Morgan Stanley initiates coverage on Bajaj Electricals with overweight rating

MUMBAI: Morgan Stanley has initiated coverage on with an overweight rating and a target price of Rs 1,479 as it sees the company as a turnaround story.

The financial services company said Bajaj Electricals is a turnaround story. Its strong revenue growth in the fast-moving consumer electricals business and sharp improvement in margin should drive higher return ratios, said Morgan Stanley.

The firm also said Bajaj Electricals' dependence on the cyclical projects business with low margins and return on capital employed is set to reduce. Bajaj Electricals is on track to be a net cash company.

"We forecast a 12 per cent revenue CAGR (compounded annual growth rate), F21-24, driven by a strong 16 per cent CAGR in the FMEG business and 3 per cent CAGR in the projects business. We expect revenue contribution of the low-margin projects business to fall from 38 per cent in F20 to 23 per cent in F24," said Morgan Stanley.

The firm said these factors along with improving margins in the FMEG business should drive overall EBITDA margins to improve 350 basis points to 10.4 per cent in FY24.