See better margins and sales Q2 onwards: Bajaj Electricals

Bajaj Electricals on Thursday reported good set of first quarter number beating analysts’ expectations with net profit up 3.6 times at Rs 20.3 crore over Rs 5.6 crore in the year-ago period, driven by strong operational performance.Shekhar Bajaj, CMD, Bajaj Electricals in an interview to CNBC-TV18 highlighted the reasons for better that expected first quarter and the outlook going forward. Bajaj says although the first quarter numbers look good only because the last year numbers were bad and FY15 was weak year for the company on all accounts. He expects growth in consumer durables sale to continue in the second quarter also backed by expectations of a better demand from rural markets. Meanwhile for the lighting segment he expects growth for lighting segment to come from the second and third quarter.He also expects primary sales to improve from the second quarter onwards aiding margin improvement going forward.Below is the transcript of Shekhar Bajaj’s interview with Latha Venkatesh & Anuj Singhal on CNBC-TV18. Anuj: Good set of numbers for your company this quarter, decent income growth and very good margin growth but now that the base has gone up are these numbers sustainable? A: Our base last year was so bad that we have come back to normal levels so even now I don’t think we have reached the peak therefore percentage growth is not important. Our EBITDA margins and what has happened in this first quarter, it should be better in the second, third and fourth quarter because first quarter is mostly the weakest. Therefore the EBITDA margins should only improve in the next three quarters. Latha: I was just making a distinction between the consumer durables and lighting segment on the one hand and the engineering and projects on the other. If you only looked at the durables and lighting one has gone up and the other has gone down in terms of revenues. How should be understand is demand recovering? A: In case of lighting we have got some huge orders for our led lighting because of that the numbers show good growth. While in case of consumer durable we are concentrating on having secondary sales because of that we are controlling our primary sales so we are reducing the inventory levels of our dealers so secondary sales are not showing negative growth. It is only primary sales which is showing negative growth. Therefore we expect that from second quarter onwards you see growth in primary sales and our margins are definitely going to be better than last year because we are not giving that extra push to just have the topline grow. Latha: Therefore should we understand that the demand situation has improved for both lighting and consumer durables and incidentally where did these orders come from? Were they government or private? A: As far as engineering, procurement and construction (EPC), it saw government only. As far as lighting the major orders of LED’s all coming through Energy Efficiency Services (EESL) which is a government company so they have given an order for 40 lakh LED lamps just about Rs 42 crore and another Rs 80 crore come from this things. However, that major sales are going to come in the second and third quarter. So first quarter is nominal coming out of that so we will see a much better growth coming in second and third quarter as far as lighting segment is concerned. EPC because we got a order book of Rs 3,200 crore we are looking at from a Rs 1,300 crore to Rs 1,800 crore out of EPC; Rs 2,000 to 2,200 crore in the case of consumer durable and from Rs 900 to Rs 1,000 crore plus so a total of Rs 5,000 crore we are looking against last year’s Rs 4,300 crore as a company. Anuj: You had a revenue target of Rs 5,000 crore for the current financial year. Do you still stick by that and do you have any targets for EBITDA and net profit as well? A: We don’t talk about EBITDA and net profits for the year but this Rs 5,000 crore is almost sure because our project business we got so much orders that -that will definitely be done. We are not talking about much increase we are talking about hardly a ten percent increase in lighting and ten percent increase in case of consumer durable which is a very nominal increase. Nothing great to talk home about so we think we will do much better than Rs 5,000 crore but for the purpose of making a forecast I would say Rs 5,000 crore plus. Latha: I am once again reverting to the demand question only because you have a fair mix of businesses, some dependent on government, some dependent on construction and some dependent on ordinary retail consumer demand. Are you seeing recovering economy or is the economy still not helping? A: Let's take consumer durables because that is the one which is pure consumers only. There is no government business at all in that. Therefore, what I am finding there is that there is a good demand which is going to come in the rural markets. Second, important to understand that when the markets are slowing down, which is a fact of life, people are now going for branded goods; they do not want to take risk, so they do not want to go for unknown brands. Third, if you are only in the premium segment and the market is down then people do not want to spend much money. However, we are in all the segments; in premium as well in economy segment.