BAJAJELECNSEQ2FY23November 14, 2022

Bajaj Electricals Limited

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14analyst exchanges

2executives

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Management on call

Anuj Poddar

MANAGING DIRECTOR AND

Ec Prasad

CHIEF FINANCIAL OFFICER – BAJAJ ELECTRICALS LIMITED

Key numbers — 32 extracted

14.3%

our top line. If I look at a three year CAGR trend, particularly for consumer business, we had a 14.3% growth. If I look at the three segments, by the way the headline calls out right now, we restruct

rs,

pendence on rural markets or probably smaller cities and towns. However, when we look at the numbers, probably even like most of the peers have reported that numbers, probably we should have ideally d

points we look at different cards, for example, fans, if you look at, our fans degrowth is about 7%. If you look at industry, most of industry has seen the growth in Q2 for the reasons of conversio

we are tracking is product mix, for example, in fans our contribution from premium fans was about 6% of our revenues in the past, which is up to about 19%. We've seen that traction in the marketplac

19%

r contribution from premium fans was about 6% of our revenues in the past, which is up to about 19%. We've seen that traction in the marketplace in counter share, etc. in segments or categories acc

300 basis point

you look at the consumer product segment where margins actually have contracted by roughly around 300 basis points, so probably from 3Q onwards we can expect some improvement over there on Y-o-Y basis and obviou

2.5%

Anuj Poddar: So Achal, we can't give that out. But if you see total consumer ex-lighting is about 2.5% decline. So clearly the volume decline is more because this is after factoring in price increase.

25%

m range have not done so badly apparently. I see your market reaches have actually seen a sharper 25% drop. So I just want to understand what has really transpired in this specific category. And your

INR 100 crore

ormance is despite that. But post that, in the month of October, we've collected further close to INR 100 crores on the EPC side, with a healthy collection, and that's both brought down our receivables and enh

85%

ams took time to create the sales team and go-to-market team for consumer lighting. I think we're 85% there. Therefore, the go-to-market in terms of on the ground in the field, I think by December th

10%

passed that number. So if you can just give what are the drivers which are putting this margin of 10%? Anuj Poddar: So two things, one is consumer lighting as we're upgrading our products and getti

wo years ago we were losing money. FY '22, we just about broke even. My guess was we will deliver 4%-5% margin in professional lighting, but we have been innovating on professional lighting also on

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Guidance — 20 items

Anuj Poddar

opening

“If I look at a three year CAGR trend, particularly for consumer business, we had a 14.3% growth.”

Anuj Poddar

opening

“The consumer product segment is what I first spoke about, we have a CAGR of 14.3%.”

Anuj Poddar

opening

“Going forward, we are very bullish on that business, driving growth and performance for us.”

Manoj Gori

“So based on this, should we assume that probably whatever quarters we have gone by, Q1, Q2 and probably next couple of quarters as well this should be considered as a very soft base or a favorable base for next year.”

Manoj Gori

“And accordingly, the growth next year should be extremely strong.”

Anuj Poddar

“I think Q4 onwards margin will be further bullish when demand in consumer situation improves.”

Anuj Poddar

“And more than that, next fiscal, as results of all the various things that we're doing, including the production expansion, penetration into premium segments, etc., that should add further delta to our cycle.”

Manoj Gori

“So should we take, like if you look at the consumer product segment where margins actually have contracted by roughly around 300 basis points, so probably from 3Q onwards we can expect some improvement over there on Y-o-Y basis and obviously on sequential basis.”

Anuj Poddar

“So that's both a mix of not focusing our costs better, but also starting to realize slightly better So therefore, I think going forward, where I see margin expansion has been for us is for certain FLM expansion, FLM is gross margin.”

Anuj Poddar

“So firstly, I think the next, this quarter, which is Q3 and next quarter, Q4, we will see a lot of volatility in the fans industry because of this conversion to star rating regime.”

Risks & concerns — 15 flagged

The rural economy, Tier 2, middle class, even in urban, the non-premium segment is witnessing weak demand.

— Anuj Poddar

One is in the shorter term, which is starting Q3, margin should improve, because this quarter even on margin is seeing the impact of some of our legacy higher cost inventory.

