Captains Speak

Published: Dec 29, 2021
Updated: Dec 29, 2021

Focus on consumer products growth’ - Bajaj Electricals

Revealing that “Bajaj Electricals has embarked upon a decisive strategic shift in business direction and finance management,” Shekhar Bajaj, Chairman and Managing Director, adds, “Under the new strategic direction, the company will continue to drive growth in its consumer products (CP) segment while adopting a more risk-calibrated approach for the EPC segment with a focus on completion of existing projects. Only EPC orders that fit its terms will be taken up and the company will not chase topline growth in the EPC segment. Going forward, the share of CP will be pushed up higher than 60% (from around 40% in FY19), with that of EPC not more than 40% in a fiscal.”

A negative EBIT margin for EPC is not due to any one-off items. As the EPC business has a high establishment cost, no adequate sales to support it turns it red/into a decline. This trend will be there for a few quarters as reduction in EPC overheads will take time. As projects complete in a region/state, the establishment would be wound up and there will be a reduction in overheads. Further, the company has allocated an incremental fixed cost to the CP segment and the impact of the same on the EBIT margin of CP was to the tune of 1.2% (or 120 bps) in Q2FY20. The company expects margin pain to continue for a couple of quarters on account of this shift in strategy.

As far as financial management is concerned, the company has decided to steadily reduce its debt and move towards a debt-free balance sheet. Pointing out that “the company has done well on reducing debt and strengthening the balance sheet as well as positive cash flow from operations,” Mr. Bajaj adds “The company that started the fiscal with a debt of Rs 1,585 crore and has repaid debt to the tune of Rs 127 crore and has achieved the year-start debt reduction guidance of Rs 1,400-1,450 crore of debt by the end of March 2020. The interest-bearing customer advance of Rs 400 crore at the start of the current fiscal has come down to Rs 200 crore and will be nil by the end of Q3FY21.”

According to Mr Bajaj, total receivables stood at Rs 2,492 crore, of which EPC business receivables is about Rs 2,037 crore, including receivables amounting Rs 843 crore from the UP project. The receivables in the UP project, that stood at Rs 1,186 crore at the end of March 2020, have declined to Rs 843 crore at the end of September 2019 and to Rs 780 crore at the end of October 2020. The company is improving collections in this project. The unexecuted portion of the UP order book currently stands at a couple of hundred crores and the company expects extension of orders worth more than Rs 400 crore. If the extension comes now, it will be of a better margin considering lower material costs.

HIT BY SLOWDOWN

Reviewing the performance of the company during Q2FY21, Mr Bajaj maintains that “the overall slowdown in the economy impacted the CP business. The quarter, though it started on a strong note with robust growth in July 2010, August and September 2020 were hit by the slowdown. While the fans business has registered a growth of 22%, appliances grew by 7.4%; Murphy Richards grew by 2.2%. The month of October saw a strong double-digit growth and we expect that trend to maintain for the rest of the current fiscal.”

In the EPC segment, while the illumination and lighting business grew by 11%, that of TLT was down by 10.7%. The power distribution business is where there was aggressive degrowth of 82.8%. The order book of the company at the end of September stood at Rs 1,799 crore. Of the total order book, transmission line tower (TLT) orders comprise about Rs 881 crore, power distribution orders account for about Rs 778 crore and illumination projects account for Rs 140 crore. Of the current order book, the entire power distribution order book is a legacy order with margin stress. The TLT order book comprise both legacy as well as new orders and the legacy order amounts about Rs 300 crore out of the total TLT order book of Rs 881 crore. The new orders are with a better margin profile. The illumination orders are short-cycle orders with a better margin than TLT. Power distribution is the pain area and the company has not bagged any orders in this segment. However, the company bagged significant new orders in the TLT segment in Q2. The TLT order book that was Rs 495 crore at the end of June increased to Rs 881 crore at the end of September.

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Industry Review

VOL XVI - 13
April 01-15, 2025

Formerly Fortune India Managing Editor Deven Malkan Assistant Editor A.K. Batha President Bhupendra Shah Circulation Executive Warren Sequeira Art Director Prakash S. Acharekar Graphic Designer Madhukar Thakur Investment Analysis CI Research Bureau Anvicon Research DD Research Bureau Manager (Special Projects) Bhagwan Bhosale Editorial Associates New Delhi Ranjana Arora Bureau Chief Kolkata Anirbahn Chawdhory Gujarat Pranav Brahmbhatt Bureau Cheif Mobile: 098251-49108 Bangalore Jaya Padmanabhan Bureau Chief Chennai S Gururajan Bureau Chief (Tamil Nadu) Ludhiana Ajitkumar Vijh Bhubaneshwar Braja Bandhu Behera

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