Bajaj Electricals Expects Demand, Margin To Improve In Two Quarters

Bajaj Electricals Ltd. expects margins to improve in the next two quarters if commodity prices continue to ease and as consumption revives.

"We have seen demand pressure for the past several quarters because of the high inflation and interest rate hike ... and the demand has still not come back," EC Prasad, chief financial officer at Bajaj Electricals, told BQ Prime in a post-earnings interview. "However, with inflation cooling, we expect things to start looking up in another two quarters from now."

As demand improves gradually, Prasad said, margins will also recover unless volatility in commodity prices reoccurs. "The aim is to improve margins by a percentage point from here on for the next two quarters, and if things go well, we can reach 8% by the end of FY24," said Prasad. The company, he said, expects to achieve double-digit margins by next fiscal.

Consumers, particularly in rural areas, are cutting back on discretionary spending as they continue to reel under inflationary pressure. The trend was evident across consumer companies, particularly those catering to the value segment, including quick-service restaurant chains, white goods, apparel, and paints, that have declared their fourth-quarter earnings so far.

Bajaj Electricals' consolidated net profit rose 31.8% year-on-year to Rs 51.8 crore in the quarter ended March, according to an exchange filing. Revenue rose 11.7% to Rs 1490.1 crore in the fourth quarter.

• Ebitda increased 35% to Rs 85.5 crore.

• Margins expanded to 5.7% compared to 4.7% a year ago due to the lower cost of materials consumed.

• The cost of materials consumed fell 7.54% to Rs 156 crore.

• Within its core fast-moving electrical goods business, revenues from the consumer products segment rose 8.6% to Rs 986.53 crore, while the same for lighting solutions rose 1.03% to Rs 305.44 crore in Q4, driven by brand investments, premiumisation, and a better product mix.

• While the professional lighting business is growing, the company said demand for consumer lighting is weak.

• The appliances category grew 16.2% year-on-year in an overall muted demand environment, driving growth in the consumer products division, while the fans segment's growth of 2.3% was impacted by subdued demand amid high channel inventory on account of the transition to BEE norms and unseasonal rains.

• Its engineering, procurement, and construction vertical saw a 59.75% jump in revenue to Rs 198.14 crore in Q4, led by new orders.

• For FY23, the company generated positive cash flow from operations of Rs 450 crore and surplus investments of Rs 412 crore.

• The order book as of April 1 stood at Rs 1,761 crore, comprising Rs 1,026 crore for transmission line towers, Rs 612 crore for power distribution, and Rs 123 crore for illumination projects.

Even as cost pressures have eased, the company doesn't see scope for price cuts, Prasad said. Bajaj Electricals, he said, was not able to pass on the entire burden of cost pressures to consumers—a reason for its weak margin recovery. The company has seen about a 20–25% increase in costs over the last two to three years, while it has been able to pass just 14–15% on to end consumers. "So, it's very difficult to reduce costs at this stage," he said.

The company plans to spend "heavily" on research and development, Prasad said. It has set aside Rs 150 crore as capex, which will be spent towards capacity expansion and modernisation of existing facilities.

On the approvals for the demerger of its power transmission and distribution business, he said that the final hearing before the NCLT is on June 8. "If everything goes well, we expect to split the company on July 1," said Prasad.

The household appliance maker is looking to raise up to Rs 500 crore. The board has recommended a final dividend of Rs 4 per share at a face value of Rs 2 each on equity shares of the company for the financial year ended March 31.