Centrum Broking

Bajaj Electricals (Buy)

Target: ₹1,350

CMP: ₹1,155.55

The board of Bajaj Electricals (BJE) has approved a review of its corporate structure to unlock growth and value for both business segments. For a focused approach, the company will evaluate various opportunities including demerger, forming a subsidiary and/or strategic partnership. Based on evaluation of various alternatives, the board could consider housing the EPC business as a standalone or independent legal entity. We believe that completely demerging the EPC business and creating a standalone electrical entity would be an ideal business structure. As witnessed with the demerger of Crompton Consumer and Orient Electric in the past, a standalone B2C entity would help to sharpen the management focus, operate at an ideal capital structure, and realign business goals. After the change in management with the appointment of Anuj Poddar as Executive Director effective from November 1, 2018, BJE has been undergoing a turnaround for both its consumer products as well as EPC business. In consumer products, it is improving cost efficiency (at production, sourcing and supply chain levels), investing more in brand (ad-spend of 4-4.5 per cent of sales vs 2 per cent earlier) and entering the premium range (vs traditional focus on economy and sub-economy range).

With the legacy rural electrification projects nearing completion, we believe that it is an ideal time for both consumer and EPC business to operate as independent entities and benefit from value unlocking.