BAJAJELECNSEQ1FY23August 17, 2022

Bajaj Electricals Limited

9,356words

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16analyst exchanges

2executives

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Management on call

Anuj Poddar

MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, BAJAJ ELECTRICALS

E.C. Prasad

- CHIEF FINANCIAL OFFICER, BAJAJ ELECTRICALS LIMITED

Key numbers — 23 extracted

58%

ide, our consumer business has continued to demonstrate good traction with good growth of about 58% Y-on-Y basis. Our EBIT has bounced back in the consumer business unlike a soft quarter that we ha

Rs. 165 crore

rating strong cash conversion and positive cash flow with cash from operations amounting to about Rs. 165 crores. While we'll talk about operational aspects of all the business segments and product categories

350 basis point

y first question was on gross margins. Q-o-Q, if I see your gross margins are up by almost around 350 basis point. However, Q-o-Q consumer margins are flat. So, just wanted to understand where is this discrepanc

rs,

icant improvement over last Q1, but I would look at last Q1 as an aberration. If you go back 3 years, we've maintained that margin. And that's despite that this year yet factored in significant commod

7.4%

-year that we carve out on a subcategory level, CAGR, but on an overall basis, I think it's about 7.4% on a 3-year CAGR basis for the consumer business. Moderator: Next question comes from the line

Rs. 30 crore

in the ensuing days. But approximately, if I were to hazard a guess I would say anywhere between Rs. 30 crore to Rs. 50 crore maybe a loss of sales that we’ve seen in this quarter because of this. I just w

Rs. 50 crore

days. But approximately, if I were to hazard a guess I would say anywhere between Rs. 30 crore to Rs. 50 crore maybe a loss of sales that we’ve seen in this quarter because of this. I just want to add to th

en during this quarter? Anuj Poddar: So, Hitesh, we had taken approximately a 5% hike on an average across various categories in the month of April. We had planned a further hike

3.7%

ront. This quarter we have seen a kind of increase in the advertisement expenditure to about 3 to 3.7% on the sales. So, is this a kind of expenditure we are going to maintain or will it be a slowdown

n going forward? Anuj Poddar: So, our general guidance has been that ad expense will be between 4% to 4.5% on an annualized basis. It has been slightly lower in the last 1 or 2 years. As the COVID

4.5%

g forward? Anuj Poddar: So, our general guidance has been that ad expense will be between 4% to 4.5% on an annualized basis. It has been slightly lower in the last 1 or 2 years. As the COVID or marg

85%

ot have the right product range with us. We were not LED focused. Our share of LED is now between 85% to 90%. That's a continuous improvement that we've had. Within convention lamps, our share of dow

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Guidance — 20 items

Anuj Poddar

opening

“Importantly, for the EPC segment, this marks the second quarter in running that we've demonstrated breakeven results, we hope to continue to maintain profitable trend going forward.”

Chirag Lodaya

“We'll see significant improvement or you still feel there will be some pressure in the initial quarters before we start improving on your gross margin?”

Anuj Poddar

“So, to that extent, we expect margins to start improving from Q2.”

Anuj Poddar

“But the full benefit of this commodity cost reduction and margin improvement will be seen in Q3.”

Anuj Poddar

“But here on, I think we have at the bottom of the margin and we expect to deliver higher margins going forward.”

Chirag Lodaya

“And just lastly, sir, if you can also share 3-year CAGR growth for appliance, lighting and Morphy Richards that would be helpful.”

Anuj Poddar

“So, we don't have that 3-year that we carve out on a subcategory level, CAGR, but on an overall basis, I think it's about 7.4% on a 3-year CAGR basis for the consumer business.”

Anuj Poddar

“But impact due to that now will be minimal.”

Anuj Poddar

“We don't expect any significant impact going forward.”

Nikhil Kale

“I was saying you mentioned that the Consumer Products performance 3-year CAGR at 7.4%.”

Risks & concerns — 15 flagged

We'll see significant improvement or you still feel there will be some pressure in the initial quarters before we start improving on your gross margin?

— Chirag Lodaya

First part is, what was the impact of this system upgradation.

— Nikhil Kale

Since about 28 May or last week of May, there has been a visible slowdown in demand in the industry, I think that's across the board.

— Anuj Poddar

I do think I would be slightly more optimistic now than I was 2-3 months ago and we may escape demand slowdown in the latter half of the year, which means net-net, I'm yet optimistic that Q2, you will see a bounce back in these 2 months, but Q3 may end up being a decent quarter and not a bad demand affected quarter.

