Bajaj Electricals - All-round performance continues; Anand Rathi maintains Buy rating

Strong growth in consumer products (up 34% yoy, to continue), a healthy EBITDA margin (9.9%, higher in CPs) and continued debt reduction (down Rs 1.4 bn to Rs 4.4 bn) were key factors of Bajaj Electricals all-round Q3 performance. 5-9% price hikes in Q4 will protect margins. Management expects the strong momentum to continue until the informal sector returns (unlikely) and high margins will be maintained.

The focus is on growth/margins in CPs, tightening WC leading to FCFs and shrinking debt in EPC are drivers of Bajaj’s bright prospects. Anand Rathi maintains Buy rating on Bajaj Electricals (30x/10x FY23e P/Es of the CP/EPC divisions). Strong growth/cash-flows are keys to a re-rating. Bajaj Electrical share price closed at Rs 1059 up Rs 38 or 3.8%.

See Zee Business Live TV Streaming Below:

Bajaj Electrical Stellar Q3:

Standalone revenue/EBITDA/PAT grew 17%/116%/552% y/y led by the CP division. Despite higher A&P spend, a strong 9.9% EBITDA margin (up 452bps y/y) was due to operating leverage benefits. EPC revenues fell 18% but EBIT losses were contained at Rs 91m. Lower finance costs/ higher other income boosted PAT. Debt is further reduced by Rs 1.4 bn to Rs 4.4 bn.

Bajaj Electrical strong traction in CP; price hikes due in Q4:

Aided by appliances (up 36% y/y), fans (up 22%), lighting (up 18%) and Morphy Richard (up 69%), Bajaj’s CP division grew 34% y/y (Havells/Crompton/Orient/ Polycab: 46%/32%/ 42%/41%). Momentum is likely to continue for at least a few quarters until the informal sector returns (unlikely). 5-9% price hikes in Q4 will protect margin.

Healthy cash-flows of Bajaj Electrical leading to debt reduction:

Efficient WC management and cost-optimisation steps continued to drive strong CFO (Rs 6.1 bn since Mar’20), leading to Rs 5.2 bn debt reduction since Mar’20.

High margin for Bajaj Electrical will continue, says management:

After the 8.5%/9.9% EBITDA margins in Q2/Q3, management was confident of retaining it at high levels. Anand Rathi have estimated 7.5%/7.8%/8.4% for FY21/FY22/FY23.

Maintaining a Buy on Bajaj Electricals:
 
Anand Rathi likes Bajaj Electrical for its improving outlook (greater focus on CP business, cash-flows). 
 
Bajaj Electrical Risks: 
 
Keener competition, continued EPC losses.