— Anuj Poddar

My first question was, would it be possible to upgrade the consumer products in terms of volume and pricing, what has been the volume decline and the price increase or decline if you could for the consumer products?

— Achal Lohade

But if you see total consumer ex-lighting is about 2.5% decline.

— Anuj Poddar

So clearly the volume decline is more because this is after factoring in price increase.

— Anuj Poddar

And that's the general commentary we're saying, that volume decline across consumer sectors has been like you said.

— Anuj Poddar

So I think that's the balance that we have to strike, but we will be slightly more cautious on passing on any price reductions at this point in time.

— Anuj Poddar

So if I take -- if you're a overall large brand who has a more premium position and premium range of offerings, those are the ones that are secure in this market, because they are yet the once in a weak market environment that are getting stocked and then getting purchased.

— Anuj Poddar

I see that you've done well on the lighting business, there is limited decline.

— Rahul Gajare

For that to get to double digits will always be difficult.

— Anuj Poddar

If I look at your other expenditure, including such on a Q-o-Q basis we've seen a decline, right, 8% kind of a decline, whereas sales are broadly flat.

— Nikhil Kale

We don't see any risk to margin expansion.

— Anuj Poddar

But supplies, we believe are risk-free compared to project execution.

— Anuj Poddar

So it's poles or some of those things, towers, etc., so supply there is a risk-free contract.

— Anuj Poddar

The 15% to 20% that I referred to is the cost impact and the implication or impact of this move to star ratings for fans in particular.

— Anuj Poddar

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Q&A — 14 exchanges

Sir, just couple of questions. So historically we've have been talking about market share gains and filling up our presence into larger cities and lowering our dependence on rural markets or probably smaller cities and towns. However, when we look at the numbers, probably even like most of the peers have reported that numbers, probably we should have ideally done better on the consumer side. So probably can you highlight because especially in your first quarter con call also at that point of time, the demand was far better in rural markets. So probably where we slipped actually versus what you

Anuj Poddar

So, if I may be candid, I don't think we've slipped. The rural economy, Tier 2, middle class, even in urban, the non-premium segment is witnessing weak demand. That is a common comment you'll see across our industry and other sectors or other industries also. Clearly Bajaj is not a premium brand today and therefore our contribution from non-premium is much higher and from rural is much higher. Given both of these, the non-premium and rural is seeing weaker demand, it is natural that its impact to us or the headwinds for us are higher. So, if you factor that in, I don't think we've done badly.

Anuj Poddar

So Achal, we can't give that out. But if you see total consumer ex-lighting is about 2.5% decline. So clearly the volume decline is more because this is after factoring in price increase. And that's the general commentary we're saying, that volume decline across consumer sectors has been like you said. Second question was with respect to what is the extent of cost reductions we have seen until now? How much has cost passed on or as you speak. So how do we look at that? Because if the cost is getting reduced, which is getting passed on, it can impact the revenue growth and therefore volumes are

I just have 1 question right now. So we understand that the entry-level products have seen the worst intensity of demand due to inflation. And apparently, the mid and the premium range have not done so badly apparently. I see your market reaches have actually seen a sharper 25% drop. So I just want to understand what has really transpired in this specific category. And your thought process on this entire market placement that you intend to do? So that's my first question.

Anuj Poddar

So Rahul, I'll try and explain that. You're correct on asking this question. You have to understand also leader brands were long-tail brands, okay? So if I take -- if you're a overall large brand who has a more premium position and premium range of offerings, those are the ones that are secure in this market, because they are yet the once in a weak market environment that are getting stocked and then getting purchased. Morphy Richards is a premium brand with a more niche brand, and therefore a relatively longer tail brand. So that's not the one that typically is the first point of stocking for

Sir, could you just also touch upon how the appliances demand is panning out at this point in time? And also if you could just help us how your festive season this time has been as compared to last year?

Anuj Poddar

Appliance demand is a mixed bag, like I said in earlier commentary, Q2 was a tough quarter. I think Q3, because of the festive part, has started off well. But I think on both sides of the festive, I think, is relatively slightly a little mixed bag that we've seen. I'm yet hopeful that you will start seeing improvement in demand situation from here onwards. One of the best data points that I have seen recently is the CMIE jobs data, I think this morning that I read that they've come out yesterday. And that's important because a lot of the demand right now, like I've been saying is being run by

So I had a question on margins. So in your opening remarks you touched upon utilization and how and also you've done some changes in the private front. So last four quarters, we've seen a margin sequentially going off and we know that in this year we've seen a lot of volatility in the industry. But say in FY '24 or FY '25, how are you looking at margins in the consumer business? Any thoughts there because you've given a very clear road map on the revenue side. So how should we think about the margins?

