Consumer electricals firm Bajaj Electricals has posted a 84.5 percent YoY drop in its December quarter (Q3) net profit due to a hit in its engineering, procurement and construction (EPC) business.
In an interaction with Moneycontrol, Anant Purandare, Chief Financial Officer, Bajaj Electricals, talks about the Q3 numbers and the way forward.
Q. The Q3 net profit saw a slump due to the EPC business impact. Will EPC no longer be a focus?
The numbers are as per our given direction. The strategy now includes focus on consumer durables top-line growth and margin improvement as well as a calibrated approach towards the EPC business.
In EPC, the focus is on completing the existing projects and on reducing the capital employed. We are not bidding for any projects in the rural electrification space which is the last-mile connectivity projects where there are challenges. We will not bid at all for last-mile connectivity projects.
However, we will continue in areas like transmission line towers and street light which have a short-term tenure. These projects have less challenges, better margins plus lower capital requirement.
Q. Are the Q3 numbers a cause of concern?
It is a reflection of our strategy. If you look at the segmental results, the consumer durables segment revenue grew by 12.7 percent. This is a good growth. Similarly, the margins grew from 6.8 percent to 7.7 percent.
While the EPC revenue saw a sharp drop of 70 percent, it is primarily because we are not bidding for any rural electrification projects.
Q. By when can we expect a turnaround in the numbers?
The EPC issue will lead to a drag on profitability for a couple of quarters. But overall, the cash flows are improving. At an operational level we have already generated Rs 500 crore of cash. Last year, in the same period due to the Uttar Pradesh projects there was negative cashflow at operational level of Rs 486 crore. We have seen a complete shift to positive cashflow in one year from December 2018 to December 2019.
Q. Do you expect the margins in consumer durables segment to improve?
In consumer durables, it is a fact that the third quarter is always better as far as margin and topline is concerned. This is because of the product mix especially since products like water heaters offer higher margins. If we deliver top-line then Q4 will also give better margin due to the operating leverage.
Overall, we are not focussing on topline growth but more on improving bottom-line and capital employed and overall return on capital employed. When it comes to consumer durables, focus will be on the existing product lines and utilising the new Nirlep brand (under Bajaj Electricals) to increase business.
Q: Would the primary goal to be cut debt?
A: From a balance sheet perspective, our borrowings have increased substantially from Rs 730 crore to about Rs 1,600 crore. So the capital employed has increased because of which interest cost has gone up. Now we are looking at how fast we can close the projects and get the money faster. It was a conscious call taken by the management.
When it comes to debt, the current debt is Rs 1,300 crore and we have reduced from the earlier levels of Rs 1,600 crore.