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Last Updated : Oct 23, 2019 08:22 PM IST | Source: Moneycontrol.com

Miffed with red tape, electrical goods firms to move away from government business

Project delays and order changes have led to a change in strategy.

The thrust on government business among the consumer durables firms is likely to see a gradual decline from December quarter onwards.

Industry sources told Moneycontrol that companies are taking a strategic decision due to delay in payments as well as slow process of order execution.

The government projects constitute almost 40 percent of the topline of the electrical goods companies. Sudden spike in revenue orders also come from large orders from states like Bihar, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh among others.

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Firms like Bajaj Electricals, Voltas, Blue Star and Havells are involved in the EPC business.

"While there is a significant upside to the revenue due to project orders, there are rising risks. Hence, the industry is slowing down growth in this area," said the chief financial officer of a mid-sized electrical goods firms.

Consumer durables firms are also seeing changes in order structure even after inception. This means that for the size of the original orders are going down.

Companies are of the view that since a significant portion of the investment is going into the project, a reduction in scope means that the overall payments become lower. Further, this also disrupts the revenue management cycle.

"Margins get impacted when there is a change in the order cycle. This hampers the overall profitability of companies," said the head of finance at a large electrical goods firm.

The executive cited an order where the size was suddenly reduced from Rs 5,000 crore to Rs 2,500 crore for a lighting project in North India. This, he said, had an impact for almost three quarters.

A series of projects in the area of lighting, solar electrification as well as cable/fibre projects are part of the several orders given out by the government.

On one hand while there are order-related changes, new projects have been far and few in between. Finance heads estimate a 10-15 percent drop in yearly orders. Further, payments have seen a 4-5 months' delay on an average which impacts the balance sheet.

To deal with this situation, the firms will now focus on direct retail business and corporate orders.

This means that the retail consumer durables segment will see a higher share of the overall revenue mix followed by business from corporate clients.

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First Published on Oct 23, 2019 07:30 pm
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