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.

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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%.

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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.