheet condition and rising proportion of CD business bodes well for BEL given its strong rural presence.

Outlook

We have seen an improvement in balance sheet position with debt/equity reducing from 1.6x in FY19 to 0.6x in FY20. The company plans to further reduce debt by ~Rs 300 crore in FY21 and refinance existing debt, that would lead to a significant decline in interest outgo. Improved profitability, lighter balance sheet would help drive return ratios from FY22E onwards. On a SOTP based valuation, we value CD, EPC at 20x, 3x of FY22E EBITDA, respectively, and maintain BUY rating with a revised target price of Rs 495.

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