— Anuj Poddar

Because that was one area which was under some pressure and Bajaj has a bigger presence in these markets compared to the peers.

— Paarth Gala

So, therefore, on a consolidated basis, we've had a little slightly elevated impact of the rural slowdown.

— Anuj Poddar

So, is this a kind of expenditure we are going to maintain or will it be a slowdown going forward?

— Hitesh Taunk

As the COVID or margin pressure goes away, we actually expect to normalize at that 4% to 4.5% on an annualized basis.

— Anuj Poddar

And sir, my next question is on the Morphy Richard front, we have seen a kind of decline on that segment.

— Hitesh Taunk

Can you just give your qualitative comments regarding how much given the relatively high competitive intensity in almost all the categories, how much of the commodity price decline benefit perhaps would have to be passed on to the consumer or would be passed on to the consumer by the industry and how much can be kept?

— Akhilesh Bhandari

So, without taking a price hike, I think August 15 to about September end, we should be back to having fully covered for or negated the impact of the cost side pressure that we had.

— Anuj Poddar

We will continue drive growth in the top-line in B2B though that may be single digit because overall market industry is weak and will demonstrate growth and expanding margins, the bottom line.

— Anuj Poddar

But given that this commodity pressure is up, maybe one will be able to drive that conversion and offer energy efficient time without a price increase.

— Anuj Poddar

You mentioned professional lighting has seen a decline in terms of the industry growth.

— Achal Lohade

Has that also seen a decline or it's kind of stagnated or evened out?

— Achal Lohade

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Q&A — 16 exchanges

Sir, my first question was on gross margins. Q-o-Q, if I see your gross margins are up by almost around 350 basis point. However, Q-o-Q consumer margins are flat. So, just wanted to understand where is this discrepancy coming?

Anuj Poddar

Chirag, the gross margin you may be seeing is on a consolidated basis. And therefore, it's a blend of the consumer, illumination and EPC businesses. It’s a little misleading. But if you look at our segmental results where we report our EBIT margins, etc, it's kind of flat on a Q-on-Q basis. But also, if you look at from a 3-year perspective, it's similar to, of course the significant improvement over last Q1, but I would look at last Q1 as an aberration. If you go back 3 years, we've maintained that margin. And that's despite that this year yet factored in significant commodity inflation and h

First part is, what was the impact of this system upgradation. You talked about there was some impact on sales. Would you be able to quantify it?

Anuj Poddar

Hard to quantify specifically. We had about 10 days of disruption because of the system. And therefore, equivalent of 10 days loss of sales. I would say some of that we were able to recoup or make in the ensuing days. But approximately, if I were to hazard a guess I would say anywhere between Rs. 30 crore to Rs. 50 crore maybe a loss of sales that we’ve seen in this quarter because of this. I just want to add to that, this is phase 1 of SAP. There's some further implementation of system that is going on now that will go on for another 3, 4 months. But impact due to that now will be minimal. Bu

Two questions from my end. One is if you can just talk a bit on the rural side of the business. Because that was one area which was under some pressure and Bajaj has a bigger presence in these markets compared to the peers. And secondly, an update on the demerger of the EPC business, what would be the status of that and we still maintain the target date. Those 2 from my side.

Anuj Poddar

Paarth, your voice was not very clear. First one, rural side and second is demerger. Is that correct? Okay, I'll go ahead and answer, I think that's what I heard. So, rural side of the business, if you recall our commentary from Q3, rural demand has been weaker than urban because our contribution or weightage of rural has been higher. So, therefore, on a consolidated basis, we've had a little slightly elevated impact of the rural slowdown. My guess is with a good monsoon, good MSP, announcements by the government, etc, we expect by end of Q2/Q3, we would see a bounce back in the rural demand,

Sir, my first question is on the pricing front. Sir, how much price hike have you taken during this quarter?

Anuj Poddar

So, Hitesh, we had taken approximately a 5% hike on an average across various categories in the month of April. We had planned a further hike in May-June which we did not take given that visibility of commodity price is starting to cool off. And we do not anticipate now any further price hike at least visibly as of now. Sir, the second question is on our advertisement expenditure front. This quarter we have seen a kind of increase in the advertisement expenditure to about 3 to 3.7% on the sales. So, is this a kind of expenditure we are going to maintain or will it be a slowdown going forward?

Sir, you mentioned that demand is improving and also now that the commodity prices have also softened a bit. Can you just give your qualitative comments regarding how much given the relatively high competitive intensity in almost all the categories, how much of the commodity price decline benefit perhaps would have to be passed on to the consumer or would be passed on to the consumer by the industry and how much can be kept?

