Secondary sales, distribution prime focus: Bajaj Electricals

Bajaj Electricals will be concentrating on improving its secondary sales and distribution network, said Shekhar Bajaj, Chairman & Managing Director of the company. The new system, he said, will be implemented from Arpil 2016 and will start reaping benefits within six months. The new system will require no physical investment. But more manpower will be pressed into service, he said. “Distribution will be the thrust for coming years,” Bajaj said, adding that the future lies in the rural market, especially with Pay Commission and government’s focus on rural economy. The urban market witnesses the entry of new players frequently, who do not have a strong distribution network and, hence, the competition there is restricted, he said.The newly focused areas of sales and distribution will require higher advertisement spends, he said. The company’s current advertisement budget is Rs 90 crore. Bajaj expects a double-digit growth in its fan business. He puts the marketshare of the company in the fan business at 13-14%. The emphasis is more on margin improvement and profitability, he added. Below is the verbatim transcript of Shekhar Bajaj's interview with Nigel D\\'Souza and Reema Tendulkar on CNBC-TV18.Nigel: Just going through a brokerage note where they have said you are looking to change your business model from around channel push to around consumer pull now. How is that shaping up? What results are you seeing and how is it being implemented on the whole? When can we see some results coming out of this entire change of inventory management as well as this strategy?A: Many of the things in the urban areas have already been implemented and the benefits are coming. However, the new system are working to see that we concentrate on secondary sale and distribution is being implemented from April 1st that means tomorrow onwards. So, that would take at least six months to nine months to really get the full benefit out of it. However, we will see benefit coming every quarter; you will see the performance improving as far as the consumer durable is concerned. The consumer products groups are been merged together in terms of cost, in terms of better penetration we can go into rural market because as far as we are concerned clearly the future lies in the rural market, 70 percent of the market is in the rural market. Therefore to that extent it will be very useful for our products which are basically used by all masses will be very important. So, therefore distribution is going to be our thrust for the coming years.Reema: Could you give us some numbers by how many distribution channels or networks are you planning to engage in FY17 say compared to what it is was as of today how much would it go up by? What would be the kind of investment you will have to make for this? A: In terms of physical investment there is no additional investment, in terms of capital investment the investment will be only in terms of people. When you go into rural distribution you need much more people to go into the interior to distribute our products. So, therefore to that extent there would be additional people. That is the only investment that will be required. Most importantly with the pay commission and plus the rural thrust that the government has given in the Budget and therefore we clearly see that in the future those who have got strong distribution network especially in the rural markets they are the ones who are going to be able to be winners according to us. Coming to urban market lot of new players are continuously coming, but they don’t have the bandwidth to go into the distribution and to go into the interiors. Therefore that is where we will have an advantage over somebody who is a new comer who wants to enter in the Indian market. India has been considered to be a very important futuristic good market. Every second day you hear some new player wanting to come to India.Reema: Will it entail higher advertising cost and if yes how much and what?A: The advertising cost will definitely have to go up because once you do distribution and you make your product available in many more counters it is important to create a consumer pool. So, that you can put it up there but if it doesn’t move out he will say sorry there is no secondary movement and therefore we will be spending more on what we call is below the line advertising rather than putting too much on television and others. So, above the line (ATL) will go down, the below the line (BTL) will go up. Next year we are looking at around including digital about Rs 90 crore is the advertising Budget.Nigel: I had this quick question you are talking about your consumer business. Now in your fans business I was just looking at the revenues in the last five years they have moved from only around Rs 530 crore to around Rs 650 approximately what is happening on that front. Can we see a growth coming in from the fans business and also I wanted to ask what exactly is your current market share? I think Crompton Greaves has closed to around 23 -24 percent of the market share and they have sales of around Rs 1,200 crore. So, could you give us those details? What is happening on fans divisions and are we going to see some revenue growth?A: As far as fan division is concerned with this secondary sale focus next year we can clearly look at double digit growth coming out with the fan business. Our market share is around 13-14 percent. Crompton is clearly the market leader. Therefore we see that instead of focusing on just market share and topline growth, our whole emphasis is on secondary sale in margin improvement and profitability. So, you will see in 16-17 the profits would be substantially higher because of this. Reema: Just one question about your agreement and tie-up with Morphy Richards? We understand that it comes up for a renegotiation in the medium-term. There is talk that there is a possibility that in the renegotiation they might like to make it revenue linked rather than the fixed royalty that the company right now pays. Will you be keen to extend the tie-up with Morphy Richards even if the royalty terms being renegotiated are linked to revenues rather than fixed? A: It has always been revenue based. We are given a certain percentage on revenue because then it becomes a variable cost for us. So, it is always suiting us with a minimum assured guarantee. Reema: Incase if it is not extended the tie-up what will be the loss to Bajaj Electrical?A: This is something which is a question which there is nothing to answer because they have already agreed to extend it so we are only finalising the exact terms. Otherwise there is no discussion, so what is the losses is only a theoretical question.