BAJAJELECNSEQ3FY22February 14, 2022

Bajaj Electricals Limited

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107turns

10analyst exchanges

3executives

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Management on call

Anuj Poddar

EXECUTIVE DIRECTOR – BAJAJ ELECTRICALS LIMITED

Ec Prasad

CHIEF FINANCIAL OFFICER – BAJAJ ELECTRICALS LIMITED

Deepak Agarwal

PHILLIPCAPITAL (INDIA)

Key numbers — 40 extracted

1000 crore

id that, a few of the positives from our side. Number one, this was the third time that we’ve had 1000 crore revenue in the consumer business, we are proud of that scale and size that we continue to drive.

12%

a/c of heightened pent-up demand. So, from a two-year CAGR perspective we have delivered growth, 12% growth on a two-year CAGR perspective in the consumer business. On the cost side, while the com

14%

heads or other expenses line in the financial statements, we have actually reduced that by almost 14% Y-o-Y, and even on a Q-o-Q basis, we have reduced our expenses by 4%. So, nearly other cost such

ally reduced that by almost 14% Y-o-Y, and even on a Q-o-Q basis, we have reduced our expenses by 4%. So, nearly other cost such as employee costs, etc. will have been fairly tight if we look at the

21%

ent, but also if you look at that from a two-year CAGR perspective we delivered an EBIT growth at 21% on a two-year basis in the consumer business. I will talk about the EPC business separately dur

139 crore

al management and debt improvement. Our cash flow from operations has been a positive 139 crores. As a result, our debt continues to improve it’s down by 81 crores in the quarter gone by. And w

81 crore

perations has been a positive 139 crores. As a result, our debt continues to improve it’s down by 81 crores in the quarter gone by. And we remain committed on the trajectory on both aspects. Finally, the

rs,

up in the last, I would say from mid Jan onwards, we’ve seen significant pickup on the water heaters, room heaters and particular, etc. But that I would yet put down more to season and other factors a

17%

t taken significant hikes across all the other categories, it’s ranged between 11-12% going up to 17%, across three to four rounds that we have taken. All of these hikes have happened between Jan 21

lso see the margin contraction in Q3. We clearly need another further price hike anywhere between 3% to 5% to normalize margins sometime within this quarter based on market conditions and competitiv

e the margin contraction in Q3. We clearly need another further price hike anywhere between 3% to 5% to normalize margins sometime within this quarter based on market conditions and competitive dyna

650 crore

the business which probably is doing a majestic rose kind of a quarterly run rate, but that 600, 650 crores kind of portfolio what could be the kind of growth rate expectations in that business and that b

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Guidance — 20 items

Anuj Poddar

opening

“So, from a two-year CAGR perspective we have delivered growth, 12% growth on a two-year CAGR perspective in the consumer business.”

Anuj Poddar

opening

“We’ve had a drop in our consumer EBIT by about slightly over three percentage points, as in a situation that’s fairly decent, but also if you look at that from a two-year CAGR perspective we delivered an EBIT growth at 21% on a two-year basis in the consumer business.”

Just a quick highlight on that scheme

opening

“There will be no relation between these two entities in terms of parent, subsidiary, associate, etc.”

Just a quick highlight on that scheme

opening

“They will both be separate legal entities and publicly listed, all shareholders in the current Bajaj Electricals will be allotted shares in the new entity, resulting into a mirror shareholding pattern.”

Anuj Poddar

“we do expect that primary sales will kick in, but we are already seeing traction on the secondary sales, right now.”

Anuj Poddar

“We clearly need another further price hike anywhere between 3% to 5% to normalize margins sometime within this quarter based on market conditions and competitive dynamics, we intend to take that hike.”

Anuj Poddar

“We expect to close on leadership in that in the near future.”

Anuj Poddar

“We will expect to continue to grow from that point on.”

Anuj Poddar

“And as that gain share bottom line, while it is already broken into profitability, we expect that to continue to grow to healthy EBIT margins.”

Anuj Poddar

“And we expect to continue to grow that into the future.”

Risks & concerns — 15 flagged

One side there has been and continues to be the unprecedented cost side pressure due to rise in commodity prices.

— Anuj Poddar

My first question is coming on the consumer business where you have mentioned of demand slowdown facility pockets of East and other markets.

— Renu Baid

First on the demand slowdown, I will try rightly touch upon Q3.

— Anuj Poddar

We’ve seen greater slowdown from the rural pockets versus the urban areas.

— Anuj Poddar

So, if I look at the last calendar year, because whatever commodities pressure started since about November, December of 2020, in January almost is when we started taking price hikes.

— Anuj Poddar

Going forward from a Q4 perspective I would not deny that the back pressure continues.

— Anuj Poddar

We’ve not seen the reversal of commodity side cost pressure.

— Anuj Poddar

And talking about the segmental numbers within consumer segments, so appliances segment revenue has been weak that has been led by water heaters business only?

