Bajaj Electricals-Buy Bajaj Electricals; target of Rs 238: Nirmal Bang

Nirmal Bang is bullish on Bajaj Electricals (BEL) and has recommended buy rating on the stock with a target of Rs 238 in its September 22, 2011 research report.

“Bajaj Electricals (BEL) reported a poor performance in Q1FY12 due to the consumer business facing poor market conditions for fan and room cooler (reported a moderate growth of 15.5%) and E&P (Engineering & Projects) business showcased just a meager 2.5% growth coupled with loss on account of increased cost incurred to close down the lingering projects. BEL prices corrected by 14% since Q1FY12 result. We expect BEL performance to improve in Q2FY12E and bounce back to normal level in second half of FY12E on the account of better performance by E&P business and normal growth in consumer durable business.”

“Backed by its R&D efforts and global collaborations, the company has been able to launch newer products across various price points/segments. With aggressive marketing, strong distribution network and strong brand equity, various launches of new categories in last 1 – 2 years will start contributing substantially from current year. Over the past seven decades, BEL has established strong presence in ‘value for money’ segment of consumer durable products. To strengthen its product portfolio, BEL strategically entered the premium segment through tie-ups with global premium brands. BEL also launched its own brand “Bajaj Platini” to bridge the gap between the value and premium brands.”

“We believe that consumer durables market is highly fragmented with stiff competition from regional and national players. Thus, to beat the competition BEL has created a strong presence in pan India with network of 19 branch offices besides being supported by a chain of about 1000 distributors, 4000 authorized dealers, over 4,00,000 retail outlets and over 282 Customer Care centers. At CMP of Rs. 186, the stock is trading at a PE of 11.3x in FY12E and 9.4x in FY13E whereas on EV/EBITDA it is trading at 5.8x and 4.8x in FY12E and FY13E respectively. We recommend to “BUY” the stock with a target price of Rs. 238 per share (12x on FY13E EPS), an upside of 28% for a long term view,” says Nirmal Bang research report.