Bajaj Electricals Limited (500031) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bajaj Electricals Limited Q1 FY '21 Earnings Conference Call, hosted by PhillipCapital India Private Limited. [Operator Instructions] I now hand the conference over to Mr. Deepak Agarwal from PhillipCapital. Thank you, and over to you, sir.

Thanks. Good afternoon, everyone. I would like to welcome the management and thank them for giving us an opportunity to host this call. We have with us Mr. Shekhar Bajaj, Chairman and Managing Director; Mr. Anuj Poddar, Executive Director; and Mr. Anant Purandare, President and CFO. So without taking much of a time, I would like to hand over the floor to the management for their opening remarks, post which we'll open the floor for Q&A. Over to you, sir.

This is Shekhar Bajaj. Good evening to all of you, and thank you for being there for this conference call. You must have gone through the press release and the results. So I think we are reasonably satisfied with the performance of the Consumer business. I mean, to have a positive EBITDA in spite of the sales being down by 50% shows that once our normal business comes up, then we should be in a very profitable state. I mean the good news is that our first EBIT margins for this quarter compared to June quarter of last year is higher by about 2% plus. Only because our turnover is down and, therefore, to that extent, profitability has got impacted, but that is something which was expected. In the month of April, it was 0. In the month of May, it was about 50%. And the good news is that in the month of June, we've done over 100%, that means more than June of last year. And July also is almost equal to the previous year in spite of all the closures, all the slowdowns, all the lockdowns. In spite of that, it shows that once this thing gets -- create them the future, in the season time, we can expect to grow much better. And therefore, our internal objective is that though we've lost 1.5 months because of this COVID situation and lockdown situation, we hope that last year we did about INR 2,800 crores, INR 2,900 crores, so we should do around INR 3,000 crores in the current year also in the Consumer business. In the EPC business, strategically, we had done last year against for INR 3,800 crores, we have done INR 1,900 crores. This year, we have still got good order book. And therefore, we still hope that in the next 3 quarters, we should be able to catch up and end up around last year level maybe 3% or 5% lower, but we would not go higher than last year. So we hope that against last year's INR 5,900-odd crores, we should do around INR 5,000 crores in the current year also. The other aspect, which is most important is during this period, normally a person would say that, "how can I collect money, everything is closed down?" But we are happy to inform you that we were able to collect substantial amount of monies, and INR 145 crores for the cash flows have improved. And therefore, our debt has been reduced from INR 2,000 crores in previous year to we have done INR 962 crores end of March last year. And by end of June, we have now reached the level of INR 810 crores. And therefore, our interest costs against INR 49 crores last year, this year, it is only INR 26 crores, which is a reduction of almost 50%. So our interest cost has gone down by 50%. We are hoping that the interest costs in the coming quarters would be even further lower. So against the INR 170 crores, that was our total interest cost for the last year, full year, we expect that it will be below INR 100 crores in the current year. As far as EPC is concerned, the overall costs are continuing because our business has substantially come down. Even last year, it was 50% of the previous year. But first quarter is even more than 60% lower. Of course, April, May was completely almost 0. And June also, it's not picked up as well as we can because the number of sites and all have not given us time for execution. So EPC will take its own time. But as long as our monies are coming in and we are really improving our cash flows, that is most critical. So we are very positive and very happy about the performance that has happened. And I would now request Anuj Poddar, our Executive Director, to add some points to this.

Thank you, Mr. Bajaj. Good evening, everyone. This is Anuj Poddar. I think he's covered all the points, not much to add. Just a couple of things that I'll emphasize and just add to. One is, like he said, you've seen -- I think I'm fairly satisfied with this quarter, particularly our Consumer business and the bounce back in the Consumer business that we've seen particularly in June. I think a lot of that would credit to our team's ability to respond dynamically to the evolving situation. It has not been easy. We've had many challenges on supply chain, on logistics, on warehouses, on factories, et cetera, but we have continued to respond to that in a week-on-week basis to deliver the Consumer business revenue. The part that he mentioned about the first level margin expansion, I think that is critical. Like we've been saying, our longer-term focus is to drive margin expansion for the Consumer business. So we've driven more than 2 percentage point gain at the first level margin. In the bottom line, it's not translated because of this quarter, as you'll understand. But going forward, I think that should hold us in good stead. On the EPC, it has been a challenging quarter on execution and billing because that is very labor dependent. And therefore, unless the movement and availability of labor normalizes, I think that may stay a little bit under pressure. What's helped us contain the impact of this at the bottom line and deliver positive on the Consumer and also contain a little bit of negative on EPC has been a focus on cost. So besides driving cash flow focused, which Mr. Bajaj spoke about, we've been very focused on controlling our costs. If we look at it, overall, broadly speaking, our costs are at sub-50% of last year. But that includes a cutback on variable costs, which anyway would come down, but also many other so-called fixed costs, which we aggressively look to contain. Going forward, our intent is not to come back to full cost levels. So wherever cost savings can be continued going forward, we are also focused on getting the advantage of that for the rest of the year so that we partly make up for the losses of the first quarter on a bottom line basis. Yes. So I think I'll pause here. Some other comments I can take up later based on the questions. Thank you very much.

Also, I'd like to just mention that our Director, my daughter-in-law, Pooja Bajaj, she's also going to be available. So she would like to learn, so she's also there with me during this conference call. Thank you. Now we can have it open for question and answer.

