Bajaj Electricals could raise prices if demand and margins improve

Declining demand for home and kitchen appliances is not good news for Bajaj Electricals Ltd. Home appliances account for a large share of its portfolio, which is dominated by the consumer product segment, which includes fans, lights, electric stoves and mixers. This business contributed nearly 80% of consolidated operating revenue in the 6th quarter (Q1FY23).

Over the past two financial years, restrictions imposed during the covid pandemic have boosted demand for certain categories, including kitchen equipment. However, consumer spending has changed with the easing of restrictions. “As household penetration has likely improved for kitchen appliances over the past two years, replacement demand will most likely return,” said analysts at ICICI Securities. after 2-3 years,” analysts at ICICI Securities said in a report on September 19.

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Furthermore, high inflation has weighed on consumer spending, the impact of which is more pronounced in the low- to middle-income group. “Our discussions with company, industry and channel testing indicate a slowdown in demand from floors 3 and 4 and rural areas in July-August 22. However, we do. recorded premium products and tier 1 and 2 cities continued to report good growth,” the ICICI Securities report said.

Against this backdrop, Bajaj Electricals’ heavy exposure to the rural market puts its volume at risk. Demand may recover if rural cash flow improves. Furthermore, the increase in electrification in rural areas also strengthens Bajaj Electricals products.

The upcoming festive season may also increase the number. Therefore, H2FY23 is expected to outperform in terms of demand. The same is true for profit margins, which face difficulties due to higher input costs. The Ebit margin of the consumer products segment in Q1 was 6%, respectively. Falling commodity prices may provide some respite, but the gains can be expected to reflect from Q3 onwards.

Furthermore, improving sales in the high-margin lighting segment will improve the company’s overall profit margin. Meanwhile, Bajaj Electricals continues to launch products in many segments and is also focusing on the high-end sector. However, it remains to be seen whether this translates into a significant increase in market share given the intensity of competition.

Capturing market share will be a key driver for Bajaj Electrical stock, nearly 28% below the 52-week high seen in September 2021. Furthermore, investors will be closely watching the developments. margin performance improvement. The stock trades at 36 times estimated earnings for fiscal 24, according to Bloomberg.

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