Buy Bajaj Electricals; target of Rs 493: YES Securities

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YES Securities' research report on Bajaj Electricals

Q4 results were inline with expectations as consumer (CP) business continued to gain strength. CP business revenues were flat on a yoy basis, even after the company losing sales of ~Rs2bn due to lockdown. Margins expansion was curtailed at 210bps yoy in Q4 due to reallocation of overhead costs from EPC and revenue loss in last 15 days. Margin expansion was also aided by sharp cut in A&P spends. EPC business performance was weak due to provisions taken by the company. EPC revenues were down 46.3% yoy, inline with the management’s guidance to keep EPC business contribution below 40%. Balancesheet improvement was led by Rs1.3bn of OCF and Rs3.5bn of capital raising in Q4. Net debt halved on a yoy basis to Rs9bn. Debt reduction in FY21 would be led by strengthening of CP business and recovery of EPC receivables. Interest costs to decline to Rs1bn in FY21 due to lower debt and reduction in interest costs. We have cut our FY21/FY22 estimates by 55.7%/19.4% factoring slower recovery in demand and accounting for revenue loss during lockdown.

Outlook

Valuations attractive at 21.7x FY22e P/E. Sharp earnings recovery coupled with improvement in return ratios, balance sheet and rising share of CP business would lead to valuation re‐rating. We maintain our Buy rating on the stock for a revised target price of Rs492, valuing the company at 26x FY22E P/E.

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