[Operator Instructions] We have the first question from the line of Achal Lohade from JM Financial.

My question was, sir, can you give some color with respect to the ECD business in terms of Appliances, Lighting, Fans, what has been the decline?

Sure, Achal. So this is Anuj. I'll give you the percentages, but frankly, I think the comparison doesn't grow that much meaning. Lighting is down by about 40%, everything is Y-on-Y; Appliances down by about 53%; Fans by 50%; and Morphy Richards by 51%. But qualitatively speaking, I think we've seen buoyancy in the Appliances, particularly kitchen appliances. And we've seen a reasonably good comeback on the Fans category. Coolers performed below what we would have expected even in terms of comeback. And Lighting, we -- unlike the rest of the industry, we had a growth for the last few quarters, but obviously, this quarter, we will not see that growth in Lighting.

Right. And you touched upon the margin expansion, the first level margin expansion by about 200 basis points. Now A, is it driven by the price increase? Or is it driven by the product/mix in terms of premium and nonpremium? And is it also to do with the product/mix in terms of the individual category mix?

So this single largest component of that has been due to price/mix. Having said that, we are -- we have been premiumizing certain product categories in doing that. But at present, in this quarter, I think the bulk of the contributor has been price increasing. And just FYI, the price increase is obviously not taken in this quarter, but it was taken in the middle of last year. So the last year's quarter, it was taken after June quarter of last year.

And would you remember what is the broad increase at the aggregate level? Would that be…

So increase on a very generalized average basis would be between 2% and 3%, obviously, varies across certain product categories. There is certain cost increase also in some categories, but the rest of it is coming through some of the smaller other contributions. But broadly, it is price increase, average between 2% and 3%.

And what is the mix now in terms of the premium? If I have to look at last 12 months, what is the mix for us in the Consumer Products business from premium category?

So to be honest, that's a very qualitative definition of premium. So we don't define it as premium versus not. Just directionally, for example, Fans, as you may know, we've always been more focused on subeconomy and economy. We did launch premium fans towards the latter half of last year. Similarly, individual models we've been plugging in the premium category, mixer grinders or other appliances. But holistically, as a company, we don't have any premium versus nonpremium bifurcation as such in sales.

Got it. The other question, if I may ask, with respect to the EPC business, now can you help us with respect to the receivable as of 30th of June at the total and breakup in terms of EPC and Consumer Products?

So let me bring in our CFO, Mr. Purandare, who's on the call here.

Yes. Total receivables at the company level is INR 2,300 crores. Out of that, EPC is INR 1,843 crores. And INR 459 crores is for consumer durables, which is obviously a gross figure, with channel finance, which funded by channel finance is INR 287 crores.

That's part of the INR 450 crores (sic) [ INR 459 crores ], right?

Correct.

Right. And within the EPC, would it be possible to give some color as to how much is retention money out of this? Could there be a risk in terms of provisioning of this, given the way payments are getting delayed in general from the government institution?

See, out of this INR 850 crores, around INR 660 crores is the retention money, which is obviously receivable after the completion of projects. And as far as provisioning is concerned, as you know, we already have the very robust provisioning policy, which is, I think, more of stringent policy for the provisioning. So whatever we feel that is not collected, we regularly take the provisions for those. So whatever receivables what we are showing in these books, they are all collectables.

Right. Just one more question actually with respect to this. Based on the current assessment in terms of the situation, do you see a possibility of any substantial provision for these -- out of the EPC receivables in balance 9 months FY '21?

At least, we don't see that kind of a risk because most of the clients are government clients. And there may be a delay in getting the payments, but there is no risk of writing it off as receivables.

The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher.

A couple of questions from my side. First, I just missed on the number that how is your sales recovery happening in the month of April, May and June? And how confident are you of sustaining this trend in the coming quarters? This is my question number one.

Thank you, Amnish. So our sales in April was 0, our sales in May was approximately 50% and our sales in June was approximately 104% of previous June. So therefore, on an overall basis, it kind of averages out at about 50% of the previous quarter. The good news and the bad news on this. The good news is that let's take the June number, that is despite the fact that all of India is not open even in June. You had many markets, including urban metro markets and areas that, technically, they may be called open, but actually, they were shut down in 2 areas extends, et cetera. So not all restrictions have been relaxed. So sales revenue has been despite the market not fully being open. The July situation has been slightly worse in terms of sporadic local lockdowns, which has started to affect supply for us more than really demand. So the good news is we're seeing a demand bounce back more than just pent-up demand. I think there is a certain amount of, what should I say, buoyancy or at least a certain amount of comfort that the demand has not been -- has not evaporated. But supply really is a concern because of the local lockdowns. I remain hopeful that another few weeks or end of August, early September, supply issues also should sort them out, assuming that we don't continue to have these lockdowns. In which case, I think the rest of the year should be good for us.

I would like to just add that in spite of these problems, which we are talking about, July was not as good as we would have liked it, but it's almost equal to last year's July. So to that extent, it's satisfactory, but because of the slowdown and because of the lockdown in various areas, we would have liked to start our growth in July, which has not taken place. That's why we said not satisfactory means from the angle of our own internal because we have to make up what we've lost in April-May have to be made up. And therefore, we wanted to start after June being 100% plus, we wanted July onwards to be 100% plus. So this has not happened, but we have reached almost a July level, which is a good news.