Anuj Poddar

So Dhruv, our margins will continue to expand. Traditionally we always said we should have 1 percentage point expansion in margins.. If commodities stay benign, if there's no sharp volatility or adverse volatility in commodities, I think we should comfortably beat that 1 percentage point margin expansion over the next two years in FY’25, because there will be certain normal expansion through our internal initiatives and a certain catch-up expansion because of the commodities cooling off, etc. So I think without putting a hard number there to read between what I'm saying, we should see healthy

Sir, my first question was on demerger status, if you can just help us understand what is the status?

Anuj Poddar

Yes. So, Chirag, demerger is taking time. We are waiting approvals. We expect SEBI approval to come very soon. Once that's in, then we will be filing for NCLT. Our initial target towards our expectation or hope was that we will get it in the OND quarter. Now it looks more likely that we should have it by March 2023. That's our best estimate at this point of time. Right. So if you get it by March, so by Q2 next year, demerger can happen? Yes, it can happen immediately right after that.. So effective date will remain 1st April 2022. The appointed date, which is when does it actually happen will

The first was a housekeeping question. If I look at your other expenditure, including such on a Q-o-Q basis we've seen a decline, right, 8% kind of a decline, whereas sales are broadly flat. So is there anything to call out here?

Anuj Poddar

Let me just check. One second. I think that's ad spend, so last quarter was about 3.7%. This quarter it's 2.3% if I remember correct. Okay. Largely ad expense. So from an annual basis, what could be -- what kind of numbers are we looking at? I mean sustainably should we be somewhere around 3% or so on an annual basis? On ad spend, you mean? Yes. So 2.3% is low. Typically we've always guided that we'll be 4-plus percent. It will vary quarter- on-quarter. Q3 will see a jump up also for us. You will see a jump up in Q3 because we've done the brand relaunch. So as we do that, that is something we'

What I wanted to check was, if you could help us with the spend specifically for the first quarter and the second quarter FY '23 in like-to-like for the last year?

Anuj Poddar

Yes, sure. So our spends in Q1 was INR 36 crores. And spends in Q2 is INR 23 crores. In last year, Q2 was also 23 crores. The second question I had, with respect to the EPC margin, how do we look at this now, if it's not very much comfortably in positive territory, but the margin in this quarter we saw it closer to 8%, 9%. So how do we look at the margin from full year around we have to… Analytically look at very different consumer. There will not be linearity in that, and margins at 8%, 9% it is on a very low revenue base, etc.. I think the business has bottomed out. We are now going to get i

Sir, two questions. Sir, now Mahindra Logistics almost, I guess, two years are over. So if you can indicate the actual benefits received by the company in absolute terms. I mean, given that you indicate the free term benefit that the company would have enjoyed or any additional benefit in terms of that qualitative benefit that you would like to share? Point one. And secondly, sir, if you can indicate the market share across categories for the company at the end of September? Yes, that's it.

Anuj Poddar

I'll keep my comment very brief. I don't think we've realized the full benefits on the logistics front. I'll keep my comments limited to that. But we are working on that. We will keep working on that. So hopefully in the coming one or two quarters we'll have more specifics to share with you on that front, yes. I'm sorry, the second part of the question, you mentioned something about categories? I didn’t catch that. Market shares of key categories at that… While we don't publish market shares, we do believe we've gained market share, continue to gain market shares. In fans in particular I've ca

Just really one question. You talked about in the EPC business, now you will be looking at new business. So this will be primarily focused on India. Are you looking at any sort of international market share and well how does this sort of play out?

