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Kotak Securities
Bajaj Electrials (Add)
Target: ₹575
CMP: ₹492.80
FY20 has been a significant year for Bajaj Electricals. The company generated healthy free cash flow, which along with the proceeds from rights issue was utilised to repay debt. During FY20, the company has generated positive cash flow from operation of ₹793 crore as compared to negative cash flow of ₹665 crore in FY19. Total debt also has been reduced by nearly 53 per cent from ₹1,585 crore in FY19 to ₹742 crore in FY20.
The company’s revamped "Go to Market" distribution strategy (named Range Reach Expansion Programme), has also started to deliver positive results. EPC order book has scaled down to ₹1,730 cr in FY20 as compared to ₹8,934 crore in FY18. As a result, revenue mix is increasingly moving in favour of the profitable consumer electricals division.
We had been a tad cautious on the company in view of weak balance sheet and mis-allocation of capital into the EPC business. The company had elevated levels of debt relative to peers and also its EPC business had been bleeding and generating sub-optimal return on capital employed. However, the company has done well in FY20 in terms of generating cash flow and raised equity to bring debt to comfortable level.
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