Consumer durables sales to revive by end FY17: Bajaj Electricals

Bajaj Electricals is in the midst of restructuring its consumer durables business model leading to increased focus on distribution and secondary sales, says CMD Shekhar Bajaj. He expects this business to post double-digit revenue growth by the third or fourth quarter of FY17.

The company Monday reported net profit decline to Rs 34.7 crore while income remained more or less stable around Rs 1,357 crore.

Speaking to CNBC-TV18, post the fourth quarter FY16 quarterly earnings, Bajaj says the company now plans to follow the FMCG model of going door-to-door or retailer-to-retailer to develop its consumer durables' market and this will mean increased costs for a while.

In the lightings business, margins might be slightly under pressure due to increased government orders.Below is the verbatim transcript of Shekhar Bajaj's interview with Surabhi Upadhyay and Nigel D'Souza on CNBC-TV18.Nigel: What’s going on that front, can we see an improvement in the coming quarter s?A: See as far as consumer durables is concerned in last few interviews also I have mentioned that basically we are changing our way of working and therefore our whole way of working is looking at distribution, looking at secondary sale - - the first company in consumer durables, small consumer durables to use the fast-moving consumer goods (FMCG) model to go door to door, retailer to retailer and distributing, so there is a cost involved in developing that particular model, once it gets settled, then we will get the volumes coming and therefore if not in second quarter at least by third or fourth quarter we will be seeing double-digit growth plus definitely coming and also the margins improve slightly. But if you look at in terms of our return on capital employed (ROCE) because of this new structure we have been able to reduced our working capital. Our capital employed has gone down and therefore the result is that ROCE was 189 percent in the previous year, it has gone down to 167 percent ROCE side. I don’t think anybody can be complaining the consumer durables is not doing well, because all the amount of money that we have invested.Surabhi: This reorientation of the business should be complete by then do you hope to get back to the earlier margin levels of around 6.5-7 percent as well?A: The issue is that the margins are not under pressure, the margins are still being maintained at the first level. What is happening is that because we are doing investment, one is we spent additional in this year over Rs 25 crore extra in terms of publicity expenses to create a consumer demand.Nigel: What is your revenue outlook for the next fiscal year? For FY17 what kind of revenues can we look at, what kind of margin performance can we look at and could elaborate the lighting business is doing quite well, you expect that to continue?A: As far as our focus for next year is concerned with the focus on secondary sale and our distribution against this year’s turnover of Rs 4,600 crore and we are looking at next year to do around Rs 5,500 crore, lighting should do around Rs 1,300 crore, consumer durable about Rs 2,200 crore and EPC business should be about Rs 2,000 crore, so about Rs 5,500 crore is what we are looking out for next year.As far as lighting is concerned the lighting business will continue to have a good growth of 15-20 percent, but margins will be under pressure because the new businesses which we are taking especially the government businesses at a much lower margin when we took it last year and therefore margins will be under pressure. Though, this growth in sales will take place because there is enough demand.As far as consumer durables are concerned which a lot of people are worrying about is something where our margins are okay, but during the year our earnings before tax (EBIT) has gone down by Rs 50 crore of which Rs 25 crore is only because of additional publicity because we are trying to promote and build up a brand. The brand contribution has to be there even if the sale is not growing short term that is one. Second is our first level margins are not impacted, but because we are doing the secondary sale distribution we are the only company in the small appliances to looking at a FMCG model by doing door to door and retailer to retailer and doing the distribution, there is a very major cost involved and that is what its hurting. Once we start having a growth coming from next quarter onwards then we will see that the fixed cost gets covered with a larger volume then our margin will show up better.