Okay. Sir, my second question is, you indicated 2% margin expansion at the first level in Consumer business. So can you throw a little bit more light on what is exactly this 2% expansion at the first level? And what sort of a trajectory you are looking in terms of margins over the next 2, 3 years?

So I did share that in the previous one that margin expansion has come largely through due to price increase that we had taken last year. I think it was around July, August that we took the increase. Going forward, what we expect is a 1 percentage point increase on an operating margin for Consumer segment per annum. That may be slightly lower in the first couple of years and higher in the later years. But what we're also looking to do over the next 2, 3 years, to invest in certain areas. When I say invest, that's in product, in R&D, in quality and in brand building. And all of these investments should be self-funded. So some of the first level margin will be reinvested in product and R&D. And similarly, some of the margin expansion or savings that will drive at overhead will self-fund the brand-building activities. So we want to invest in these things to drive future or longer-term growth, but without actually impacting margins and, hopefully, actually continue to expand margins while we're doing these things.

Okay, sir. And sir, just a final bit from me is on the EPC business. Now the EPC business, I would say, like one is the Transmission Line Towers, and we are having this year Lighting projects and the rural Power Distribution. Now in particular, if we have to dissect each of these businesses, which are the sustainable businesses from the company in the long term? And do you have at any stage any plans to exit your Transmission Line Towers or the rural Power Distribution business?

So if you see FY '19 versus FY '20, in FY '19, overall EPC business was almost 2/3 of the company. And even within that, your Power Distribution has a dominant share of almost 2/3 of total EPC business. So we've significantly changed that. Overall EPC business has come down to 1/3. And within that, each of these 3 segments at a very broad level of 1/3 each. So we managed to contain the Power Distribution business, which was causing a certain issue at that point of time. Now going forward, we do not expect to significantly descale this business. But like as the Chairman said, we will probably contain the business more or less at these similar levels. We are continuing currently to bid for Transmission Line Tower businesses. The Illumination or Lighting business is a general ongoing business, so that anyway continues. The Power Distribution business, as of now, our hands are full in executing the UP and the non-UP order book. As and when that closes down, then we will take a call on what is to be done.

Okay. Any plans in the longer term to demerge your EPC business?

No stated plans as of now. I think we are more focused on handling the current projects rather than look -- taking a call on that or doing anything about that.

The next question is from the line of Renu Baid from IIFL.

I have few questions. First, I missed the recent opening remarks. So if you don't mind, can you help sharing how was the broad growth laid up within the ECDs across different categories?

Yes. So that's within Consumer, right? So Renu, good afternoon, this is Anuj. So Lighting has degrown by 40%, your Appliances has degrown by 53%, Fans has degrown by 50%, and Morphy Richards, which is much smaller, has degrown by 51%. That's a quantitative answer. But more qualitatively speaking, we continue to see good traction on Appliances, particularly the kitchen appliances. The Cooler business is the one that was slow to come back. And we've seen good traction on the Fans business when the markets opened.

And what is the kind of inventory are you stuck with in the Cooler business?

Mr. Purandare?

So I don't -- okay…

Do we have an inventory, which is stuck with the company in the Cooler portfolio? Everything has been talked with the dealer distributors.

No, so we do have Cooler inventory stuck with us also. It is not as substantial as some of our peers, I wouldn't name them, but who are cooler focused otherwise. But yes, we do have Cooler inventory. I think that's unavoidable here. I think the good news for us is because we are a diversified product category business, that doesn't have an overbearing impact on our balance sheet or other issues. So it's something we are not overly uncomfortable with there.

Right. Sir, second was a bit on the EPC side of the business. So if you look at the entire portfolio, obviously, there are execution headwinds as well. So how should we look at, A, the current order backlog that we have and the completion time line of the rest of the UP project, including add-on jobs? And how should we view the payment time lines, including release of attentions from the state?

So I'll let our CFO answer the receivables and payment. But before that, just in terms of execution, I think COVID has impacted EPC more because it is labor dependent and labor needs to move across districts or states to execute some of this work. So to that extent, that's why EPC, you see, more impacted than Consumer is right now, okay? It has yet not gathered full steam right now, as we speak, but we are on that job. In terms of this order backlog or otherwise, UP business, there continues to be certain incremental work, which is called Phase 2 or Phase 3. To some extent, the good news for that is that helps us to continue to -- because incremental work all is at incremental margin compared to earlier work that we've done. But we yet wanted to finite amount of incremental work, not chase that margin unlimitedly, number one. One of the issues that is coming up more recently is in the Transmission Line business, the order book growth is slow right now. Because the new projects that are coming up have slowed down in terms of the government or power grid or others issuing fresh tenders. The -- post the China issue, some of the tenders that were issued or were in WIP stage have been canceled because the respective entities have devised the tender conditions to exclude certain China-originated materials. To that extent that those tenders are being reopened, refloated and, therefore, rebid for, I don't think that changes the dynamic of that business, but does delay some of the billing or the order book closure or hindering closure for 3 to 4 months. So I think to that extent, there may be a slight slippage on what we had anticipated for this arena, TL billing there. We'll see how that goes a little early to say how much of that delay will be. We'll catch up on an accelerated basis or may have a 1 or 2 months delay in terms of actual -- the entire process.

