Shekhar Bajaj, CMD, Bajaj Electricals says the market demand and secondary sale has been very strong for first quarter. Bajaj tells ET Now that they are expecting the good results to continue because of a very strong distribution network.
Edited excerpts:
Will the boost from increased spending capacities of the middle class and low double digit growth in penetration of basic electronic goods decide the long-term story for the sector? What will help your business going forward?
For us it would be high double digit growth — not just 11%, but much more. The reason is that in last two years we have been taking a lot of hits to build up a distribution network. It has hit our bottom line as well as top line because we stopped wholesaling etc. But now the benefit is coming. It started from fourth quarter last year.
The First quarter of FY19 has been very strong and we are hoping that the coming year also will be very good. Two things have happened. Number one is that because of GST coming in, June was very weak last year so. Therefore, this year obviously, for every company June would be very strong. Similarly, July-August last year also was hit by the introduction of GST. When we talk internally, we say even if we have 15-20% growth, that is nothing great because the base is very low due to GST issues. But in real terms, the market demand and the secondary sale has been very strong for the first quarter. We are expecting it to continue in the coming year also because of very strong distribution.
EPC has contributed nearly 53% to its total revenue. Will the share continue or do you see a 25-30% run rate? What will the revenue mix look like?
We have got some very good orders in the EPC business. We got a order from UP power distribution and that is why the percentage may tilt a little bit higher for the EPC business in the current year and the next. The order book may go up to 60% also but on an average, we would like to keep it at a 50-50 level because EPC business gives you high visibility but it is a risky business to that extent that we do not put more eggs in that basket. The consumer product business is our core business. Therefore 50-50 would be a good rate that we would like to have in the long term.
The last time we spoke with you, you said that the order book was going down and you did not have sufficient orders for power distribution under rural electrification which is why you bid aggressively in the tenders. Have you emerged successful in the bids?
We got total orders of about Rs 5000 crore. We bid for 16 of the projects hoping to get three or four of them. We won all the 16 and therefore instead of an order book of Rs 2,000 crore, we ended with an order book of Rs 5000 crore which is very high compared to our capacities.
But luckily we have done the survey as we find that out of the Rs 5,000 crore, many low-cost houses do not exist or people have already left those villages. And so we have to do electrification of 35,000 villages in the next 15 months. So, finally, it may come down to be a Rs 3,000-3,500-crore order book. We have to execute that by March 2020.
Would that take your total order book now to Rs 8,000 crore or would it be a little lower than that?
It is higher than Rs 8,000 crore but the actual execution may come down to about Rs 7,000 crore.
What is the outlook on gaining more market share?
In our distribution network, we have covered 500 districts. We have stopped wholesaling and we have got 160,000 outlets through which we are selling on a weekly basis. We have realised that in the rural markets, among the 500 districts, there will be at least 200 where there is hardly any organised sector reaching out and which has always been catered for by the unorganised sector. A lot of retailers are very happy that Bajaj has come in — as an established brand with good quality product. We think maximum growth will come out of those rural markets where our distribution is in place.
In FY19 too do you believe that the EPC business will continue to be the main driver? The orders you won in Uttar Pradesh, spiked the EPC order book. Analysts expect that the E&P segment will record a 21% compounded annual growth rate over the next two years. Are you on track to achieve these numbers?
No, it will be more than that because we have to complete these orders within two years and therefore the growth has to be more than 25-30%. Therefore, I will not think on a quarterly basis. This quarter our EPC business may be low or high, the next quarter it may show 50% growth. All that do not bother me because at the end of two years, I have to complete all these orders.
In the consumer product business, you have to consistently show growth and if growth is not there in a quarter, it means you are losing market share. It has to be consistent unlike EPC where I do not really lookat quarter to quarter as that depends on execution.
In EPC, as long as the order book is good, our margins are okay. We get our payments on time and that is all we have to look at.
Analysts are seeing an execution risk and aggressive pricing in the recently bagged orders as well as higher than estimated rise in working capital requirements. They are saying you are not ready to face the huge order position and that could be another problem. How would you address these concerns?
As I said before, though we received a Rs 5,000-crore order (Rs 6,000 crore after adding GST), we would ultimately have to work on Rs 3,000-3,500-crore worth orders because the houses are not ready. Though it is still going to be a stretch, it is something within our control. It may get delayed by a couple of months at most which is normal. So I do not see much of a issue as far as the order book in hand is concerned.
As far as the aggressive pricing is concerned, we have still kept our minimum base. Normally we like to bid a few percentage higher than our base price but as our order book was very weak in power distribution, we had gone in aggressively by not asking for more than 7-8% margin while normally, we like to have 9-11% margin. Thats how we ended up getting these orders.
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