Built To Shine Campaign And Premium Focus Will Strengthen Future Market Position

Key Takeaways

• Bajaj Electricals' focus on premium products and branding may boost revenue and market share as consumer preferences evolve.
  
• Enhancing logistics and order book management could improve profitability and sustain revenue growth with higher net margins.
  
• Declining margins and revenue growth due to price erosion and competitive pressures in lighting and kitchen appliances could impact profitability.

Catalysts

Engages in the consumer durables; and engineering, procurement, and construction businesses in India.

• Bajaj Electricals' focus on premium and feature-rich products is expected to boost revenue as consumer preferences shift, which could lead to higher sales and improved net margins due to premium pricing.
  
• Continued investment in brand building, including the Built to Shine campaign, is likely to enhance brand recognition and market share in the lighting segment, potentially driving future revenue growth.
  
• The transformation journey addressing product portfolio gaps, including premiumization, could lead to higher consumer product sales and improved EBIT margins, contributing to earnings growth.
  
• Improving logistics and manufacturing efficiencies is expected to reduce costs, enhancing net margins and profitability.
  
• The company’s proactive approach to order book management and strategic initiatives in professional lighting indicates potential for sustained revenue growth and improved earnings in the coming quarters.

Bajaj Electricals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bajaj Electricals's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 5.0% in 3 years time.
• Analysts expect earnings to reach ₹3.4 billion (and earnings per share of ₹29.31) by about March 2028, up from ₹1.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.2x on those 2028 earnings, down from 64.4x today. This future PE is greater than the current PE for the IN Consumer Durables industry at 41.3x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.88%, as per the Simply Wall St company report.

Bajaj Electricals Future Earnings Per Share Growth

Risks

• The depreciation of the rupee and the expected tight monetary stance by the Central Bank may impact private consumption and investment, possibly affecting future revenues and sales growth.
  
• The lighting solutions business experienced a revenue contraction of 7.5% due to price erosion, which could continue to pressure operating margins and overall profitability.
  
• The Consumer Products business, while showing growth, faces challenges in the kitchen appliances segment, which continues to remain under stress and could potentially impact revenue streams and profit margins if the performance does not improve.
  
• The margins in the Lighting Solutions segment decreased significantly due to increased brand-building expenditures; sustaining high advertising spending without immediate returns could strain financial performance and net margins.
  
• The potential for continued price erosion in the lighting market due to technological advancements and competitive pressures may further compress profit margins and lead to challenges in maintaining revenue growth.

Valuation

• The analysts have a consensus price target of ₹806.062 for Bajaj Electricals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1020.0, and the most bearish reporting a price target of just ₹494.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹67.0 billion, earnings will come to ₹3.4 billion, and it would be trading on a PE ratio of 44.2x, assuming you use a discount rate of 16.9%.
• Given the current share price of ₹579.0, the analyst price target of ₹806.06 is 28.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.