Anuj Poddar

So, to be honest, Akhilesh, some of that is more tactical, and you know, different players have a very different approach to how they balance between margin protection versus price pass on. from what I know, couple of our competitors have done that in June/July, but I would not react to every tactical move, because we have our trajectory and what we are planning to do, I don't see any fundamental shift happening on that. Those are more short-term tactical things on a particular month directionally. Structurally, I think, we will see margin increase for all of us including Bajaj Electricals, an

So, on the appliances side, if you can give more color on the mixers, water heaters while it was not a very seasonable quarter for water heaters, but how these categories are performing for us and how's the outlook? Because now kitchen is one of the segments where we are seeing increasing focus on lot of other players also. So, how we are trying to position in terms of economy versus premium within these categories? That's my first question, sir, on the kitchen appliances side.

Anuj Poddar

So Charanjit, on an overall basis, we've given appliances growth, it's a healthy growth that we've had. Our focus is appliances, and we are chasing significant premiumization in fans, appliances we're not that far out, but there is sub segments as I mentioned initially, where we think there are certain whitespace or weaknesses at a subsegmental level, let's say, mixer grinder of 750 Watts and above, etc, that we have pockets that we need to spend in. Similarly, on water heaters, certain types of water heaters, etc, is where we are looking actually and so on and so forth for different appliance

Sir, my first question is regarding sir, can you highlight for next 1 year, sir, any new launches or new product addition in your CP business?

Anuj Poddar

Sorry, I didn't get it. Do we have new launches is the question or what are the new launches. New launches and product additions in CP business. We'll keep continuing to have that like you've seen in the current investor deck also we highlighted some of these launches, we will have that across categories. My guess is what you will see in the next Q3 and Q4 will be more than what you've seen in Q1. But in terms of specific launches, of course, for competitive reasons, we'll rather share that as and when we make those launches here. Sir, any plan to add any new product in your CP business in nea

Sir, are we planning for any inorganic growth in near future or something, say, after 2 or 3 or something like that?

Anuj Poddar

Harshit, that’s very speculative. Of course, this is to be opportunistic. As and when, we get an opportunity that makes sense, we will. Let me just say that every opportunity that comes we do look at it now, which is different or change from 2 years ago when we're not even looking at those. So, we do actively evaluate every opportunity that comes, but finally it has to meet our strategic and financial parameters and as and when that happens, then we'll be happy to share that. We are very open to inorganic also. Whether or not something will happen, time will tell. Like our interest will be wit

Thank you for taking my question again. Sir, can you give an update on the Nirlep? How is it scaling up? You were looking to improve the distribution and product launches in that area. So, how are things shaping up there?

Anuj Poddar

To be honest, Nirlep is yet right now relatively weaker than many of our other product categories. I think it has a long way to go. Some of the scaling up of distribution, etc. while we've done that, but benefits of that are yet to play out. I think we're going to be another 3, 4 quarters before we see real improvements in the Nirlep. So, right now that is a soft performance for us here. One other announcement related to Nirlep, which our board has approved today, there is an enabling provision to review or evaluate ways and means of consolidating Nirlep into Bajaj Electricals, that's in line

Two questions. So, first is I mean just as the continuation of the question, so for the 2 other subsidiaries and associates with the Starlite and Hind Lamps, I mean any plans to keep them as a separate subsidiary or integrate them also with Bajaj and specifically for Q1 and near term, how do you see that impacting your overall financials in terms of, I mean, the subsidiaries making losses or needing further capital infusions from Bajaj standalone entity?

Anuj Poddar

Chirag, I’ll just ask our CFO, E.C. to update on the status on the Starlite, and then maybe I'll try and answer the question on the impact. Chirag, Starlite merger is in the final stage of the NCLT approval and we expect the approval from the NCLT to be received by the end of Q2 or latest by the beginning of Q3. That's the update as far as the merger of Starlight is concerned. In terms of impact or benefits of that, mathematically, it's the same thing because all the results of that fold into consolidated results of Bajaj Electricals. That said, reality on the ground having 2 separate entities

Sir, where are we in our logistics cost sharing initiatives currently? So, has full benefits being realized, but we are still undergoing cost?

Anuj Poddar

No, Aakash, my short, candid answer is we've not yet realized the full benefits of that yet. How long it will take to sir to realize the complete benefits of this initiative? I'll again be candid, we should have had it by now we've not had it, but we are on the job.

