Aim to clock revenue of Rs 5000 cr in FY17: Bajaj Electrical

Bajaj Electricals is targeting to achieve revenue of Rs 5,000 crore in FY17, said Shekhar Bajaj, CMD of the company. While Bajaj expects Q2 to be flat in terms of topline, he is hopeful it will grow in Q3.Speaking to CNBC-TV18, Bajaj said the company's topline was muted in the first quarter due to change in selling structure. The selling model was switched to redistribution from wholesale model.The company has merged four consumer facing business—lighting, domestic, kitchen appliances and fans— into consumer product business from April this year.Below is the verbatim transcript of Shekhar Bajaj’s interview to Latha Venkatesh, Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: Your Q1 was a bit muted but quarter-to-quarter variations can take place. What kind of compounded annual growth rate (CAGR) do you think you can report over the next three or four financial years?A: I would like to start by talking about the Q1 results also. So, Q1 results if you look at, only the topline we are -5 percent. However, if you look at our bottomline, again last year Rs 34 crore profit before tax (PBT), it is Rs 36 crore. So, therefore the profitability is not muted. The topline is muted because we are looking at changing our model of selling in terms of re-distribution rather than the wholesale model, which we have been discussing for last few quarters.Therefore, our expectation is that in this quarter, against the negative -5 percent it should be maybe at a 0-0 level and third quarter it should grow further and therefore at the end of the year -- against last year’s Rs 4,600 crore -- we are trying to reach a level of Rs 5,000 crore.What we have done very importantly is that from Q1 this year, that means from April this year, we have merged the four consumer facing businesses, basically lighting, domestic appliances, kitchen appliances and fans altogether as a consumer product. Therefore, because of that the reporting also we have now got two reporting structures. One is consumer product business and the second is EPC business which includes luminous. Each of them this year we are hoping to reach around Rs 2,500 crore each and therefore Rs 5,000 crore. So, both of them are almost equal and because of which we will find that the bottomline is going to substantially improve in the current year because as soon as sales picks up, we will be okay.The good news is that the first level margin in consumer products is up by 0.5 percent to 2 percent and in case of EPC, it is even higher and therefore overall the margins are important. Once you get your topline growing, which at this moment, we are doing the correction in terms of re-distribution, which would take another two to three quarters, you will see the benefits coming in the next few quarters. However, the bottomline clearly is going to be substantially better than the previous year because of all these corrections that is taking place.Sonia: I just wanted to focus a little more on the margins because in the consumer durable segment, your margins have shrunk to single digits, just about 4-4.5 percent. What kind of pressures are you facing there and by the end of the year where will the margins be in the consumer durables business?A: There is no pressure on the margins. The margins are better in consumer products from 0.5 percent to 2 percent. What is happening is that because we are doing this restructuring because of which there is a certain pressure on the fixed cost, which is going to be spread out once the growth starts coming in, in the next few quarters. Also there is a change in the accounting system because this is a presentation made as per IND-AS and IND-AS is giving us profitability picture, which is in the EPC business. It is showing a Rs 5 crore additional less provision that is being made.However, from an accounting point of view, financial we were earlier giving the incentive to our people, in one quarter we were taking all the hit, that is Q2. Now, we have spread it over the four quarters and another Rs 5 crore is a hit which we have taken that is why the employee cost, if somebody goes into details will find that the employee cost is substantially jumped up. It has not got to do with only this distribution but because of additional Rs 5 crore, additional hit has been taking because our new method of spreading the total additional incentive that is being given in the month of July across the year rather than putting it in one quarter. Therefore in the second quarter, we will find that the employee cost will go down compared to the previous year and you will say how you saved cost. It is not saving cost, it is only that we took the hit in Q2 altogether which is now spread over the four quarters. So, therefore overall the margins are not under pressure.Latha: What is the split between consumer goods and engineering and projects (E&P)? How much does each contribute?A: Last year as per the earlier segment wise results, we did about Rs 1,600 crore coming out of EPC business about Rs 1,100 crore out of lighting business and another Rs 2,000 crore coming out of consumer products business. Now, lighting is being added to the consumer products business so therefore we are looking at Rs 2,500 crore in that business. EPC will be around Rs 1,900-2,000 crore in the current year. Another Rs 500-600 crore will come out of luminous. Therefore the EPC business as per new definition will be around Rs 2,500 crore.So, the B2C business will be at Rs 2,500 crore and B2B business will be Rs 2,500 crore. Both are equally poised and both the EPC business, the margins are definitely better, which we see in the bottomline. If we look at only the numbers which has been shown, there is a Rs 7 crore improvement in the EBITDA margin as far as EPC is concerned and there is a Rs 7 crore lower bottomline as far as the consumer product is concerned. However, because we have improved our working capital and therefore the results of that Rs 2 crore is saved in the interest cost. That is why Rs 34 crore has become Rs 36 crore as PBT.Anuj: Your ad spends have gone up a lot over the last couple of years. Do we see them stabilising at this point or do they go up even more?A: The current year we are looking at spending almost Rs 100 crore against last year’s maybe a little less than Rs 80 crore, Rs 70 crore or something because we are now going to digital, plus we want to do below the line because with our distribution having improved, the consumer pull is very necessary and therefore we are going to spend a lot of money to create the consumer pull.You must have seen that we have concentrated on non-cricket and therefore it has turned out to be a very good decision of going first to kabaddi, then we went to Wimbledon and then we went to Rio and now the next World Badminton Championship. When we booked it about six months back, that time nobody knew badminton anybody is going to watch but after the performance of PV Sindhu and Saina Nehwal will also be ready, I think a lot of people are going to watch badminton. So, we have taken a decision to just avoid cricket and concentrate on other games.