Sunday, January 9, 2011

Bajaj Electricals - Buy on declines

CMP (Rs): 233.1

52-week high (Rs)*: 347.0

Market cap (Rs crore): 2,303.6

% change from 52- week high *: -32.84

* Adjusted for corporate actions, split/Bonus. Current market price & market cap as on 23 Dec. Data Source: CMIE Prowess

This little master of small consumer appliances and lightings is wonderfully positioned to be part of the India consumer story. Bajaj Electricals’ strong nationwidedistribution network gives it a better reach than competitors in the small appliances and lightings/fittings business.

The company’s core strength is design, marketing and distribution while it outsources almost all its appliances via strong and exclusive vendor relations. Bajaj has diversified from a pure lights business into engineering and projects, which will boost growth and help improve the margins to around 11%.

The catch is higher working capital needs. But a large order backlog of over Rs 1,100 crore gives good growth visibility.

The stock is currently trading at under 12 times estimated FY12 earnings, when I expect it to earn almost 30% on return on equities. This solid stuff has corrected recently along with the rest of the mid-cap space. Undeservedly so, I may add.

Source ET

Our Recommendation :

The scrip is finding good support at 220 levels which provides an excellent buying opportunity. Buy and hold for a target price of Rs.350 holding period of 1 year.

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