Sure. I don't know it's on the way, sir, or just applies too on the amount?

Yes. So see, as I already said, that total outstanding for the EPC is INR 1,843 crores. And out of that INR 660 crores is the retention money. Obviously, this retention has a different maturity because some of the projects of rural -- its location in Bihar, MP, we already are on the verge of closure or some of them are already closed, that retention is around INR 250 crores, which is obviously collectable as soon as we complete everything as far as financial closure of the project is concerned. The INR 200 crores retention is for the UP projects, which is obviously going to be -- take a little more time because we are not yet closed all the projects in the UP. So it will have some lag effect. And the remaining retention money, which is for Transmission Line Tower and Illumination is around INR 190 crores to INR 200 crores. So out of which, part of this will come in this financial year and the remaining will go to next financial year on the basis of how the projects are getting completed. So that is the overall retention collectability.

Right. And just broadly, the last question on the Consumer part of the business, again, yes, since we will continue to see those erratic or cyclical lockdowns impacting supply as well as demand, but as we move towards the festive season, what is the broad understanding based on feedback from channel partners and your secondary sales data points, which you track in terms of demand offtake? Should we expect normalization by Diwali? Or you think for the business to normalize could actually be longer in terms of the time lines and activities?

Renu, so let me answer that from the demand side. I think demand yet remains very buoyant and strong, okay? So I don't think now we are that worried about demand. On the supply side, I also don't believe that lockdown can continue for so long. So I think the governments -- even local level governments are under pressure to allow for the activity. I would yet think festive is a couple of months away, and we should start normalizing by that point of time. Having said that, the slight issue there is on just the logistics of this because for supply sales to happen at a retail level, actually the channel filling needs to start happening in August, okay? So to that extent, if we are 1 month delayed also on the production kicking in and the movement of goods, we have to see how much of it we can accelerate in terms of channel stocking, et cetera. But yet on the broad level, I remain optimistic. Just one more data point for you. I think the driver of sales right now is that general trade channels, which is small stores and the e-commerce platforms. The modern retail yet continues skiing under pressure. I think that trend may continue. But I think that is being more than made up by the other 2 channels. So Consumers, if they need the demand, they don't care, they will go to the other channels where they're comfortable. And if demand only shifts between channels, I don't think it disappears on a particular channel because of channel being weak here.

If I can ask one last question. Bajaj Electricals is a company we have fairly strong reach in the Tier 2, Tier 3 and interiors of the country in terms of our distribution and reach. If we see the feedback from some of your other peers, I guess that those who are not focusing as much on these part of the markets, they're actually now picking up effort to increase the distribution in the smaller towns as well. So, A, do you see competitive intensity for your portfolio and your market increasing there in terms of other brands being fairly available in the markets when the availability was not there? And also, would you foresee any price pressures or otherwise in the segment of the markets for you?

So maybe, yes. So all these guys will go there, too, and there's nothing to stop them. So we would be…

It is -- this is the market, which is actually driving demand in the current environment as those have dried up in terms of broad increase.

Yes. But I'm saying, yes, they will all go there. I mean it's a natural part of progression. So I'd be naive to imagine that they will not go there. But now optimism stays on 2 fronts. One is, irrespective of them, I think there is a greater shift between unorganized to organized players and unbranded to branded. So I think that is in our benefit. And number two, I think today, the driver has been the rural or the smaller towns because of greater level of lockdown in the metro areas. But for our kind of product categories, I don't think metro demand is not there. And therefore, as the metros also open up or the urban areas relax the restrictions more, I think that will also come back strongly by the time of the festive period. So I would not overly worry about competition of ours getting to rural because I think we have other positives in our favor.

Renu, I would like to add one more point that because of our distribution and not having any wholesaling, once this wholesalers open up in the metro towns, so our distribution has been done by us in the rural areas. So another thing was there was no problem of any wholesaler going and disturbing that market. When competition is going to go to those rural markets, wholesaler will always create a problem there because the wholesaler will always go there. And to that extent, for them to stabilize in the rural market is not going to be easy because a long time ourselves. So of course, they can do it, but it will take them a couple of years. It's not that they'll just say, "Okay, now the rural market is opened up. So let me go to the rural market," because if the wholesaler comes in, he will immediately go and spoil that market. So if you add that, okay?

The next question is from the line of Hitesh Taunk from ICICIdirect.

Sir, as you mentioned, like under the metro region is opening now and you are expecting a kind of good demand recovery from that segment. Sir, could you just quantify how much is the metro region contributing as of now in the sales, sir, in the EPC -- in the Consumer segment?

So Hitesh, to be honest, we don't -- it's very hard to track, and we definitely don't reveal that because we have broad numbers internally for urban versus rural, but there tends to be a certain amount of cross-pollination the way it exists. So it is not very accurate and, therefore, we don't publish those numbers here. But just to give you a qualitative sense, rural has -- based on whatever parameters or level of accuracy we have access to, rural has grown by about 3 to 4 percentage points compared to 1 year ago for us, the sales contribution.

Okay. That's fair, sir. Is that, sir…

And just to give you a little more insight, but the urban yet is 2/3, rural is 1/3. But don't take that very literally. There is the margin of error and that is wide for the reasons I gave you.

