See uptick in demand; FY16 margins at 6%: Bajaj Electricals

Talking on the outlook for the business going forward after slow growth for the past few quarters, Anant Bajaj, Joint MD, Bajaj Electricals said there is no concern on the demand front because third quarter and fourth quarter are traditionally stronger quarters for the company.Going forward he expects the water heater sales to pick up and margins to remain stable with uptick in demand. His only concern is on volumes from secondary sales but says despite contraction in volumes the company saw margin improvement in consumer durables.Although he is not expecting a huge growth in the topline in FY16, the margins would be in the range of 5-6 percent. He is also confident of clocking Rs 5000 crore revenues in this financial year as per their guidance.Below is the verbatim transcript of Anant Bajaj's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: It has been a very slow patch that the company has seen in the last many quarters. But are you seeing any kind of uptick on the back of festive sales, has the demand situation improved at all?A: Yes, in fact as we have been saying in our earlier interview that we have changed our method of selling from primary to secondary sales. As a result, lot of those deals or primary dumping has completely stopped as a company.There has been a volume drop but as a margin level there has been an increase or remained stable. As far as demand is concerned in the season right now, water heaters are doing very well. We are seeing a demand increasing and at the same time we have a record advance collection for our air-cooler season.So from a demand standpoint, I don’t think there is too much of a concern but what is a concern is how quickly can we get the volumes in secondary sales because the whole area which we have changed is about moving from primary sales to a secondary sales concept. So that whole shift over from wholesale to basically distribution is the key factor for which you may see that consumer durables have had its own issue.However, Q3and Q4 onwards you should see the turnaround because it is also the strongest quarter for them with a fan season coming up in Q4 and in Q3 of course we have the water heater season. It is a very big ticket item from the appliance products.To that extent, there is a clear demand coming up and I think once there is more clarity on goods and services tax (GST) that will only help make things better because lot of our planning in terms of warehousing, distribution will directly depend on whatever GST announces because a lot of our planning has been set up with the aspects of GST coming in.So a lot of those aspects will be able to be parts of rather enhance for the market play once we can have more clarity on how GST is getting rolled out. However, yes, the customer sentiment for us has been very good. Diwali was decent, it was one of the better Diwalis since last two-three years.Latha: What kind of a volume and revenue growth in your consumer durable numbers can we expect in Q3?A: For the whole year also we are expecting not a very huge topline growth but what we definitely are looking at is shift over from the wholesale to this whole area of distribution model.Latha: What will that mean for margins? Your consumer durable margins has fallen in Q2 from 6 percent to under 3 percent. So when you say you are shifting the sales from primary to secondary, will we see you going back to 6 percent margins at least in Q3 or full year?A: By end of the year we should come back to a level of about 5-6 percent -- between that range because with a stability of the secondary sales, we will start seeing the results in Q3 and Q4.End of the fiscal year, you will see the sort of stabilisation of the new method. So what we are seeing first two quarters it is not a surprise for us as a company because it is a planned way of shift over in a method of selling and for which there is a volume drop but not a margin drop. In margin drop, you will see to the extent that because if you don’t have volume in the number of products sold, the overall margin therefore looks down. However, if you look at actual individual products, there has been increase in margins and the volume has to set in because the cost of people and other things that remains the same. So to cover that you need higher volume.Sonia: Earlier when we spoke with you, you indicated that you will do revenues of Rs 5,000 crore by the end of this year. Do you still hold on to that target?A: Yes, absolutely because lighting and EPC segments are extremely in a good condition and now we have got in fact yet another order just recently last week in fact. So to that extent we have got a very healthy order book both in the EPC segment as well as the lighting segment. So that will help the overall company revenue and profitability.