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Bajaj Electricals BUY
Resilient rural growth play
Bajaj Electricals (BJE) is a leading player in consumer
appliances, fans and lighting products, which together
account for 55% of its revenues. The company enjoys an
established brand franchise in India, with a market share of
20-30% in most of the consumer-durable categories in which
it operates. It is well-placed to benefit from the potential
25%+ volume growth in consumer durables, driven by underpenetrated
semi-urban markets. With the government’s focus
on rural infrastructure also remaining high, growth in sales of
its industrial products too should stay high at over 20%+
annually. The stock is trading at 11.5x FY12ii EPS, and we
reckon the 1-year-forward multiple should re-rate to 14x,
given BJE’s leadership position in a fast-growing market. We
recommend BUY with a target price of Rs280.
Strong brand name cum distribution to keep consumer
growth high: In consumer appliances, fans and lighting products,
BJE is primarily a marketing company and outsources most of its
manufacturing, which mitigates risk of competition from lower-cost
regional producers and Chinese exporters. The company plans to
launch new products (such as pressure cookers), which are underpenetrated
in rural areas. In these products, competition from other
incumbents is unlikely, as they would have to incur distribution costs,
whereas BJE already has an established network in rural markets.
Robust growth from government’s infrastructure programme:
The company derives 45% of its 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.
Pricing power to partly offset cost pressure: BJE’s pricing power
enabled it to contain EBITDA margin losses at just 30bps during the
commodity inflation cycle of FY08–09. The company’s pricing power is
supported by a rational competitive environment both in its
consumer and engineering segments.
Brand and distribution key to growth in the
consumer segment
BJE has a strong brand franchise in small home appliances. It sells a
range of appliances, including irons, mixers, water heaters, room
coolers, grinders, food processors and home UPSes. Until FY03, the
company sold primarily to the mass segment. To extend its presence
to higher-priced segments, it signed a technical collaboration and
brand licensing agreement with Morphy Richards, UK, in FY03 for the
sales and marketing of electrical appliances under the brand name
‘Morphy Richards’ in India. In FY09, the company tied up with Nardi
of Italy, to enter the growing premium kitchen appliance market in
India. With this tie-up, the company targets 25% market share of
the premium gas hobs/chimney market in India.
Consumer appliance market: Well-entrenched Bajaj brand
keeps the growth momentum high
BJE’s management pegs the domestic appliance market at ~Rs60bn,
of which ~70% is in the hands of organised players. The company
estimates that it is largest player in the domestic appliance market,
with a ~15% share amongst organised players (or ~10% of the
market). In the premium segment, foreign brands dominate the
Indian market. Key competitors for the Morphy Richards brand in
India are Philips, Black & Decker and Braun.
Thanks to its distribution network for appliances that reaches out to
over 25,000 retail outlets in India, and frequent introduction of new
models, BJE’s revenues from appliances have grown at ~31% annually
during FY06-10. We estimate this segment’s revenues will grow at
~25% annually over the next 2-3 years, driven by: 1) increase in
distribution reach to penetrate semi-urban/rural markets; 2) increase in
market share of premium segments of its brands Bajaj Platini, Nardi
and Morphy Richards; and 3) entry into promising new segments
(mainly water purifiers).
Fans: Innovation and imports key to driving growth
BJE estimates the fans market in India—comprising ceiling fans,
pedestal fans, wall-mounted and exhaust fans (industrial &
domestic) and air circulators—at ~Rs20bn. Through a combination of
its tie-up with China’s Midea, and its own in-house development and
manufacturing facilities, Bajaj Electricals sells both lower-priced and
premium products. In the premium segment, BJE has driven growth
mainly through introduction of novel products such as decorative
fans, remote-controlled fans, and models for children, with Disney
characters.
The fans segment has maintained a robust revenue CAGR of 28%
during FY06-10, and we estimate its revenues will grow at 22%
annually over the next three years, driven by:
increase in rural penetration of existing products especially in the
low-to-mid-tier segments;
increased presence in the industrial fans, and motors segment;
and
continued innovation in the premium segment both through inhouse
R&D and alliances with international brands.
Lighting: CFL is the way to grow
BJE has had a presence in lighting for many decades, through GLS
lamps, fluorescent tube-lights, domestic luminaires and ballasts &
starters. To tap the growing market for energy-efficient lighting, the
company entered the CFL segment, through the acquisition of a 32%
stake in Starlite Lighting Ltd (which has a CFL manufacturing unit).
The company estimates the CFL market at ~Rs20bn and the rest of
the lighting market at Rs36bn. BJE has maintained a leading
presence in this market with its entry into the CFL market, and is
well-poised to benefit from strong growth in this market.