Also, it's very difficult to decide what is rural and what is urban, where is the cutoff, I don't know really when somebody says, 2/3 is urban. So that -- urban or rural, we don't know. So therefore, unless somebody is defined and says because in our case, one good news is that we know exactly if you give me that these are the towns which you are talking about because there are no movements from one area to the other because there's no wholesaling. While in earlier cases, if Bombay was selling INR 100 crores, out of that INR 100 crores, maybe INR 30 crores, INR 40 crores was going outside Bombay. And therefore, to that extent, whether it was wholesale of Bombay or was it the sale of upcountry was the confusion. Now that confusion is not there. Whatever we are selling in Bombay is only for Bombay, and whatever is being sold in Raipur is only for Raipur. That's the only thing. So we are aware. But where is the divide? How do you call rural and what is called urban? What is called semi-urban? We don't know really. So therefore, we are only keeping a track that each area wherever we are selling, are we having the required growth compared to what was being sold in that same territory in the earlier period, that's all.

Sir, urban means generally, I wanted to know about the metro region, which were under the lockdown and have opened recently. So any which way, that's a fair thing Mr. Anuj has mentioned. It's okay. Now sir, my second question pertains to our e-commerce channel. Sir, how has been the growth through that channel in our sales for the quarter or for the year? If you can just throw some light how the sales is moving through the e-commerce channel?

So Hitesh, again, 2, 3 points. Number one, I think the driver channels for us right now and through the rest of this year will be e-commerce and will be general trade. And what was going to lag is the modern format retail as well as the government channels, such as the CST, et cetera, et cetera. Okay? In terms of e-commerce growth, despite what you read in the media, it is not that aggressive not for their fault. I think consumers are and behaviorally will go towards e-commerce. But if you recall, during April, May, even some parts of June, there were a lot of government restrictions on e-commerce platforms being allowed to sell what is called nonessential goods. So the trade shops were allowed to open up much before e-commerce was allowed to sell. And to that extent, we did not get the bump up as much in Q1. But in July, once all e-commerce is functioning fully, we are continuing to see the bump up in e-commerce sales and that is continuing to now grow faster than any of the other channels.

Fair enough, sir. Sir, my last question pertains to our advertisement expenditure, which obviously would follow the demand scenario, are recovering the demand. Could you throw some light, how should it be or how would we be going forward for the rest of the year?

So we have generally guided in the past. I don't know which ones you may have attended that historically, we've been in a 3.5 percentage point spend ratios, percent of sales, which we consciously intend to up to about 4.5%, maybe up to 5%. There will be a little range over there because our sales this year will be lower than what it could have been in a COVID situation. Obviously, the ad spend was also correlated to that. So we'll always operate in the percentage zone over there, okay? What we've done right now within that is also temper that on a quarter-by-quarter basis. So this quarter, we did pull the plug significantly right since middle of March on ad spends that we had otherwise spend. You must remember, summer is a big quarter for us. We do have many product categories. I've seen some of the competition numbers, but we'll not choose to go 0 fully on summer because Fans and Coolers we needed to put out and, therefore, we did choose to advertise. But though we had initially expected to increase over last year, we've ended up, I think, at about 60% or something of last year's June of Q1 ad spend. Going forward, the ad spend on a Y-on-Y basis will be higher, but it will remain within the percentage range of sales and, therefore, should auto correct based on how we see the demand play out, we will keep calibrating our ad expense on that.

Okay, great. Sir, my last question pertains to the debt level. You mentioned like it is around INR 800 crores. So just wanted to know is it a gross debt?

Let me bring in our CFO, and it's INR 810 crores.

Yes, it's a gross debt.

Shall we move to the next question?

Yes, please.

The next question is from the line of Akshay Bhor from Premji Invest.

I wanted to understand on the EPC business. Any parts to profitability, how many hurdle down the line do you expect us to break even there? And within that, if you could give us a sense of the underlying margins for the 3 different businesses, Lighting, TLT and PD, that is helpful.

So let me take on from the second perspective. I think Illumination and TL, we do expect to turn around this year and deliver overall operating level profitability. Power Distribution may remain a challenge at an operating level because of, I think, just the incremental work that we're doing this year. If we look at that on a marginal basis, that will be profitable. But because we had a lag of the larger bulk sitting behind that and more than that, the impact of the larger overall cost structure, that is why I think Power Distribution will continue to be loss-making this year. I think the challenge between that is to differentiate between the project or execution level profitability versus overall. I think the only way the overall profitability in that will kick in once we're able to descale the revenue size and quantum of work, once we're able to descale the quantum of our overall infrastructure or establishment costs there overheads. I think that will be completely back-ended to when we are coming to closure 2 of the projects that we can take care of that piece. We had originally targeted for March 21 quarter to be profitable at an exit quarter. Maybe one quarter at worst, I would expect that delay on that because of these COVID and other recovery rates here.

Understood. But in terms of, let's say, FY '20, how would your profitability be in Lighting, TLT and PD?

FY '21, you mean 2021, right?

2020, last year, and last fiscal, how was the profitability split up between…

Okay. So we don't disclose on that. Mr. Purandare, can you shed any light? But we disclose that at even the segment level and not at breakup there.

Yes, because overheads are common, it's allocation of overheads registered.

