Target: ₹1,230
CMP: ₹1,133.25
Bajaj Electricals might face revenue growth pressures in the remaining period of FY23 due to: muted demand from rural markets (the company has relatively higher exposure to rural markets); lower off-take in economy segment; and sluggishness in the kitchen appliances market. However, we model overall margin to expand considering higher scale for lighting segment and correction in input prices. We also note the company is introducing multiple products in fans and the initial consumer/trade feedback is positive. We model Bajaj Electricals to report an earnings CAGR of 42.5 per cent over FY22-FY24.
Our discussions with the company, industry and channel checks suggest slow demand from tier-3 and -4, and rural areas in July-August 2022. However, we note premium products and tier-1 and -2 cities continued to report healthy growth. The demand for economy segment products remain muted.
We expect the company’s volume growth to be impacted due to higher exposure to rural areas.
We believe uptick in B2B and B2G spends, and correction in input material prices will result in EBIT margin expansion in the company’s lighting and luminaire business, leading to higher margins for Bajaj Electricals.