Bajaj Electricals : Making Life Brighter And Easier
With an ever increasing product portfolio across various business segments such as kitchen appliances, air coolers and heaters, consumer lighting, domestic appliances and others, the company has always had an edge in the market even as continuous innovation and established quality standards act as triggers for further growth
Bajaj Electricals is engaged in the manufacturing of appliances like water heaters, mixers, micro ovens, room air coolers, irons, room heaters, gas stoves and electric kettles, a wide range of electric fans, lightings like lamps, torches, tubes as well as a portfolio of luminaries, engineering and projects. The company is one of the most preferred names in consumer products in India and is known for its exceptional range of innovative products and solutions, catering to a wide customer base. A well-established distribution network along with innovative and best-in-class product portfolio allows Bajaj Electricals to deliver superior performance and maintain consistency. The company’s vision of ‘enhancing quality of life and bringing happiness with sustainability’ gives us an insight into what the company wants to achieve.
Business Segments
1) Consumer Products: In this segment the key products offered by Bajaj Electricals are kitchen appliances, domestic appliances and fans and lightings. The company also caters to the premium home appliances and cookware segment through the acquired brands of Morphy Richards and Nirlep Appliances.
2) Kitchen Appliances: Within the consumer products’ business segment, the range of kitchen appliances is one of the fastest growing segments for Bajaj Electricals. The Indian kitchen appliances market has been growing steadily over the past few years and it is expected to grow further owing to increased consumption, rise in per capita income and expanding population. One of the existing trends in the kitchen appliances segment that is benefitting Bajaj Electricals is an increase in demand for branded products from rural areas owing to greater awareness about quality and durability. This is important when one notes that nearly 65 per cent of the Indian population still resides in rural areas. This serves as a key growth driver for the business segment. There is also a visible improvement in online retail sales, leading to maximising sales and meeting customer demand efficiently.
3) Domestic Appliances: Bajaj Electricals derives a chunk of its growth from the domestic appliances segment, which is one of the fastest growing segments in the Indian market comprising various small and large appliances, including irons, water heaters, room coolers and room heaters. With the ever increasing working population in India and the trend of nuclear families, the demand for domestic appliances has been witnessing a steady rise. In fact, those appliances that save time and energy are becoming a necessity for completing day-to-day chores. These products are especially in high demand amongst individuals who stay away from families for work or study.
The demand for products in this segment is also impacted by factors like increasing affordability, focus on energy-efficient products, growing digital penetration and the aspirations of a young population. These factors continue to drive the growth prospects of the industry. The demand for domestic appliances is expected to see significant growth in coming years as the consumer market continues to expand due to rising disposable incomes coupled with enhanced purchasing power. The domestic appliances’ demand will also be influenced by the burgeoning middle-class in urban areas and the aspirational demands of rural India. The improving infrastructure in rural areas and easier accessibility to electricity and the internet may lead to growth in e-commerce in rural areas as well.
4) Fans: Fans as a product is one of the most widely used electrical appliances in the market. They are also an indispensable part of any Indian household. Fans belong to the high market penetration product category and have high purchase priority in the consumer durable segment. As a product category, fans generally do not have any major regional disparities in demand and are one of the largest selling items in the consumer electronics segment with much of their sales in the organised sector being concentrated in metros and Tier II and III markets.
5) Consumer Lighting: Similar factors impact the consumer lighting business as applicable for domestic appliances and fans. Growing population and rapid urbanisation is the key to growth in this segment. The consumption of electricity is increasing and consumers continue to demand innovative, environment-friendly and costeffective lighting. The demand for products that not only reduce electricity consumption but also enable customers to decorate homes with aesthetic and appealing lights is on the rise. This has led to increase in demand for LED lighting in the Indian lighting market and this preference can be attributed to increasing awareness about its role in reducing energy consumption and its contribution to reduce the carbon footprint.
6) EPC: Under this business segment the company is present in power distribution, power transmission and illumination. Bajaj Electricals is aggressively exploring opportunities in this sector and aims to capitalise on the opportunity provided by the railway and substation projects that have huge electrification outlay. Another opportunity for the company is presented in the form of rapid upgradation of electricity transmission channels through installation of underground cables and use of monopoles as major towns and cities undertake these developments.
The company is also believed to be exploring opportunities in the export market by leveraging its domain expertise. These markets are expected to be less competitive and have predictable cash flows with better margins. The robust end-to-end capabilities under one roof, namely, research and development, production, supply and after-sales services are some of the biggest advantages enjoyed by Bajaj Electricals in its EPC business segment. The illumination business is dominated by Bajaj Electricals across various sub-segments such as street lighting, industrial lighting and commercial lighting.
Growth Drivers for Consumer Facing Business Nuclear families.
✓Products that make life easy and convenient.
✓Increase in demand for products with advanced features, offering flexibility and ease of operation.
✓Increasing electrification.
Outlook
In future the company aims to grow by leveraging its investments in research and development, product development, distribution channels and information technology. Bajaj Electricals plans to launch more than 100+ SKUs with differentiated features in order to achieve its business objectives. The continued growth of the consumer products’ segment helps the company deliver healthy double-digit growth that is better than the industry, implying an increase in overall market share.
Core Competencies
✓Bajaj Electricals enjoys a strong brand reputation in Indian and overseas markets.
✓Strong supply chain and distribution network ensuring steady supply of goods to 220,000 retail outlets spread across the country, thereby making its products easily available.
✓Affordable and cost-effective products to cater to a wider customer base.
✓Scale and financial strength backed by a strong promoter group to support sustained business growth.
Financials
The stock is trading close to its 52-week highs and higher than its 10-day, 20-day, 50-day, 100-day and 200-day averages. The DIIs holding has increased by 2.02 per cent in the June quarter and the company has delivered compounded sales growth of 5.43 per cent over the past three years even as the stock has generated 15.5 per cent CAGR returns over three years with an average RoE of 8.44 per cent However, the latest RoE stands at –0.74 per cent.
The company has been showing de-growth if we consider the latest quarterly results. The stock is trading at 4.42 times its book value and has low interest coverage ratio. One of the biggest advantages for the company is the fact that it has reduced its debts substantially. Also, it has been maintaining a healthy dividend payout of 21.87 per cent. Even though the numbers are not very encouraging, the expected development in business prospects can support the stock prices. Our recommendation is to HOLD the scrip.