In an interview to CNBC-TV18, Shekhar Bajaj, CMD of Bajaj Electricals spoke about the impact of rupee depreciation and his plans for the company in FY14.
We have got a very good order book and therefore as a company from Rs 3,400 crore, we are looking at Rs 4,200 crore plus
Chairman & MD
In an interview on CNBC-TV18, Shekhar Bajaj, CMD, Bajaj Electricals , says the company has no choice but to pass on the impact of rupee depreciation to consumers. Giving a break-up, Bajaj says for Morphy Richards, 40 percent of its total turnover is imported products, for Bajaj Appliances it is about 20 percent and in case of fans and lighting, it is about 10 percent. The company plans to undertake a price hike this month.
Bajaj says the company is targeting an 18-20% growth in the lighting segment and a 20-22% growth in consumer durables. He further says they have not lost market share in lighting or consumer durables sector. In fact, he expects a 100 bps improvement in consumer durables margins.
In FY14, the company is targeting Rs 4,200 cr revenues and 20-25% growth.
Below is the edited transcript of Shekhar Bajaj’s interview on CNBC-TV18
Q: What is your total import content and how much do your raw material prices rise because of the rupee depreciation?
A: In consumer durables in Morphy Richards, 40 percent of our total turnover is imported products. In case of Bajaj Appliances it is about 20 percent. In case of fans and lighting it is about 10 percent. Therefore it is important that we pass on the rupee depreciation immediately in case of Morphy Richards because otherwise it is difficult to absorb it because 40 percent of 10 percent approximate depreciation would be a 4 percent hit on the bottom-line of Morphy Richards. So there the increase which we have done partly in April and now we are doing it in July would be 5-6 percent.
In case of appliances, because 20 percent of our total content is imports, there will be anything between 4-5 percent. And in case of fans it may be 2-3 percent and lighting also 2-3 percent is what we expect to increase. Volatility of the rupee is such that between yesterday and today the rupee has appreciated by almost 2 percent. So normally when we increase our prices we take into account that it should be something which we don't have to keep increasing and decreasing.
Q: This 3-5 percent that you have already hiked are for which products, should we expect more on fans and other products which you may not have. For which products have you already done the increase?
A: We have done increases in things like microwave ovens. In case of induction cooker, steam iron, prices have either have been raised in April or will be done in July. In fans, because of competition and since the total impact is only 10 percent, so therefore even if we absorb a part of it, the total impact is only going to be 1 percent on the total fan business. So we may not do that at all.
Basically it is a matter of competition. If we increase it and others don't then you lose your market share. Therefore, we keep watching what others are doing and accordingly we decide. In fans, the competition is much more and our impact is less. So therefore 2-3 percent is sufficient.
Q: We are seeing a slowdown in consumer demand as well. So given the fact that you all have raised product prices across all your categories whether it is Morphy Richards and to a smaller extent even in the fans and lighting, are you expecting any kind of impact perhaps on the volumes there because customers might not be able to absorb the price increase. What would be your volume estimate for FY14?
A: What we are looking at value wise because that includes price increase also. In FY14, in the lighting segment, we are looking at about 18-20 percent, in consumer durable 20-22 percent and in our project business we are looking at a growth of 50 percent because we have got a very good order book and therefore as a company from Rs 3,400 crore, we are looking at Rs 4,200 crore plus. That is a growth of about 25 percent total.
Q: The street is also a little concerned about the losses in your E&P segment. In FY13 the loss in that segment stood at about Rs 124 crore. Could you provide us with some help, how will the E&P segment perform in FY14?
A: I had mentioned earlier also that there was some specific write-off which we did in the year 2012-13 which will not take place so therefore in the current year not that the working has improved but the write-off will not take place and to that extent there will be substantial improvement in 2013-14 and that is why for the year the company’s performance should be very good.
Q: Is this the division where you say you have got orders?
A: Yes we have got orders over Rs 1,000 crore over there and that is why we are expecting Rs 680 crore, we are hoping to cross Rs 1,000 crore turnover in E&P. Of that most of the orders had good pricing. So even a certain amount of old write-offs are still pending. Overall, we are looking at a positive EBITDA against last years Rs 125 crore negative EBITDA, we are looking at a positive EBITDA for the current year.
Q: Can you give us an estimate for the full year in terms of EBITDA growth as well as margins because margins in FY13 for a whole host of reasons were quite bad?
A: I was talking about this because there is a clear cut write-off which was not doing well for other businesses so I cannot give you a number as far as total profitability is concerned. However, as I see today the margins in case of consumer durable segment should be higher than last year by about 1 percent and lighting also 1.5 percent improvement take place. In E&P the improvement is substantial because last year it was negative, some 16-17 percent so we are looking at a zero level.
Q: Do you in your E&P segment ever compete for projects abroad and is the rupee deprecation helping over there?
A: No we have not yet started abroad. In India there are still enough options and orders available so we are strengthening ourselves here to do the projects. One of the reasons why we have got impacted in the last few years is that projects are getting delayed so we must execute the projects in time then only we make profits.
Q: There is a report which suggests that perhaps you are losing market share in your consumer durable segment to a few other competitors like Havells India. Could you provide us where the market share of Bajaj Electrical stands and has it changed in anyway especially in lighting?
A: In lighting I don't think we are losing market share. In fact, I think in lighting we are improving our market share. In case of Luminous there was a slowdown but what I understand is because of the scams last year, new orders are taking time. Main problem is coming funds are not being provided and therefore even good companies like Larsen and Toubro (L&T) are cash tight. So everybody has slowed down but in lighting or in consumer durable I don't think we have lost market share anywhere.
Q: In your E&P segment to speed up project closures, do you incur additional cost?
A: Yes that is what has happened, last year our sales went down by 17 percent because it is only closure cost, so there are expenses but there is no income side in this. When you have a closure you just keep completing the projects and there are shortages which you have to compensate for and there is no income side there that is why the hit takes place. This year we are doing the business with reasonably good margins and also we are going to complete whatever old projects and everything. Before end of this year all old projects which are still incomplete, which are two-three years old project will all be completed. Therefore 2014-15 will be the year of E&P.
Q: One first intangible question, are your debtor days declining? Two, are you noticing at all any improvement in consumer sentiment?
A: For us luckily because we have got a good distribution network and a good brand equity and the farm segment, the agriculture segment, good monsoons and all is taking place. Because of that the sentiment is positive so our semi-urban and rural markets are flourishing and that is why the growth is going to come out of that.
As far as lighting is concerned the new luminous business is also picking up. That is why I said 18-20 percent growth in lighting, 20-22 percent growth in consumer durables.
Bajaj Electric stock price
On December 01, 2015, at 15:09 hrs Bajaj Electricals was quoting at Rs 218.00, down Rs 1.55, or 0.71 percent. The 52-week high of the share was Rs 309.95 and the 52-week low was Rs 200.95.
The company's trailing 12-month (TTM) EPS was at Rs 2.60 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 83.85. The latest book value of the company is Rs 67.26 per share. At current value, the price-to-book value of the company is 3.24.
READ MORE ON Shekhar Bajaj, Bajaj Electricals, rupee, Morphy Richards, Bajaj Appliances, fans and lighting
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