But I can just share with you qualitatively, Akshay, that these were marginally not profitable, not high losses, but we intend to turn that around business. So that from an internal tracking perspective, they should be profitable this year, that's TL and the Lighting or Illumination.

And just trying to understand the cost structure because your employee spend, especially, is flat year-on-year despite a decline in the revenue. And then any other heads that you see as potential areas where you could get some cost savings?

So employee, the reason you see flat, actually, we -- our normal increment cycle kicks in, in Q2. So last July, August when the increments have kicked in, so June was flat. And therefore, what you're seeing this year's June is with that increment baked in. So over last year's June of Q1. So with the increment, it is yet flat because we, on the other hand, had certain attritions or reduction in overall manpower. You will see more benefit of that play out through rest of the year. So Q2, Q3, you will see a decline Y-on-Y on employee cost front. So I've seen some of the other competition numbers. They see a decline in Q1. I have a view on how Q2 will pan out for them. But rather than commenting on that, let me just say Q2, Q3, you will see a decline for us on employee cost numbers here. On the rest of the costs, like I've shared on the call, we are continuing to look at a lot of these overhead cost numbers in a normal basis. We have achieved certain savings on Q1. Even as business normalizes or come back, we do not want to sell in there all of the savings, so we'll continue to see how much savings we can continue to optimize going forward here.

Understood. And just one last question on the Consumer side. If you can share what's the share of e-commerce at this point? And also in terms of inventory in the channel, I know you -- I understand you operated a minimal inventory. But at this point, what would be the overall inventory in the channel if you could share that?

So Purandare, do we have the e-commerce number? So at this Q1, a little enough aberration to dissect that, but I think it would be between 12% and 13%. Purandare or Rakesh, can you confirm that on the e-commerce?

Yes, just a second.

Exit run rate for the month we are coming there, we did -- Akshay, I don't know if you were there in the earlier parts of the call. I'm saying it's an odd quarter because April, May was suppressed and, therefore, I don't want to use a month -- a quarter wide percentage to measure e-commerce there.

Or last year is also fine.

Last year used to be about 10%, 11%. So normally it used to be in 11%. We're seeing that inch by -- so I would think by quarter 2, that should be about 13% or so, give or take, here.

Understood. And inventory in the channel of e-commerce?

Inventory has come down. So because our supply has been constrained, but at the same time, our demand fulfillment has helped us bring down overall inventory for Consumer products. I'm talking our own inventory plus, of course, the channel inventory. So to that extent, we are not overstocked on inventory on -- so I mean if there is further demand and if you're able to supply, I think inventory is not overbearing for us there.

We'll move to the next question. The next question is from the line of Rahul Gajare from Haitong Securities.

So most of the questions are answered. But I thought -- I understand even this quarter has been tough on business. But I wanted to congratulate you on the balance sheet improvement that you all have done. Now when I see your improvement in the cash flows that you've done, what did you see that a large part of that cash flow improvement will essentially come out of capital employed out of the Consumer business? And I think like you just mentioned sort of earlier question, given that inventory has come off, do you see that this inventory, which has been scaled down will grow up? And therefore, even there is a risk for -- there is a chance that the capital employment benefit that we have seen in the first quarter will actually remain in the second quarter? Is that something that you think is a possibility?

I think that's a very fair question, Rahul. I think this INR 145 crores is not sustainable in terms of extrapolatable the Q1 numbers. It has been heightened or increased because of the reduction in capital employed in the Consumer Products business, okay? As we stock up for the festive period, you will see an increase in the capital employed on inventories, et cetera, for the Consumer business. Typically, we do have seasonal swings to that extent I think that CFO can share. But also, it's not completely out of pattern. So typically, you stock up pre-summer. Then you do have some of this pullback on inventory. And then towards the end of the year, you again stock up, the CFO can confirm exactly. But yes, you're right. So that swing factor is there and to that extent, there will be. I don't think that means we'll go into negative cash flow. It's just that you'll not say INR 145 crores extrapolatable there.

Let me also add that I firstly think that though this will happen for Consumer products, our EPC area, I think even first quarter was not too good in terms of collection, but the feedback, which is coming is that, that this a quarter, we made some better compared to our billing, the collection may be better. So overall, our capital employed may not go up. It may not go down to INR 145 crores like this has happened because now Consumer business will not give you any more further benefit means it will be negative. So -- but there'll be sufficient positive cash flows coming in because of EPC business. So overall, I think we should be at the first quarter level at INR 800-odd crores should be the similar levels we should be continuing in the second quarter also.

Just, Rahul, if I may add to that. So I think the Chairman is completely right. So that's the way to play out. We do expect to have more collections on EPC in Q2. But the billing in Q2 will continue to remain slower, execution will remain slow because this is a monsoon quarter. So typically, EPC has low billings and revenue in Q2. Q1 usually is an important quarter. So to that extent, we missed that because you try to get a lot of work done before monsoon. So endeavor yet remains. So then make up for that in Q3 and Q4 in terms of execution revenue, but the cash flow, clearly, to repeat, will continue right now also.

In the press release, you've also made a comment that most of the pipes are up and running right now. Given that monsoon typically, like you just said that billing will be slightly slower. So in terms of execution, how do you see this -- you don't have a problem with labor and all those things, right?

