Bajaj Electricals: IIFL top midcap pick

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Bajaj Electricals: semi-urban markets to drive growth
Consumption spending on a roll: BJE is a leader in consumer
appliances, fans and lighting products (which account for 55% of its
revenues), and hence should benefit from the 25%+ volume growth in
consumer categories. BJE is a marketing company and outsources most
of its manufacturing, which mitigates risk of competition from lowercost
regional producers and Chinese exporters.
Government spending steady: The company derives 45% of
revenues from projects won under various infrastructure development
schemes (including transmission tower development under the
Accelerated Power Development and Reform Programme, APDRP), on
which spends are growing at 20% annually. High margins in this
segment are offset partly by the higher working-capital costs associated
with longer receivables.
Cost inflation, longer receivable cycles can adversely affect
margins: Deteriorating government finances could weigh on workingcapital
costs, and increased competitive intensity would prove
detrimental to the industrial segment’s margins. Furthermore, growth in
consumer goods would increasingly come from the price-sensitive semiurban/
rural markets, so any significant cost inflation can weigh on
margins.