Heavy debt and receivables stuck in the Uttar Pradesh EPC order impacted the finance cost of the company in Q1
Electrical goods company Bajaj Electricals posted a 65.8 percent year-on-year (YoY) drop in the June quarter net profit to Rs 13.70 crore. In an interaction with Moneycontrol, Anant Purandare, Chief Financial Officer, Bajaj Electricals talks about the Q1 numbers and the way forward.
Q: What was the reason for the steep drop in Q1 net profit?
A: Our interest cost has gone up by Rs 32 crore and that has impacted our profitability. Because of heavy debt and receivables that are stuck in Uttar Pradesh (EPC project), the finance costs increased to Rs 49.8 crore in Q1. Otherwise, individual business segment-wise we have performed well. There are just some losses in Nirlep because their capacity utilisation is still lower, we have to pick up production and sales.
Q: Among individual businesses, the EPC business saw a drop. Why was this?
A: If you remember, last year the EPC segment saw a jump in topline due to the Uttar Pradesh project order. To service that order, the overheads have increased. Subsequently, there was a decrease in the scope of the order from Rs 5,000 crore to Rs 2,500 crore. As the business shrunk the overheads have increased and this will impact margins for EPC.
Q: Will consumer goods continue to maintain the growth levels?
A: The 31.7 percent YoY growth in consumer durables segment growth has offset the degrowth in EPC business. In the June quarter, we saw a 36.6 percent growth in appliances, 100 percent growth in coolers, 40 percent growth in fans and lighting is subdued with 5.8 percent growth. But the margins are intact.
Q: Can we expect the company to turn cash positive this year?
A: We are expecting the outstanding payments of the UP project to come in in this fiscal. While the entire collection won't come, on a net basis we will be some positive cash. This will reduce our debt by Rs 150-200 crore in FY20. The total debt is around Rs 1,600 crore.
Q: While there is the talk of a slowdown across industries, do you expect the business to be an outlier?A: The consumer durables business has performed better than the other segments across the industry. While we have a seasonal period, for instance, Q1 is fans, coolers, Q2 is festive season sale and Q3 is the winter sales of room and water heaters. But with our distribution reach, Bajaj Electricals should be able to maintain and sustain the current levels of growth.Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.