Over the last eight years, the stock has delivered even stronger returns to investors, with an increase of 430%. Looking ahead, HDFC Securities, a domestic brokerage firm, anticipates that the company is well-positioned to capitalise on anticipated improvements in demand, suggesting the continuation of the stock’s upward trend.
The company holds a prominent position in India’s fast-moving electrical goods (FMEG) segment, boasting a legacy spanning over eight decades. Its diverse product portfolio includes consumer products such as appliances, fans, and non-electric kitchen aids, as well as lighting solutions encompassing consumer and professional lighting.
During FY24, it strategically demerged its EPC division (Power Transmission and Power Distribution), transforming it into a pure-play FMEG company.
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According to the brokerage, the company stands to benefit from growth opportunities in the FMEG sector and expected rural recovery, driven by several factors: its leadership in critical categories within home and kitchen appliances, a well-established distribution network, and significantly higher rural market penetration compared to peers (approximately twice that of its competitors).
Having achieved a net cash position for the first time in four decades and simplified its corporate structure in Phase 1 of its transformation journey, the company now focuses on industry-leading growth in its next phase.
This strategy involves refreshing its product portfolio, expanding offerings across the consumer value chain through a multi-brand approach, and increasing investments in branding and innovation, according to HDFC Securities.
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Evolving into a house of brands
The brokerage highlights the company’s impressive transformation journey in recent years, including its transition to a professionally managed entity, the demerger of its EPC business, the simplification of its corporate structure, and achieving debt-free status for the first time in over four decades.
With the brand “BAJAJ” resonating more with the mass segment in FMEG, the company is looking to gradually increase its premium offerings by evolving into a house of brands.
Today, it operates four distinct brands: BAJAJ – Built for Life (durable products); Nex – Feel the Future (premium, higher performance); Morphy Richards – Happiness Engineered (premium lifestyle); and Nirlep – Everyday Health.
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The company has renewed its exclusive, long-standing license agreement (2002) with Morphy Richards (MR) for another 15 years (effective July 1, 2022), which will empower it to plan and grow the MR business with a long-term view and a clear product development and expansion roadmap for the market, supported by brand building and go-to-market thrust.
In 2018, the company acquired Nirlep Appliances, a five-decade-old non-stick cookware company, to propel its non-electrical appliances foray into cookware and related segments.
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Trading at a discount to peers
The brokerage estimates that Bajaj Electricals will see revenue, EBITDA, and PAT growth of 14%, 38%, and 47%, respectively, over FY24–27E, with 20% RoE and approximately 30% RoCE.
Despite the near-term softness in demand, excluding the summer portfolio, the brokerage believes the company is well-positioned to benefit from the anticipated demand improvement, especially in H2FY25, along with margin expansion.
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The brokerage attributes this optimistic outlook to the company’s diversified product portfolio, which encompasses small-ticket daily use items, comprehensive coverage of the consumer value chain, an expansive distribution network, substantial penetration in rural markets (3–4 times that of competitors), cost efficiency initiatives, and enhanced operational leverage.
At CMP, the stock is trading at 28x FY27 EPS, which the brokerage believes is a 10–40% discount to its peers. The brokerage has set a target price of ₹1,200 by valuing the stock at 40x June 26 EPS and has initiated coverage with a ‘buy’ rating. The target price indicates an upside potential of 14.3% from the stock’s previous closing price.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 19 Jun 2024, 06:18 PM IST
