Stock Review: Bajaj Electricals

CONSUMER demand in India has remained robust, irrespective of inflation and global shocks. Consequently, consumption themes are likely to emerge as the Street's favourites this year, too. Brokerages are on the hunt for mid-cap companies in this space, which not only have a large market share, but also pricing power. IndiaInfoline's institutional research has identified Bajaj Electricals as amid-cap pick with good potential. While the consumer durables space has a few listed players, there aren't many options for investors to ride the appliances market. The latter is worth a lucrative Rs 6000 crore in India, according to Bajaj Electricals. Organised players hold 70 per cent of the overall appliances market. According to analysts, Bajaj Electricals is the largest domestic player, with 15 per cent share of the organized market.

From fans to food processors, the company is into selling all kinds of appliances. It has over 25,000 retail outlets in India, thanks to its strong distribution network. To cater to different segments of the appliances market, it has entered into agreements with foreign brands such as UK's Morphy Richards and Italy's Nardi for high-end appliances and kitchen equipment, respectively. Thanks to the strategy, the company's revenues from appliances grew at an annual rate of 31 per cent between FY06-10.

What many like about the company is its low-cost model. It is primarily a marketing company in the appliances market and outsources most of its manufacturing. This protects the company from low-cost regional producers and cheap imports. IndiaInfoline estimates the appliances segment's revenues to grow at 25 per cent annually over the next two-three years, driven by better penetration and increase in market share by premium segments.

Apart from consumer play, the company has an engineering division, which sets up street lights and manufactures and sets up power transmission towers. According to analysts, the E&P segment's revenues grew at 32 per cent annually during FY06-10. Growth was driven mainly by the transmission tower segment, owing to rapid expansion by telecom companies, and power capacities. The key risk to the company emanates from this segment as its E&P bids are in low-tech areas. Due to this, many unorganized players are entering the fray, putting pressure on margins. While analysts are bullish about the appliances business, the engineering and projects segment may be a drag on margins.