— Chetan Gindodia

Water heater as well as kitchen, so last year in fact kitchen was very high, kitchen appliances in that again, because of the base effect being very high has been weak, so on a two-year basis appliance have also grown.

— Anuj Poddar

And what has led to the slowdown in lighting segment?

— Chetan Gindodia

So, sure first let me even talk from a quantitative perspective, this is something I’ve said for many quarters, that we will remain committed to making sure our brand investment and brand spends continue even tough markets or weak quarters.

— Anuj Poddar

Understood and secondly, if I hear you out correctly, 3Q you had an impact of the kitchen appliances, sales kind of got covered in second quarter, the delayed winter, as well as a rural, is it fair to say that there is an element of market share loss for us given the peers what they have delivered the numbers?

— Achal Lohade

So, my point there is if revenues has come down from that, and cost have gone up from that, it is both the pressure on the first level margin because of the cost going up.

— Anuj Poddar

Secondly, if you look at from the allocation between EPC to consumer, that headwind continues, even now our share of CP versus EPC, every quarter is higher and higher.

— Anuj Poddar

So, I would say the only reason we’re seeing a margin contraction, Y-o-Y is because of commodity pressure.

— Anuj Poddar

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Q&A — 10 exchanges

My first question is coming on the consumer business where you have mentioned of demand slowdown facility pockets of East and other markets. If you can share more inputs in terms of how has now that we are in the second month of the last quarter, are we starting to see demand as in the primary sales and the secondary sales improving again, or there are still pockets of softness and coming towards the season, what is your outlook in terms of off take for the next 12 to 15 months?

Anuj Poddar

Sure, thank you Renu. First on the demand slowdown, I will try rightly touch upon Q3. We’ve seen greater slowdown from the rural pockets versus the urban areas. And that has impacted us, slightly more adversely because our contribution from rural is higher than some of our peers. But if I take a very specific narrow quarter view, I was just quickly relooking at Q2 numbers also, in Q2, our growth levels were higher. So, somewhere we also want to normalize this across for my annual perspective, not just look at it from a quarter-on-quarter perspective. One of the other factors has been that wint

Anuj firstly on the demand scenario you said that winter kicking in late has impacted our sales for Q3. So, are you seeing that traction improving in Q4, and just a bit of guidance on the margin side because normally Q3 is our best quarter and we have the highest margin in Q3, which is not the case this time? So, after the price hike of that we are planning to take into Q4 how should we look at consumer segment margin for the next two years?

Anuj Poddar

So, Chetan, I missed a few words in the opening comment. But your question was on the demand in Q3 and like I said, Yes demand in Q3 has shown a soft trend. And from whatever conversations or data I picked up it’s not just our business or segment. But I’ve seen that across the consumer sector across other sectors the consumer businesses as well. And it has been more acute in rural, as I said and since our mix of rural is higher, therefore you have seen a slight deviation. But that’s more an external factor that we have little control over. I am seeing very strong counter bounce back of demand

So, I wanted to know how much of your manufacturing do you do by yourselves and how much percentages do you outsource the same?

Anuj Poddar

So, between 15% to 20% based on product mix is in-house, therefore +80% is third party manufacturing. Okay, so 80% is nearly outside. Okay. That’s right. So, with respect to margins, it might be affecting right if you are manufacturing yourself and outsourcing. So, can you give me the breakup of margins with respect to that? We don’t give breakups between internal and external. But that said, margins we are working on improving both internally and externally. I don’t think our factories are most competitive in the past. But we’ve had significant improvements in our own manufacturing month-on-m

Just one clarification to the last question of Dev. The zonal sales info that I have given is obviously for general sales trade, it is not applicable to sunrise and GoI channels. Please continue.

Achal Lohade

Just a clarification in that revenue mix, how much is South I didn’t get that? 14%. Okay, thank you. My question was with respect to gross margins. You said that 300 basis point contraction is more to do with the gross margins but in the same time you said that there is cost reduction. So, just wanted to understand what is the extent of gross margin contraction we have seen on a Y-o-Y basis, as well as a Q-o-Q basis is that possible to share? So, our gross margin has dropped in between 2% to 3%. But because of negative operating leverage, that’s translated to a 3% drop in EBIT margin of consum

So, some of my questions are answered. I’ve seen recently there are new products that the company has turned out, could you throw some light on your R&D expenses that you have done in the first nine months, and how this is compared to what you have been doing in the last in the first quarter?

Anuj Poddar

Again, I’ll give you a broad range. So, R&D expenses are not disproportionately high, they are in the 1% to 2% range, we intend to keep it in that range. Quite honestly, in the past also we were spending, I just think we’re spending that there’s two aspects you’ll see there is a slight enhancement that you will see in R&D expenses in the coming two, three years because there’s a fair amount of catch up that we intend to do, but not something let’s say to take it to 3% to 5% because we want to be conscious of bottom line, and therefore technical aspect on that compared to the past, we are tryin

Sir, we had done a tie up with Mahindra Logistics for a complete rollout. And I can say they are becoming the exclusive vendor for us. So, I understand that these are tough times, but wanted to understand how the rollout of that vendor has been done being successful. That’s my first question.