Anuj Poddar

So this will be a mix. It will be predominantly India, but there's certain amount that we are doing in Africa we've done over the last one year or two years. We've had a good experience in Africa, primarily East Africa, where good experience both in terms of project execution closure, ourselves with our team and with the subcontractors, we've got a good experience there and we got a good fix on that. Secondly, even in terms of payment realization, etc., we've had a positive experience in some of these geographies. And third, in terms of profitability, these projects have been close profitably

I have only one question, sir. Sir, one question is regarding, sir, when we say that the fan business is impacted by, sir, new norms, sir? This is implemented from 1st February. So how much stock we have at dealer level because it's not happened, what happened to -- we have to write-back or what happens, sir?

Anuj Poddar

No, sir, our stock, I would say, is not something out of control. It's at very much manageable levels. We do have a plan from now till December also. How we're going to deal with that so I'm not overly concerned about that. But at our end and as well as in the chain, yes. Okay, sir. And after the normal implemented, how much price hike compared to normal fan, sir, generally, sir. On a like-for-like category of fan segment, I think the price hike could be anywhere between 15% to 20%, yes.

Hi, Anuj. Many congratulations for a good turnaround in the EPC. My question is just simple that in the entire program that you were talking about achieving over three years, you believe there is sufficient progress made despite the headwinds right now? And where do you think you have the journey?

Anuj Poddar

So Jiten, my thank you for joining and for your questions. And thank you for your words. We believe in that line, in the headline for us in this quarter also. I think the headwinds are there, the economy is tough. But if you look at our actions and our direction and follow through on each of these, that continues unabated, okay? And I just called some of those out again. The EPC turnaround which we've been talking about for the longest time, both not just internal receivables but on bottom line, and now the way the order book is shaping up, that is trending very well. It makes us very confiden

Sir, just a follow-up question. Like you just mentioned about the price hikes will require 15% to 20%. But when we understand, when we go through the commentary from some of the peer, so few players have been talking about 5% to 8%, you guys have been talking about around 8%. Can you throw some light, like what exactly gives this change within commentary, especially the organized space on the fan category?

Anuj Poddar

So sir, I'm not clear, if you're talking price hike or the cost differential between star-rated and non-star-rated fans. The 5% to 8%, I don't think anybody will say the cost differential is only that much. So cost differential on a like-for-like similar specification product that is star-rated will be between 15% to 20%. And the way to right now… So my question is for the price hikes, yes. So that's what I'm trying to differentiate. The price hikes, I'm not talking 15%, 20%. In fact, my view is you will not see price hikes in our industry over the next coming few months. The 15% to 20% that I

So actually my closing comments were meant to be on strategically we are very firm on where we are going. Directionally, we are delivering on all of these things. From an action point, we are, as we say, constantly taking those actions and meeting those, or should I say matching up to the direction that we are promising. I did elaborate on some of that in my response to Jiten bhai, so therefore I'm not repeating that. But I would just wrap it up by saying that in a tough environment, we remain very focused on execution and on delivering our performance. And we are confident about continuing to

Management

Speaking time

Anuj Poddar

Moderator

Manoj Gori

Achal Lohade

Chirag Lodaya

Rahul Gajare

Nikhil Kale

Jiten Doshi

Aniruddha Joshi

Arun Agarwal

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Opening remarks

Aniruddha Joshi

Yes, thanks, Mike. On behalf of ICICI Securities, we welcome you all to Q2 FY '23 Results Conference Call of Bajaj Electricals Limited. We have with us senior management represented by Mr. Anuj Poddar, Managing Director and CEO, and Mr. EC Prasad, CFO. Now I hand over the call to the management for their initial comments, and then we will open the floor for question-and-answer session. Thanks, and over to you, Anuj, sir.

Anuj Poddar

I'll just make a few headline comments then pass it back to all of you for questions. Clearly, from a demand environment and from an economic position, it has been a tough quarter. Given the situation of the external environment, we believe we've delivered a decent performance with which we are satisfied. I'll just call a few data points. We've had a slight degrowth on our top line. If I look at a three year CAGR trend, particularly for consumer business, we had a 14.3% growth. If I look at the three segments, by the way the headline calls out right now, we restructured the segmental reporting as announced earlier. So now we have three segments, the consumer products segment, the lighting solutions segment and the EPC segment. The consumer product segment is what I first spoke about, we have a CAGR of 14.3%. The lighting solutions segment is the highlight for this quarter. That's intentionally carved out as a separate BU to create more focus and growth for us in that segment. The first

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