Against the Rs 3200 crore that Bajaj Electricals plans to close this year with, the company is expecting revenues to the tune of Rs 3800 crore next year, says Shekhar Bajaj, chairman and managing director.
Shekhar Bajaj, chairman and managing director at Bajaj Electricals says the excise duty hike or mild inflation spike is not likely to impact sales for his company, neither on the consumer durable side nor on capital goods. In fact, against the Rs 3200 crore that the company plans to close this year with, Bajaj Electricals is expecting revenues to the tune of Rs 3800 crore next year.
“The company went through a restructuring where the B2B segment consisting of engineering projects and luminiaries were split from the consumer products,” says Bajaj. The company expects 15-20% growth from each of the segments going ahead.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: As we step into the new financial year, there are several doomsday sales on the growth front, but a lot of people point out to us that at the micro-group company level, people are speaking of more robust growth. Give us an idea of how sales is both at your consumer durable as well as your capital goods division. Would you expect FY13 to be better off in revenues than in FY12?
A: Luckily, we are in the type of consumer space where slight inflation or a little increase because of excise duty or because of interest rate is not going to make much difference. So we are still looking for the year 2012-2013 to have a growth of anything between 12% and 15%, and against approximate Rs 3,200 crore that we expect to complete this year, next year we are looking at around 3,800 crore. So both in the consumer products and also in the engineering project, both of them we expect the same 15-20% growth levels should come up.
We have recently had a restructuring in terms of the organization, and in that the restructuring, the feedback we got from our various investors was that we must concentrate separately on the consumer products and separately on the B2B products. Therefore, our engineering projects and luminaires, which are B2B mostly, are going together so that we have better focus on that, and all the lighting appliances, fans, Morphy Richards will go together. Both of them are to be headed by two EDs who in turn will return to Anand Bajaj who is just two days back been promoted as the joint managing director.
Q: What kind of contribution are you expecting from both the divisions going into FY13, what is the current break up and what is the expected break up at the end of next year?
A: Both of them should continue to have a similar type of growth level 15-20%, so the ratio will remain around the same. About Rs 850 crore is coming out of engineering projects in the current year, next year we are looking at around Rs 1,000 crore, and in case of the luminaires is something where we think that there will be a growth of anything 15-20%. Though new orders for engineering projects is slowing down slightly, our market shares are so low that we don’t think that there is going to be a much of lower growth. Current year, engineering projects has not done well. We have done a lot of corrective actions and therefore next year I am very positive and very bullish about the engineering projects division. Not only will our sales be substantially better by 15-20%, but we are expecting a substantial improvement in bottomline which got very badly impacted in the current year.
Q: Your operating margins were down. Do you see double digit in the fourth quarter itself that is just ending or do you see that happening in FY13? If so, how because you are going to pay more excise, you are going to pay more service tax, raw materials are not getting any cheaper so you remain confident you will be able to up prices?
A: We are introducing a new concept which is called theory of constraints. So our inventories have really gone very high. Though out margins are impacted by 1% we have got additional hit of 1% on our inventories, which by end of March, are coming under control. So next year we will not get hit on the inventory front.
As far as excise duty is concerned, the good news is that 60-70% of our consumer durable products are coming from Himachal and backward districts where there is no excise. Against the 2% increase in excise, our burden is only 1.2% because we don’t pay excise on the finished product. So to that extent relatively we are better off compared to our competitor who is based outside the excise free zone.
We think that next year our margins should also be okay. We have decided not to increase price because of excise duty element, we will do it through our value engineering and volume growth that will take place, except where the other costs have gone up because of which price increase would have taken place that will take place anyway. We are not expecting much to take place, but that’s the area where it depends on the cost increases.
Q: You have two focused verticals now. Would at any point you mull separating into two different companies and trying to list them so that you can unlock value or will the company remain the same?
A: No, we are clear about it, we are not thinking of demerging the company, but to have focus, we are finding that there are lot of synergies that are going to take place. By engineering project and Luminous being together we find that there are lot of overlapping activities which will be merged and to that extent, our cost will come down. For example, we are thinking the future is of rural market. Now for rural marketing, instead of having a separate person for lamps and appliances and fans going around in the market, we will have a common person who will go and sell the product. Similarly, for modern format retail, instead of four people going and selling the Morphy Richards appliances, fans, lighting, we can decide that a single person will go and meet the customer. To that extent we can synergize and take advantage of the situation.
Bajaj Electric stock price
On December 10, 2014, Bajaj Electricals closed at Rs 215.15, up Rs 9.05, or 4.39 percent. The 52-week high of the share was Rs 384.80 and the 52-week low was Rs 178.00.
The company's trailing 12-month (TTM) EPS was at Rs 0.08 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 2689.38. The latest book value of the company is Rs 70.43 per share. At current value, the price-to-book value of the company is 3.05.
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