Bajaj Electricals - Change of guard; event update; Buy ::Edelweiss, pdf link

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Bajaj Electricals (BJE IN, INR 178, Buy)

Bajaj Electricals (BJE) suffered a setback as Mr. R Ramakrishnan, Executive Director, resigned on February 20, 2012. He spent over 12 years in the company and guided it through its restructuring over the past few years, besides several international tie-ups for its consumer business. Mr. Shekhar Bajaj, CMD, indicated day-to-day operations will remain unaffected as they are driven by six BU heads. He also indicated that he is active in the company management and will continue to guide on strategic matters. We maintain ‘BUY’ with target price of INR220.

Key management change, but business as usual

BJE’s ED, Mr. R Ramakrishnan, resigned yesterday. Having spent over 12 years with the company, Mr. Ramakrishnan guided the company through its restructuring over the past few years, including the several international tie ups. Mr. Bajaj during the concall today indicated that Mr. Ramakrishnan’s exit is unlikely to affect the day-to-day operations as they are headed by six BU heads independently as profit centres. Mr. Bajaj further indicated that he continues to remain active in managing BJE and will continue to take strategic decisions. He refused to give a timeline / roadmap towards Mr. Ramakrishnan’s replacement, as it was too early to decide on the new structure.

Outlook and valuations: Remain positive; maintain ‘BUY’

While Mr. Ramakrishnan’s exit is certainly a setback given that this has been one of the risks to the stock, we believe until more clarity emerges regarding his replacement / roadmap ahead, it would be premature to conclude that it will have a significant impact. In terms of business, we believe the E&P division continues to hold the key for BJE’s valuation due to concerns over its lower order book/ inflows and margin profile. We believe consumer businesses will continue to report strong growth as the company launches new products and enters new segments amid increased competition. The stock is currently trading at P/E of 13.6x and 9.3x FY12E and FY13E, respectively. We maintain ‘BUY / Sector Outperformer’ with target price of INR220.

Bajaj Electricals - Change of guard; event update; Buy