Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bajaj Electricals Ltd (BOM:500031, Financial) reported sequential improvement in profitability compared to the previous quarter.
- The consumer products vertical demonstrated revenue growth after four quarters, with successful price hikes and streamlined discounting schemes.
- The lighting solutions business achieved double-digit EBIT margins and consistent margin expansion.
- Cash from operations in Q1 was INR155 crores, reflecting strong operational excellence and a robust balance sheet.
- The company has a strong liquidity position with surplus cash of INR442 crores as of June 30, 2024.
Negative Points
- The kitchen appliances segment continues to struggle due to sluggish rural demand and the need for premiumization.
- Despite improvements, the EBIT margins for the consumer products business have not improved year-over-year.
- The company faces challenges in the logistics function, impacting service levels and sales.
- Competitive intensity in the market is increasing, particularly in the kitchen appliances segment.
- The company's historical focus on low price points and rural markets has been a disadvantage in the current market environment.
Q & A Highlights
Q: The first question is related to the consumer product. In the press release, you had mentioned that the green shoots visible in the rural area, even though we had seen a 3.7% growth in the CP business. So do we expect in the next nine months the growth in the CP business to accelerate or to be in the double-digit range?
A: Praveen, thank you for your question. We don't give forward guidance in numerical terms, whether it's double digit, single digits. But I'll just emphasize what we put in our note and what I said in the opening comments, we are seeing definitive green shoots. We are seeing a pickup in rural demand that includes trade channels. We are confident, therefore, that the second half of this year should be strong, as the Chairman mentioned. All the signs right now augur well, in terms of what we are picking up or whether you look at monsoon and other factors, et cetera. And some measures that the government has taken a budget which should put more money in the hands of the rural consumers. So we remain positive in the second half of this year should show growth.
Q: And related to that, sir, in the presentation, it's mentioned even after like cooling product contributed more than 50%, our margin has not improved on the Y-o-Y side, if I look at. So is that the appliances which has not done have a higher-margin product as compared to the cooling product which increased the contribution?
A: So Praveen, there's two levels of margin, Praveen. At a gross margin level and at an EBIT margin level. And the gross margin actually has improved by about 1.5 percentage points over last year. So that's a function of our product mix and premiumization continue to happen and certain pricing actions we've taken. At the EBIT level, margins have not improved Y-o-Y for two factors. One, as I said, we have an incremental ad spend this year versus last Q1 is about 1.5 percentage points. And secondly, this is a function of operating leverage while certain basic overhead employee costs have gone up, a 4% top line is not adequate to cover that. And that's what I feel that going forward as operational improvements kick in, but also second half of this year's operating leverage kicks in, you should see more of the gross margin improvements translate into EBIT improvements as well.
Q: Second question related to the lighting business. Definitely in the gross margin front or in the EBIT margin front, we have done very well. But if I look at on the growth side, it's still a single digit. Is it only the realization or the product mix changes, price increase change that delivered the numbers? Or is there a volume growth as well?
A: So in terms of professional and consumer, there is price erosion which is still continuing and which is impacting the growth. Otherwise, in volumes, we are going in consumer -- lighting part.
Q: Is it possible to give any indication on alternate channel contribution, sir?
A: E-com is contributing about 13%. Overall, if you look at alternate channel, it is contributing close to about 39%.
Q: In the presentation, we have mentioned that the demand for kitchen appliances has remained soft in Q1. So do you expect any recovery in H2 FY25 led by the festive season?
A: So yeah, Nilesh, a couple of factors. One is what we said is the rural economy coming back. So that would help the growth of the kitchen appliances. Apart from that, few more indicators are on the interest rate reduction, a good monsoon, et cetera, should be in a position to deliver better results for the kitchen appliances. That -- I mean we get a confidence from the fact that the summer products have done extremely well. The fans have grown, the coolers have grown. So we feel that with all of this happening in the next two quarters, the kitchen appliance should also get back to growth.
Q: And on the -- as you mentioned about the fans growth. So we have seen that most of the peers have taken price hikes in the fan segment. So has Bajaj Electricals also followed the same trend?
A: Yeah. So we have also taken some price increase with effect from May 15. It's in the range of 2% to 3%.
Q: Could you just throw some light on growth in the Morphy Richards segment?
A: So it is in the higher teens, Nilesh.
Q: I wanted to check with respect to fans, the kind of growth what you have seen. Would you argue that you have gained market share or you were fairly in line with the industry? And if we have any supply side constraints in terms of making the fans demand for -- in the first quarter?
A: Achal, our growth in fans, while we've had growth, I would say it has been below industry growth. And the reason for that is our share of contribution from sub economy continues to be very high. We've seen growth in the premium segment, which is, I think, growing much faster. While our percentage contribution of premium fans has grown Q-on-Q and Y-on-Y, it yet remains a very small part of our portfolio. And I think we should be doing a much better job of growing in the premium segment. As that happens, we should see better growth in fans going forward. So supply has not been a challenge for fans. It's just our GTM and our product mix change, that has to pick up in rather pace.
Q: So is it purely about the price segment or it's also to do with the rural urban mix as well?
A: In fans, I would say, overlap, of course, but it's just a segment of product. Since we have traditionally been a subeconomy player, our acceptance as a brand in the premium segment is a journey that is happening. We are continuing to grow, but that's not overnight. That's as far as Bajaj is concerned. Next is the other premium trend brand that we've launched as you're aware. That is picking up pace. If you've seen, we've launched some cap rates towards end of Q1. While we do not have a supply constraint on that, the products are continuing to get rolled out. So I think later half of this year in next season where you should see a strong pickup on mix. And with that, our overall contribution in premium fans should jump up significantly from next year onwards.
Q: Second question I had was with respect to kitchen appliances. If I recall previous commentary, a fair amount of discounting was playing out in this particular category. Are you seeing some stability out there
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