BJE’s revenues from this segment grew at 25% annually during
FY06-10, and we estimate a 20% CAGR over the next three years,
driven by: a) strong growth in CFLs; b) expansion of distribution
both to kirana stores and modern retail formats; and c) rural
electrification and increase in power availability in remote areas.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj Electricals BUY
Resilient rural growth play
Bajaj Electricals (BJE) is a leading player in consumer
appliances, fans and lighting products, which together
account for 55% of its revenues. The company enjoys an
established brand franchise in India, with a market share of
20-30% in most of the consumer-durable categories in which
it operates. It is well-placed to benefit from the potential
25%+ volume growth in consumer durables, driven by underpenetrated
semi-urban markets. With the government’s focus
on rural infrastructure also remaining high, growth in sales of
its industrial products too should stay high at over 20%+
annually. The stock is trading at 11.5x FY12ii EPS, and we
reckon the 1-year-forward multiple should re-rate to 14x,
given BJE’s leadership position in a fast-growing market. We
recommend BUY with a target price of Rs280.
Strong brand name cum distribution to keep consumer
growth high: In consumer appliances, fans and lighting products,
BJE is primarily a marketing company and outsources most of its
manufacturing, which mitigates risk of competition from lower-cost
regional producers and Chinese exporters. The company plans to
launch new products (such as pressure cookers), which are underpenetrated
in rural areas. In these products, competition from other
incumbents is unlikely, as they would have to incur distribution costs,
whereas BJE already has an established network in rural markets.
Robust growth from government’s infrastructure programme:
The company derives 45% of its 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.
Pricing power to partly offset cost pressure: BJE’s pricing power
enabled it to contain EBITDA margin losses at just 30bps during the
commodity inflation cycle of FY08–09. The company’s pricing power is
supported by a rational competitive environment both in its
consumer and engineering segments.
Brand and distribution key to growth in the
consumer segment
range of appliances, including irons, mixers, water heaters, room
coolers, grinders, food processors and home UPSes. Until FY03, the
company sold primarily to the mass segment. To extend its presence
to higher-priced segments, it signed a technical collaboration and
brand licensing agreement with Morphy Richards, UK, in FY03 for the
sales and marketing of electrical appliances under the brand name
‘Morphy Richards’ in India. In FY09, the company tied up with Nardi
of Italy, to enter the growing premium kitchen appliance market in
India. With this tie-up, the company targets 25% market share of
the premium gas hobs/chimney market in India.
Consumer appliance market: Well-entrenched Bajaj brand
keeps the growth momentum high
BJE’s management pegs the domestic appliance market at ~Rs60bn,
of which ~70% is in the hands of organised players. The company
estimates that it is largest player in the domestic appliance market,
with a ~15% share amongst organised players (or ~10% of the
market). In the premium segment, foreign brands dominate the
Indian market. Key competitors for the Morphy Richards brand in
India are Philips, Black & Decker and Braun.
Thanks to its distribution network for appliances that reaches out to
over 25,000 retail outlets in India, and frequent introduction of new
models, BJE’s revenues from appliances have grown at ~31% annually
during FY06-10. We estimate this segment’s revenues will grow at
~25% annually over the next 2-3 years, driven by: 1) increase in
distribution reach to penetrate semi-urban/rural markets; 2) increase in
market share of premium segments of its brands Bajaj Platini, Nardi
and Morphy Richards; and 3) entry into promising new segments
(mainly water purifiers).
Fans: Innovation and imports key to driving growth
BJE estimates the fans market in India—comprising ceiling fans,
pedestal fans, wall-mounted and exhaust fans (industrial &
domestic) and air circulators—at ~Rs20bn. Through a combination of
its tie-up with China’s Midea, and its own in-house development and
manufacturing facilities, Bajaj Electricals sells both lower-priced and
premium products. In the premium segment, BJE has driven growth
mainly through introduction of novel products such as decorative
fans, remote-controlled fans, and models for children, with Disney
characters.
The fans segment has maintained a robust revenue CAGR of 28%
during FY06-10, and we estimate its revenues will grow at 22%
annually over the next three years, driven by:
increase in rural penetration of existing products especially in the
low-to-mid-tier segments;
increased presence in the industrial fans, and motors segment;
and
continued innovation in the premium segment both through inhouse
R&D and alliances with international brands.
Lighting: CFL is the way to grow
BJE has had a presence in lighting for many decades, through GLS
lamps, fluorescent tube-lights, domestic luminaires and ballasts &
starters. To tap the growing market for energy-efficient lighting, the
company entered the CFL segment, through the acquisition of a 32%
stake in Starlite Lighting Ltd (which has a CFL manufacturing unit).
The company estimates the CFL market at ~Rs20bn and the rest of
the lighting market at Rs36bn. BJE has maintained a leading
presence in this market with its entry into the CFL market, and is
well-poised to benefit from strong growth in this market.
BJE’s revenues from this segment grew at 25% annually during
FY06-10, and we estimate a 20% CAGR over the next three years,
driven by: a) strong growth in CFLs; b) expansion of distribution
both to kirana stores and modern retail formats; and c) rural
electrification and increase in power availability in remote areas.
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