Consumer electricals firm Bajaj Electricals is planning another round of price increases for appliances on the account of higher commodity costs.
Speaking to Moneycontrol following the June quarter (Q1) results, EC Prasad, chief financial officer, Bajaj Electricals said that the increase in commodity prices was a major factor for a drop in EBIT margins in consumer durables business.
"We are not losing sleep over a one-quarter blip. We had to take a few hits which affected the business. We increased prices by 3-4 percent in July and will do a similar increase in August," he added.
Across the sector, appliance makers increased prices by almost 20 percent on account of raw material prices being on the increase.
Prasad explained that the timing of their price increase went a bit wrong.
"All our competition had taken a hefty price increase earlier. We have been taking those in tranches. We had taken one in May but this was followed by a lockdown. We then did another price hike in July and we are planning another in August," he added.
Business numbers
In Q1FY22, Bajaj Electricals posted a consolidated net loss of Rs 24.97 crore as against net loss of Rs 16.60 in the year-ago period.
For the June quarter, Consumer Products (CP) segment of the company saw a 56.3 percent YoY rise in revenue to Rs 617 crore.
The segment recorded an Earnings before interest and taxes (EBIT) of Rs 6 crore in Q1, showing a 26.4 percent degrowth.
"Our EBIT margins in CP business stood at 1 percent as against the expectation of 8-9 percent. This is primarily due to the rise in commodity prices that affected the business," he added.
Other factors that affected the bottom-line, Prasad said included higher spends on brand and R&D, and business-transition costs.
"We are continuing to spend on our brand unlike other players. Similarly, our intention is to take R&D spend to 2 percent during the year. This was close to 0.5-0.6 percent earlier," he added.
Another factor that affected the bottom-line for Bajaj Electricals was the transition of logistics to Mahindra Logistics.
In March 2021, Bajaj Electricals and Mahindra Logistics signed a five-year agreement. This deal involves an end-to-end redesign and outsourcing of Bajaj Electricals' logistics to Mahindra Logistics.
"Due to this transition, there are a lot of duplicate costs incurred. This is because we have to maintain multiple warehouses during transition; we have to incur additional shifting costs from earlier warehouses to new warehouses. We expect this transition to be over in Q2. By the third quarter, we will start reaping the benefits of the transition," said Prasad.
He said that by then the price rise would have kicked in and duplicate costs would have neutralised. Hence, he said that it would be possible to get a 9-10 percent EBIT margin by then in CP business.
EPC growth
The engineering, procurement and construction (EPC) business clocked a total revenue of Rs 240 crore, showing a YoY growth of 12.3 percent. EPC’s loss narrowed to Rs 13 crore from Rs. 44 crore in the corresponding period last year.
"Collections from EPC projects have improved. We have operationally closed all projects in Bihar and most of them in Uttar Pradesh barring three," he said.
Within EPC, there are power distribution projects, illumination projects and transmission line projects.
The order book as on July 1, 2021, stands at Rs 888 crore, comprising Rs 498 crore for Transmission Line Towers, Rs 69 crore for Power Distribution, and Rs 321 crore for Illumination Projects.
As reported by Moneycontrol earlier, Bajaj Electricals is staying away from bidding for power distribution projects.
"For the past few years we have not focussed in a big way on order book and not taking too many projects on the EPC side. So the revenue that is getting generated is not adequate to cover the indirect overheads. But now that we are refocussing on businesses in illumination and transmission lines and collections are back, we should be able to book profits in Q3 and Q4," he added.
Cash position
For the June quarter, Bajaj Electricals generated cash flow from operations of Rs 39 crore. The net debt stands at Rs 656 crore, including the debt taken over during the quarter as a result of the acquisition of Starlite Lighting Limited.
Explaining the cash position, Prasad said that the company had Rs 426 crore of debt that went up to Rs 656 crore in Q1 due to the addition of Rs 215 crore of debt from Starlite Lighting.
"Despite Q1 being tough, we had an operating cash flow of Rs 39 crore. As of August 7, our debt is back to around Rs 430 crore. So in 40 days time, we have been able to reduce by almost Rs 200 crore. If this trend continues, we will be debt-free even earlier than projected," he added.
The company had earlier projected to become debt-free by the end of FY22.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
