Rurban mission to help penetrate rural mkt:Bajaj Electrical

The government’s rural urban mission will act as a catalyst for deeper penetration into the rural market, Bajaj Electrical Chairman and Managing Director (CMD), Shekhar Bajaj told CNBC-TV18.The government on Wednesday approved the Shyama Prasad Mukherjee Rural Mission (SPMRM) to develop villages with an investment of over Rs 5,000 crore in FY16.Major growth will come from the rural markets, he said. Large population and the company’s distinct product categories – premium, economical and sub-economical – will help in sales growth, Bajaj said. However, Bajaj said recovery in rural demand is yet to be seen. Despite failed monsoon, Bajaj expects lighting and Engineering & Projects Business Unit (E&P) to lead growth in the second quarter. For FY16, he expects revenue to cross Rs 5,000 crore, a growth of nearly 16 -17 percent. Project business will garner close to Rs 1,800 crore, lightning around Rs 1,100 crore and consumer business will grow marginally to Rs 2,100 crore, he said. For FY17, he expects revenue to grow to Rs 5,500 crore. Below is the transcript of Shekhar Bajaj’s interview with Sumaira Abidi & Sonia Shenoy on CNBC-TV18Sonia: What do you think the scope of work could be for a company like yours with this new mission by the government? A: Before this mission was announced by the government, we had already realised that the future lies in the villages. With the result, we have already taken a major area on how to improve our rural penetration and that is by having super distributors - who can go and cover all this smaller parts of the country because people in the villages also have aspirations. They also have funds. Earlier, they didn’t need it, but now they need it. Therefore, with this government initiative I think it will grow much faster and therefore major growth we can expect in the next few years will come out of the rural markets. Sumaira: What portion of this Rs 5,000 crore would a company likes yours would be targeting?A: I can’t say how much of that will, but Rs 5,000 crore the government’s commitment to this particular project. We are talking that this will be just like a catalyst. It is going to be substantially higher numbers because the penetration levels for out smaller appliances is hardly 3 percent in the rural areas and maybe, in the cities is 15-20 percent. Fans, of course, are higher but small appliances, even in the city areas, are hardly 15-20 percent. Therefore, the penetration levels, once it starts population in rural markets is so huge that, you can give it at a right price. We have also got a full range. We have got premium products, we have got our economy products and our sub-economy products - we take care of all type of customers. There are companies who are only in the premium area and therefore, in the slowdown of the market which is taking place people are postponing their purchases or they are from premium they are going to economy products. Those who are only in the premium lose out. We have an advantage that our sales of the non-premium economy segment - it is substantially going up because of this reason. In the some economy, the margins are little lower compared to a premium product.Sonia: Has the demand picked up at all because when we spoke with you last during your Q1 numbers you had indicated that consumer sentiment continues to remain very tepid and your own consumer durables business had seen a slump in revenues last quarter have you seen any recovery in demand at all?A: There is not much of recovery though our numbers which I mentioned in the first quarter result is that primary sales show the negative growth. However, in terms of our secondary sales, which is the most important, because we are correcting our dealers inventories because we found that capital employed comes down because of their heavy inventory levels. With the prices coming down and the raw material coming down which will have an impact in next two to three months because there is raw material in pipeline which takes time to liquidate. Therefore, we can expect that the pricing will come down, either reduction in the selling prices or some extra schemes and all that will be offered by companies to increase their sales. Dealers should and most of them are keeping very low levels of inventory. Primary sales sometimes show a negative growth. As long as a secondary sales is on, there is nothing to worry about.Sumaira: Your focus is now primarily on secondary sales, add to it the competitive intensity now. You have already spoken about a bit of the pricing pressure, would you expect things to get much worse in this quarter given the way even the monsoons have panned out?A: Monsoons have clearly been a failure; there is no question about it. Therefore, to that extent whatever impact it has but from our profitability point of view the second quarter I don’t see there will be much of downside. There may be a nominal downside, but both the lightning and the EPC side are growing very well. So the profitability there will be substantially better. So, as a second quarter, as a company our profitability will be far better than what it was last year. Sonia: Can you give us some numbers, you ended FY15 with revenues of around Rs 4,300 crore. What do you think FY16 will look like and what kind of average growth in topline do you expect over the next two years? A: As far as the current year, we are clearly looking at crossing that magic number of Rs 5,000 crore which is a growth of 16-17 percent. Of that, the project business should be much faster because we got very good order book and therefore against the Rs 1,300 crore we are looking at Rs 1,800 crore coming out of the project business against Rs 900 crore in lighting we should do about Rs 1,100 crore. In consumer durable, against Rs 2,000 crore we should do Rs 2,100 crore. Earlier, we were looking at a faster growth in consumer durables, but it seems that it will not be much of growth; more growth will come out of lighting and EPC business. So, this is Rs 5,000 crore and in the coming years we can look at Rs 5,500 crore. A 10 percent growth would be a sustainable type of growth we can look at year-on-year (Y-o-Y) for the coming years.