Even as Bajaj Electricals fights the ongoing inflationary pressure, the company is optimistic about its Q4 results on the back of upcoming summer season sales, expected rise in consumer spending and its proposed corporate restructuring. Bajaj Electricals’ fiscal third quarter revenue fell 12 per cent on-year to Rs 1,320 crore, from Rs 1,500 crore, mainly due to high base effect, the company said. Bajaj Electricals benefited from pent up demand in the third quarter of the previous year, Chairman Shekhar Bajaj said after the release of the quarterly results. Bajaj Electricals’ Executive Director Anuj Poddar spoke to Tanya Krishna of FinancialExpress.com about the company’s sales outlook, impact of the inflationary pressure, corporate restructuring, and other plans.
Here are the edited excerpts from the interview.
What is the sales outlook in the ongoing 4th quarter? Where will sales come from?
On the outlook for Q4, we are quite optimistic. With the upcoming summer season, we are expecting a strong demand in our consumer electronics range. Further, with the corporate restructuring of the company slated for April 2022 and demerger of Bajaj Electricals Limited into two separate entities – consumer product segment (CP) and engineering procurement and construction segment (EPC), will give each entity the ability to take more aggressive positions.
What kind of impact did the ongoing pandemic and global headwinds have on the overall business?
The impact on the business has been a function of market, economy and demand. For now, it’s a wait and watch scenario overall to see when and how the economy is going to bounce back, when the consumer demand will pick up, etc. These external and global factors are not under one’s control and all we can and we have to do is make sure we navigate everything well, match our costs well and be prepared for the bounce back, whenever that will happen. We had a washout summer season in 2020-2021 and we are quite confident that the coming summer season will bring strong sales in products like fans, coolers, etc.
When you mention about matching the costs well, did you go for price hikes recently or are there plans going forward? Also, what will be the quantum of price hike the company is looking to take?
Bajaj Electricals had increased the prices by 12-17 per cent during January-September 2021. Post September 2021, we have not taken any hike. Given the costs that have continued to stay high or even go further, we do need a further price hike which will be between 4 to 5 per cent to catch up on that. This will happen sometime during the current quarter. We have been trying to optimize the product costing but there’s only so much you can do. The second lever is the other operating costs, etc, which we have been optimizing, and in Q3, we reduced the operating costs down to 14 per cent on a year-on-year basis. We will try to drive that optimization in the current quarter too. But ultimately, it will have to be either the commodity cost of the price that will have to come in to offset or correct the margins.
On the external front, the government, though didn’t take direct measures to increase consumer spending in the Union Budget, there were a range of schemes such as import duties or CVD as they call it. Any measure to help push the manufacturing sector in India is definitely appreciated. While I am not in favour of the government artificially trying to control price in a free market economy, there could have been some direct measures to immediately spur consumer demand by putting money in the hands of consumers.
Which among online and offline channels are working better currently and why? What are your plans to further expand these channels or even your product range?
I think both online and general trade or physical stores are relatively on a similar trajectory. Both have witnessed a little bit of impact of the demand slowdown, if we compare on the year-on-year basis. One that has a different performance has been the modern trade which are the modern format chain stores. From a channel go to market perspective, there will be different channels operating on different levels; with e-commerce and data being little subdued compared to modern retail channels. Further, we will be focusing more on urban markets now; we have been fairly strong in rural markets and now for the next 6-12 months, we are going to focus on extending the presence in urban markets.
In terms of product range, we had good demand for water heaters, room heaters during the past quarter. Now, we are looking forward to the summer season products and those will be a bigger value driver for us. We also have few product launches coming up.
The Q3 results showed some de-growth and decrease in revenue. What are the factors that led to it?
This is the second time that we’ve delivered over Rs 1000 crores in consumer business revenue in a quarter. And that’s a very sizable number by the yardstick. While we showed a de-growth by about 6 per cent in our consumer business on a year-on-year basis, the reality is that the base effect was very high in last year’s Q3 because of a very high pent-up demand. So if you look at it, actually on a two year basis, we have delivered good growth and 12 per cent CAGR. If I talk about the bottom line, because of factors like high cost and low price pass on, we have had a margin contraction level of three percentage points. But we have been very tight on managing our controllable operating costs and other costs which went down by 14 per cent over last year.
Again, the quarter results are only looking at comparing versus last year Q3. If you look at a two year perspective, actually we have done fairly well. So, our consumer EBIT has grown by a 21 per cent CAGR for two years, which means over 40 per cent growth over the number, two years ago. The other important thing strategically that we have been focused on is our cash flow and debt reduction and balance sheet. We have reduced debt by Rs 18 crores. So, the balance sheet is stronger.
How will the corporate restructuring help the company?
Considering the varied nature and potential opportunities each of our business – consumer product segment and EPC segment has, Bajaj Electronics board has approved the demerger of both these businesses, subject to the approval of shareholders. This will help both the entities in long term growth prospects. The objective here is streamlining of business structure to enhance market positions, sharper strategic focus on each business segment under separate entities, tailored capital structure and allocation, sharper corporate positioning, better investment prospective, etc. I am confident that this will help each of the business segments to bootstrap and unleash growth in an unconstrained manner.