So we have a problem with labor on EPC because a lot of labor is cross-district labor and some of it is cross-state labor. And there are restrictions, particularly in these interline states now on movement of labor because COVID has spread from the metro areas now little more to Bihar, UP, those kind of areas, right? So there are restrictions on labor. So that is the reality. One of the things we've used the lockdown positively for EPC because EPC, the work -- execution of the work is only half the problem. The other half of the job is to really get all your reconciliation papers, approval, documentation, reconciliation, all of that stuff done, okay? So we've actually used this lag to do a lot of that, reconciliation, documentation, whatever preparation that otherwise normally used to lag. So to that extent, that is helping us drive collections even in the absence of execution work. So in a way, we are yet not losing that time. But yes, execution is challenged because of the labor issue there.

Right. Sir, one more aspect about this entire supply chain. There has been a lot of thirst by the government for local manufacturers and obviously shut down on imports. Now I think in one of the interviews or one of the con calls, you did mention that your direct exposure to imports is fairly low. But your entire supply chain will have significant dependence on imports. So what are your thoughts on trying to have more individualized production or manufacturing sourcing?

So we're already working on that, Rahul, that varies by product category. Lighting, LED related stuff, we already made significant progress on substituting China imports. On certain other consumer appliances, time lines vary. We're already working on that. But between 6 to 24 months, most of it should be where we should have alternative options for. Having created the alternative options, then we'll evaluate on how it works on a price, consumer choice perspective, et cetera. But it should not be a constraint for us is the way we're looking at it here.

Okay. And that is not something which has affected the July…

No, I think more than that, it's the local supply issues. So example, it's not just our plants also operating under constrained capacity. But any product category has a long value chain. A mixer grinder has somebody making a jar, somebody making some rubber part, somebody making a plastic component. If any single component supplier is under containment, the entire production stops. So I think the supply disruptions are more local, both at a production level, then certain warehouses come under containment and certain truck movements get restricted. So national supply chain kind of gets disrupted for that reason. So these are -- I think if the local thing is sorted out, I think we are fine. So I would not -- I mean, I'm just talking on relative concern for us here.

[Operator Instructions] We take the next question from the line of Dhrushil Jhaveri from Aditya Birla Mutual Fund.

Sir, my question was on debt, the target for debt by the end of March '21. So you've already seen INR 145 crores kind of debt reduction. And earlier, if I remember, you had said INR 300-crores plus debt reduction for FY '21. So just wanted to get a sense is that target still there? Or is there been a revision there?

Let our CFO comment, please.

I think we are still there. We'll say that our debt is reduced to INR 500 crores, INR 550 crores.

By the end of '21?

Yes.

Consolidated debt, including…

By March '21.

Yes, March '21.

So that INR 810 crores will reduced to INR 500 crores?

Yes.

INR 550 crores, I would rather count on.

The next question is from the line of Chetan Gindodia from AlfAccurate Advisors.

My question is with respect to the EPC business, so can you give us the breakup in terms of which are the key -- what was the loss of the key 1 or 2 loss-making projects and what was the rest of the EPC business? So can you break the EPC loss, say, for FY '20 or for this quarter? And how it will be going ahead?

So I'm not sure I fully understood, but let our CFO address that.

No, we don't give project-wise profitability of this. So there will be some projects making losses, some projects may be doing good. And obviously, it's a contract accounting. So some of the provisions are there in the accounting. Tomorrow, we may have to reverse, if there is a change in raw material pricing or vessels. So we don't really share all these project-wise data to outsiders.

If I may -- sorry, the Chairman, please go ahead.

Also frankly speaking, how do you divide the overhead, how do you account for it? It's very difficult to say on a variable basis, margin basis what is the basis of profit/loss are you talking about. This extra business, I did not do on a variable basis, it's making profit. But if I put the overhead, it don't make profit. So that's why we don't go into that. We only say each projects, are we able to complete it in time and collect the money? That's the cycle, which is most critical. Cash flow is very important, and that's what we are working for in the future. All new projects, which we are taking, we are keeping a track of the cash flows. How fast the rotation will take place so that our return on capital employed has to go up, which is not negative. It's hardly any return we are getting because of this situation, a lot of money is getting blocked up. So that has to be cleared now. That's we have worked on to see how things are.

Chetan, the other aspect, if you remember, in the AS 7 accounting, so the project level costing and revenue moves in tandem. The losses that you're seeing now is largely because of -- on the project level cost, but the overheads cost while the projects are as stand still. So the overhead is not getting absorbed and, therefore, a lot of these are because of the standing cost. But the project revenue and cost typically moves in tandem and would get booked together.

Okay. Okay. I understand. I just wanted to understand the UP loss, but I understand that difficulty. My question is, so EPC business, you said that it is from next year Q1 probably, we'll be able to completely reduce our losses and [indiscernible]. Is my understanding correct in this respect?

That's our target, yes.

The next question is from the line of Mayank Bhandari from B&K Securities.

Sir, my question is -- pertains to your distribution. So Bajaj Electricals is having one of the best distribution touch points across the country. So I was just -- in terms of strategically, you should have gained some market share, given that you have the largest number of touch points. But that does not reflect in your numbers, like I'm talking in terms of ECD only. So how do you thought around this, sir?

