BEL Q2 Review - High Dependency On Economy Seg, Market Share Loss In Fan Results In Downgrade: Yes Securities

Yes Securities Report

Consumer products business registered flattish revenue growth of 1.2% on single-digit de-growth in fans and flattish growth in Appliances, while Morphy Richards premium small domestic appliances demonstrated double-digit growth.

Margins were subdued on back of reversal in warranty provision of Rs 210 million coupled with operating de-leverage and higher brand investments. The company has been aggressively launching new products large part of it at the premium end.

On the lighting front growth in professional lighting was marginally offset by drop in consumer lighting. There has been double digit volume growth and high single digit value growth in focus lighting categories. Fans de-growth is attributed to price increase by the company in Q1 which has not gone well with the market and company has lost some market share. Margins will continue to remain at lower levels as company continues to invest in brand and new launches and will take 3-4 more quarters for investments to normalize.

Bajaj Electricals has seen good start to the festive season, with October registering strong growth. We downgrade the stock to Sell with target price of Rs 820 as-

1. Bajaj Electricals has high dependency on the economy fans where it has undertaken price increase resulting in market share loss;

2. Consumer product margins will be lower for next three-four quarters given the investment in brand and product launches,

3. Appliances segment which is the key growth driver is facing industrywide slowdown.

We roll forward our target multiple to FY27 and now value the company at 35 times given the challenges the company is facing. We downgrade the stock to Sell with target price of Rs 820.

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