Bajaj Electricals Q3 Results Review - Rural Stress Continues; Expect Gradual Recovery: Systematix

Systematix Research Report

Weak consumer sentiment continued to hurt Bajaj Electricals Ltd.’s performance (Q3 revenue down 6% YoY, 4.7% Ebitda margin). Drop in consumer products revenue was led by appliances and fans. Ebitda margin got impacted due to lower sales, higher schemes/discounts (owing to intense competitive intensity) and onetime warranty provision (Rs 230 million).

Despite weak results, cash flow was healthy (Rs 1.15 billion in nine months) on working capital (22 days net) optimisation; cash surplus stands at Rs 1.98 billion. On adjusted basis,consumer product’s gross margin improved 100 bps+ on richer product mix and channel efficiency.

General Trade (down 7% YoY) witnessed demand slowdown; broad based growth witnessed across key alternate channels. January 2024 was a soft month; management expects gradual recovery only. Lighting revenue (up 1%/6% YoY/QoQ) and Ebit margin (up 273 bps QoQ at 8.4%) came healthy despite continued price erosion in consumer LED.

After a weak Q3 and no immediate revival in sight, we have cut FY24E earning by 24% but have maintained it for FY25E/26E.

We now expect compound annual growth rate of 6%/24%/33% in revenue/Ebitda/profit after tax over FY23-26E (after a muted 3%/4%/21% CAGR over FY18-23), with Ebitda margin reaching towards 11% and 27%+ return on capital employed in FY26E. Expecting gradual recovery, we maintain 'Buy' on Bajaj Electricals with an unchanged target price of Rs 1,192 (27 times FY26E price/earning).

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