Bajaj Electricals (BEL) incorporated in 1938 is engaged in business appliances, fans, lighting, luminaries and engineering and projects. BEL is a part of the Rs. 20000 crore Bajaj Group. Shekhar Bajaj is the Current CMD of the company and we give a 5/5 for the Management Track Record.. For decades the company had been into the consumer electrical business. In the last few years it has diversified into E&P. Bajaj Electricals (BJE) has now been ranked as the top E&P player by Powergrid Corporation. In FY14, order inflow increased 106% and losses declined. Given the softening copper price and a possible recovery in the housing sector post the elections, the stock is due for re-reating.
The consumer business’ revenue growth at 9% in 9MFY14 was disappointing (25% CAGR in FY09-13) due to weak consumer spending. We expect a recovery in FY15 (revenue growth of 21% YoY), as our dealer checks suggest an uptick in demand, due to a recovery in the realty sector in 2HFY14. A correction in copper prices will aid margin expansion by 70bps YoY to 9.5% in FY15
E&P performed well in FY14, given: (a) revenue growth of 76% YoY in 9MFY14, (b) cumulative loss in FY14E at Rs 984mn vs ES 1.2bn in FY13, and (c) order intake growth of 106% YoY and order book growth of 100% YoY in FY14. The strong order intake has also come at higher margins, as PGCIL tightened prequalification norms and consolidation increased, which led to players bidding sensibly.
BJE is expected to report an EPS of RS 24 and Rs 30 for FY 2015 and FY 2016 respectively. At CMP, BJE is trading at 10.8x FY16 P/E, at a 40% discount to Havells on FY16 earnings despite in-line RoE of 29%. We value the non-E&P business at Rs 320/share and E&P business at Rs 50/share taking the stock target to Rs 370 over 12 months period. Accumulate at the following levels where the Stock has Strong Support – Rs 302, 285, 276, 266 and VERY STRONG Support at 255-251