While you did talk about the volume growth, implied volume growth on a Y-o-Y, is it possible to have some color in terms of how the volume growth the CAGR given last 2 years were impacted because of COVID? Three-year for fans, lighting, water heaters, small appliances?

Anuj Poddar

Achal, we'll have to look at that at the three-ear category level, maybe we'll come back to you on that piece. Again, my short answer is if you look at FY22, in most cases, there was a volume degrowth. So, the growth in revenues was driven by price increase, I expect that to start reversing out this year, you will not have that much of a price increase. So, any growth that you have now will be driven more by volume, but on a 3-year category wise, we will have to look at that and come back to you. The second question I had, specifically with respect to the lighting business. Now, like you menti

I just have 1 question, sir. Basically, as you consolidate the entire business structure, what is the specific allocation to each business? So, to talk about Nirlep or talk about Starlite, I just want to understand maybe in the next 1 to 2 years, how much is going to be the investment in each businesses specifically? That’s the first question.

Anuj Poddar

So, Amit, hard to quantify that, because that's not the way we're looking at it. Each business, whatever it requires, we will make that happen. Our view is, these are not really financial investments, they’re all if you look at consumer business or lighting business, and now the rest of EPC, financially, they’re all profitable. So, they will have internal accruals to do that. So, except the one piece I'll put out is some CAPEX for manufacturing, which I’ve been guiding at 15% going up to 25%, 30%. We have that in the back of our mind, but maybe that's 2024 thing, we will come back at that poin

Sir, can you share the update on NPD as a percentage of sales and premiumization share, how it has moved for us?

Anuj Poddar

We don't normally publish that; we made an exception in that July investor deck to share the contribution of new product launches to give you a sense that we made significant improvement. Even this quarter, our contribution from new product launch is higher than the previous quarters on Y-on-Y basis, etc. So, we know that's a key metric that our R&D is driven by. We just look at this number of launches that we're doing, therefore, that way, pointing to or giving an indication that our share on new product launch is going up. Again, I'm sorry, I'm not giving absolute numbers. But again, if we l

I have one more. Sir, can you highlight on fan business, how the economic segment is contributing, government segment or premium segment in fan business?

Anuj Poddar

Sorry, Rakesh, I couldn't hear you clearly. Hello. Premium in fans would be about 20%. And economy and mid, sir? Economy and mid would be another 20 and rest would then be the lower segment here. Okay. So, this is for Q1 and Q4 FY22 this was same? No, it was slightly lower which means premium I think was about 14% to 15%, and I don't remember offhand the economy and the mid segment. Okay. Same question, sir. For any target, any target to increase the premium from next 1 year? How much do you target for? I don't have a numerical time. Good for that. But the fact is, like I gave a few examples,

Thank you very much, once again for joining us today. And I know it's a Friday evening, long weekend coming up. Once again, I would like to know that we are happy with our Q1 results and I would like to acknowledge our team that is delivering this. We remain confident about what the future holds for us. We are committed to add value to all of you. Thank you very much.

Management

Speaking time

Anuj Poddar

Moderator

Rakesh Roy

Chirag Muchhala

Chirag Lodaya

Akhilesh Bhandari

Charanjit Singh

Achal Lohade

Hitesh Taunk

Nikhil Kale

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Opening remarks

Deepak Agarwal

Thanks. Good evening, all. On behalf of PhillipCapital (India) Private Limited, I welcome you all to Bajaj Electricals Limited Q1 FY 23 earnings call. Today, we have with us management represented by Mr. Anuj Poddar, MD and CEO; Mr. E.C. Prasad, Chief Financial Officer. Without taking much of time, I would like to hand over the floor to the management for their opening remarks post which we will open the floor for Q&A. Thank you so much, and over to you, sir. Thank you.

Anuj Poddar

Thank you, Deepak. Good evening, everyone. Thank you all for joining us on a late Friday evening on the eve of a long weekend. I know you're all looking forward to the weekend. But thank you for being with us today for this call. I'll just make a few opening comments. I'm sure you’ve got the chance to to go through our results as well as the investor deck that we've released. I'm pleased to report that we've had a healthy and good quarter and it's a strong bounce back from the last 2 Q1s that we've had in previous financial years. The key headlines from my side, our consumer business has continued to demonstrate good traction with good growth of about 58% Y-on-Y basis. Our EBIT has bounced back in the consumer business unlike a soft quarter that we had last year in Q1. We're maintaining our growth rate and the focus on EBIT of the consumer business. Importantly, for the EPC segment, this marks the second quarter in running that we've demonstrated breakeven results, we hope to continue

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