How do you come to this conclusion that we have not improved our market share unless if we have shown a negative growth. You have to find out what our competitors have grown. So unless it is -- we have negative 50%, they have negative 60%, then we've grown market share. They've grown -- they've negative 40%, then they've improved market share. So unless we have the competition data just because they are negative 50% doesn't mean that we've lost market share. Do you understand? It's very important to understand that market share is relative to somebody else's growth or de-growth. Do you understand that? So unless we have those figures, we can't come to a conclusion whether we've gained or lost market share.

Okay. Okay. So basically, we don't have any industry data as such to indicate that we have gained or lost?

So Mayank, that also varies significantly by category by category, even when competition is seen. Even if you look at the ECD segment, their mix of category is very different. One particular player, for example, is in the male grooming thing, like you know, right? So a lot of their current gain in this lockdown period has come from that. So similarly, if you look at different players, somebody has -- I don't think washing machine is obviously bundled in, but different players. So it is very hard to generalize market share at an overall business level. Those are always tracked at a category level. But the second aspect, the way I see it is, all of us, which are the top 3, 4 companies, would have gained market share right now versus the unorganized or unbranded players. So to that extent, I think there will -- or is being -- or will be greater consolidation. I don't have numbers to prove that. But if these unorganized players were reported, then I'm sure their drop would be more than this 50%, yes.

Okay. Okay. Okay. So there will be some consolidation for sure and…

In favor of the top 4, 5 players versus the others. And within that, then category by category, it would vary. So, yes. I mean I don't name players because it's not fair for me to do that, but I do have a view on which player has gained or loss in which product category, yes.

Also, let me add that there's another issue, which comes up is that except for Fans and Lighting, there's at least a body like IFMA, which is Fan Manufacturer Association and ELCOMA, which has some data. Appliances, there's no data available. It's all guesswork just so you talk to competition, and that's all you find out. So whether in Appliances we've gained or lost, we can't say, except by logic, we say it has gained by -- it is grown by 15% or 20%, we've gained market share, we think. But we can never be sure. Maybe somebody else has grown by 25%. So this is something which is in India. Unfortunately, there is no proper data to confirm whether we've gained or lost market share. We can only look at our own growth levels, which is important.

Okay, okay. And sir, in terms of the margin expansion of 200 bps in ECD category, any guidance you can give us, full year for ECD margins?

So overall, my guidance remains 1% expansion at the operating margin level for Consumer business. This year, if you keep quarter 1 aside because that's an aberration at the bottom line, on a normal quarter, 1% expansion at operating margin level.

The next question is from Tarang Bhanushali from Yes Securities.

Sir, my question is largely related to the would-be projects. So what would be your revenue this quarter we have registered? And what would be the receivables from these would-be projects?

Mr. Purandare?

EPC revenue, just a second. Yes, EPC revenue Illumination, we did INR 58 crores; for Distribution, we did INR 66 crores; and Transmission Line Tower, we did INR 90 crores.

And so the remaining is within Power Distribution, but we don't split that up.

Yes. Okay. And what would be the receivables pertaining to the UP orders?

UP receivables are in the range of INR 800 crores, INR 820 crores.

And sir, what would be the net debt level for us?

Net debt because cash is just INR 12 crores.

INR 12 crores. Yes.

Because it was almost INR 100-odd crores at the end of Q4.

March, yes. March, there was cash -- because we conserved some cash looking at the COVID uncertainty, now the cash as of June was INR 12 crores.

So sir, the net debt level reduction is low at the INR 60-odd crores?

So it is INR 183 crores is the actual reduction, minus the cash utilized is around INR 90 crores. So it will be around INR 90 crores is net reduction.

The next question is from [ Rahul Soni ] from [indiscernible] Limited.

Just one question from my side. Sir, what is -- what percentage of your revenue is coming from online sales? And what is your margin between the product you are selling to your dealers, to network channel and through the online?

So Rahul, I shared that earlier. Q1 is slightly odd to try and look at it at a quarter level on the contribution because e-commerce online opened after the trade debate, so it would not be a fair comparison. But just to give you a directional answer, traditionally, it used to be the 10%, 11% range of contribution from online. I think on a run rate basis now, let's say, Q2 should be probably 13-odd percent. So about a couple of percentage point increase, but maybe some margin of error there. We don't disclose contribution of margins for each channel.

So what kind of sales percentage will give us 2 years down the line?

If I may be honest, and I've said that before, we have our estimation, but publicly, we don't have a bias because to us, all the channels are equally important. We make sure that we are available across all the channels. And let the consumer make the choice, and we keep restocking or refueling it. So we don't want to take a view on which channel is favored. None of them are favored for us. Of course, even I know that e-commerce will continue to outgrow the general trade.

We'll take that as the last question. I would now like to hand the conference back to Mr. Deepak Agarwal for closing comments.

Thanks, everyone, for joining. And thanks, management for their valuable time. Sir, we have any closing remarks?

No, I would only say that thank you for joining this conference call. And we are very optimistic, positive. Actually, there are a lot of improvement and a lot of corrections that has been done. So this COVID is, on one side, of course, we've lost out April, May. But overall, from a long-term point of view, we've become a much stronger company and, therefore, you can see some better results coming in the future. With these words, I would like to thank you again. That's it.

Thanks, everyone, for joining this call. Thank you.

Thank you.

Thank you.

Thank you.

Thank you very much. On behalf of PhillipCapital, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.