Anuj Poddar

Yes, so the rollout has been good, it’s been positive, it’s contributed positively to us. That said, there has been a couple of challenges with that, most of the rollout has happened during COVID the biggest, transition of planned in April, May 21, which is when the second wave of COVID was at its peak, and therefore we had to work around that. So, it hasn’t progressed as envisaged. And therefore, they need some impact in terms of timelines of benefits and managing that rollout, etc. But we did have some multiple teething issues at that point because of secondary wave of COVID and, etc. We sol

A couple of questions. What is your CSD contribution, which is the canteen stores department?

Anuj Poddar

We will just pull that out Lakshmi can you ask us the next question. The second question is that, in your presentation you mentioned that there has been a volume decline. There would be also a price escalation. So, if you just remove the price escalation, what has been your decline would be if the price increase, was just trying to understand what is the inflation led growth over the last nine months? So, for that quarter, if I pull it out, let me see for the nine months, I pull it out for the quarter since you had a 6% de-growth in consumer business and that’s after price increase. Obviously,

Could you help us with the market share in some of the key categories like fans, mixer, induction cooktops, water heaters, iron, air coolers, et cetera?

Anuj Poddar

Bhavin, I didn’t get the third part of your question. So, what about these categories? So, I was looking at your market share in some of the product categories like fans, mixer grinder, water heaters, induction cooktops, iron, air coolers. Right. So, you are looking at them, or what’s the question or you are asking for the market share? Yes, I am asking for the market share data. Okay. So, we don’t publish market share, but if I just give you a growth rate, for example in fans and a two year basis we’ve grown fans two year basis about 26%, which we believe is higher than industries therefore w

My question is with respect to our other income line item, so if I see FY21 so within our other income segment, there were a lot of one-off items. And the actual other income was somewhere around say 25 crores compared to total other income of 75, 76 crores. So, even in the last two quarters, where we have other income of 28 crores each what proportion of this is one of items. Can you give us some light about this?

EC Prasad

So, these 17 crores include sundry creditor right back of about 10 crores and the debtors provision reversal of 5 crores. Okay. And this was even same in the last quarter? This is in the normal course of business every, every quarter we have this effect on vendors as well as provision.

Thanks everyone for joining this call and thanks management for giving us opportunity to host this call. Management any closing remark that you want to make.

Anuj Poddar

So, only comments I have Deepak, we shared all the insights that we on the quarter performance. For us the longer-term strategic focus remains the priority. There are shorter term issues that we will continue to face quarter-to-quarter, we will continue to navigate as best as possible. But if you look at all the metrics for longer term aspects, we are committed to those and we’re working on that and we’re not guided by shorter term performance to get that up to actually so when I say that in the context of investments with R&D, brand, other calls that we have to take, employee to see, the one-

Speaking time

Anuj Poddar

Moderator

Lakshminarayan

Achal Lohade

Rahul Gajare

Chetan Gindodia

Dev

EC Prasad

Bhavin Vithlani

Deepak Agarwal

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Opening remarks

Deepak Agarwal

Good evening everyone. I welcome you all to Bajaj Electricals Limited, Q3 FY22 Earnings Call. Today we have with us management represented by Mr. Anuj Poddar – Executive Director and Mr. EC Prasad – Chief Financial Officer. So, without taking much of your 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. Thanks, and over to the management.

Anuj Poddar

Thank you. Good evening, everyone. My name is Anuj Poddar. Welcome to our investor call. I’ll just start with a few opening comments and then we can open it up for questions. Q3 has been a tough quarter, primarily for two reasons. One side there has been and continues to be the unprecedented cost side pressure due to rise in commodity prices. Secondly, what’s been unique in Q3 unlike Q1 or Q2, is that demand has slowed down. There has been a softening of demand, resulting in, the inability to pass on or take on price hikes to pass on the cost side impact. As a result, that is reflecting on the margin contraction in this quarter. Having said that, a few of the positives from our side. Number one, this was the third time that we’ve had 1000 crore revenue in the consumer business, we are proud of that scale and size that we continue to drive. Even, while I talk about a soft demand quarter, or soft growth, supporting to remember that we are coming off a very high base last year in Q3 on a/

Just a quick highlight on that scheme

As you may have already had, we are clearly forming two separate independent entities. There will be no relation between these two entities in terms of parent, subsidiary, associate, etc. They will both be separate legal entities and publicly listed, all shareholders in the current Bajaj Electricals will be allotted shares in the new entity, resulting into a mirror shareholding pattern. The new entity is called Bajel Projects Limited that will house the power transmission and distribution business. The existing Bajaj Electricals will therefore continue the residual businesses of the consumer business along with the illumination business which will become part of this entity. And the last data point on that, the appointed date as per the scheme of arrangement for that entity is 1st of April 2022. That said it will follow through the normal compliance and approval processes including NCLT that should reasonably take anywhere between 9-12 months. So, by the end of this calendar year, we s

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