Shining Brightly - Bajaj Electricals

Bajaj Electricals in the first quarter of this financial year achieved a turnover of Rs 484 crore against Rs 358 crore last year with growth of 35 per cent and a net profit of Rs 22.5 crore with a growth of 37 per cent. The company has done very well in terms of its mainline businesses. The Lighting BU has grown 31.7 per cent with luminaires BU growing at 80.6 per cent. So, together, the lighting segment has grown 52.5 per cent. In consumer durables, appliances segment has grown by 41.9 per cent and fans by 46.7 per cent and Engineering and Project, by 8 per cent. CAGR of E&P BU has grown 40 per cent, E&P BU, last year had a fantastic growth of 82 per cent. Therefore the topline growth of 8 per cent was largely on account of a base effect where last year the company had good sale.

The margin in the lighting BU has improved compared with last year. In consumer durables, margins have come under a certain amount of pres-sure from about 12.7 per cent last year same quarter to 9.5 per cent, while in E&P because of a better product mix, margins have improved from 9.7 per cent to 10.3 per cent in the quarter. Overall, the margins have improved by 15 per cent. But in terms of interest costs the company had significant savings. Interest costs have come down from about 2.4 per cent down to 1.18 per cent, thereby giving significant savings in terms of interest costs so the operating profit have gone up from Rs 25 crore last year to Rs 34 crore in the current year, and that is a 35 per cent improvement in operating profit. In lighting compact fluorescent lamp has given a growth of 41 per cent, in luminaires and fans the growth is across the product groups and in appliances. Mixers have grown by 31 per cent, OTG (oven, toaster, and griller) by 34 per cent and room coolers by 131 per cent. In high mast and street lighting business, there is a significant growth of approx. 61-62 per cent.

Transmission and distribution, i.e. the power distribution business, which is largely rural electrification has come down in this quarter largely because the projects that have to be completed, were completed by the company by the last year itself. The company currently has an order book in the E&P BU of about Rs 810 crore and it is reasonably well placed in a couple of other important tenders, which are about Rs 125 crore. As far as the reason for the margin drop in consumer durables, last year the same quarter was extremely benign from a margin perspective. The company’s performance in the face of severe cost pressures on aluminum, copper, steel, zinc, plastic, etc., is really commendable. Though the margins have been little lower, the strong topline growth in appliance 42 per cent and fans 47 per cent has com-pensated for the margin drop, ensuring the overall profitability is improved. Going forward, this second quarter will also witness certain amount of margin pressure. But, in Q3 and Q4, keeping in mind the prevailing trends, the company expects a better situation in terms of margins; hopefully, to remain fairly stable for the entire year.[PAGE BREAK]

As mentioned earlier, in terms of topline growth the company has done very well in the first quarter with CAGR of 25 per cent; with current order book position and India’s GDP expected to rise to over 8 per cent, the company is well placed to achieve the topline of Rs 2700+ crore during FY11. The company, in order to negate the impact of the intense competition and to be on the path of growth, continued its focus on enhancing revenue growth through introduction of new products, expansion of the dealer and retailer network along with good brand-building efforts in addition to the various other actions for effective cost control, value engineering, competitive sourcing and improving credit discipline.

The company has successfully implemented Oracle ERP. Now the agenda is to leverage the capability of the ERP and improve the operating performance across the organization. Various initiatives/projects are taken internally to optimize the utilization of resources and improve the returns.

As far as capex is concerned, during FY11, the company will spend around Rs 20-25 crore for some manufacturing augmentation and other facilities.