Bajaj Electricals Limited (500031) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Bajaj Electricals Limited Q2 FY '26 Earnings Conference Call hosted by Ambit Capital Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dhruv Jain from AMBIT Capital Private Limited. Thank you, and over to you, sir.

Thank you. Hello, everyone. Welcome to the Q2 FY '26 Earnings Call of Bajaj Electricals Limited. From the management side today, we have with us Mr. Shekhar Bajaj, Chairman; Mr. Sanjay Sachdeva, MD and CEO; Mr. E.C. Prasad, CFO; Mr. Vishal Chadha, CEO, Consumer Products; Mr. Rajesh Naik, COO, Lighting Solutions. Thank you, and over to you, sir, for your opening remarks.

Good evening, ladies and gentlemen. I'm Shekhar Bajaj here. Thank you for attending Bajaj Electrical's Q2 earnings call. We hope you've had an opportunity to review our financial results and earnings presentation, which are available on the stock exchanges. At the outset, I would like to extend my heartfelt wishes for Diwali. Hope this new year brings joy and prosperity to you and your families. The government's announcement of comprehensive GST reforms featuring significant rate reductions across most product categories marked a major milestone in simplifying India's indirect tax regime. While these reforms are expected to stimulate consumption in the second half, their rollout caused short-term transitional challenges during the quarter. The anticipation of GST cut rates led to pricing uncertainties across trade channels, resulting in temporary postponement of demand even though our category was not directly impacted. This was further compounded by the early onset of monsoons with subdued overall demand. The summer products experienced weakness with overhang of shorter summer and higher channel inventories. In spite of high volatility in the electrical and consumer durable sector, our nonseasonal products list like mixers, iron and water heaters have done well, registering a single-digit growth. Further, our Lighting Solutions vertical has delivered a standout performance for this quarter. It not only delivered 9.6% revenue growth, but also delivered a strong EBIT margin of 7.9%. We remain confident in our strategic direction and the resilience of our business model. With the continued focus on operational excellence, innovation and market responsiveness, we are well positioned to navigate short-term headwinds and unlock sustained value for our stakeholders. Furthermore, with IMT forecast of strong winters, we are optimistic for our coming quarter. Lastly, you all may have heard the announcement and exchange intimation of the resignation of our CFO, Mr. E.C. Prasad. He is moving on to take up an external opportunity. He joined us in November 2019 and has played a pivotal role in transforming Bajaj Electrical. Under his leadership, he led the demerger EPC vertical, transformed BL to a debt-free company, carved out a lighting solution vertical and streamlined our overall business model. His contribution to the Board and the company are invaluable, and we wish him luck for his future endeavors. With this, I now hand it over to Sanjay Sachdeva for our detailed business and financial highlights. Thank you.

Thank you, Chairman. Good evening, ladies and gentlemen, and thank you for joining our investor call. My wishes for Diwali and New Year. Hope this brings joy and prosperity to you and your families. As Chairman explained, this quarter has been marked by considerable volatility impacting the demand pattern of our consumer products vertical, mainly due to extended monsoon and GST rate reform. The Lighting Solutions vertical has done exceptionally well. We are observing price stabilization in the LED segment, which has augmented revenue growth. Not only it has delivered revenue growth of 9.6%, but the EBIT is up by 46% from INR 15 crores to INR 22 crores on a year-to-year basis. Year-to-date margins in the business remain at 9.2%, which is very encouraging. Further, consumer lighting witnessed double-digit volume and value growth in general trade also. Our strategy to increase our revenue contribution in focused categories like ceiling lights and outdoor lights are showing results, and we expect the traction to continue going forward, including in quarter 3. We had launched Switchgears in August 2025 and are very happy to see its progress. The initial response from the channel partners is encouraging, and it reinforces our confidence on the strength of our brand. Lastly, professional lighting has also delivered a good growth along with high single-digit margins. And we expect, again, to continue this over the near future. In case of consumer products vertical, the first quarter of financial year '26 had early onset of monsoon, and you know that. This has impacted sales of summer products even in Q2. The high channel inventory has put pressure on our sales to our distributors to a trade. Further, while GST rate reforms are sweeping, it did not have any impact on our ECD business. However, this uncertainty and anticipation of GST rate cuts led to pricing...

[Operator Instructions].

Okay. Let me talk a few things again. So we had launched switchgears in August 2025 and are very happy with its progress. The initial response from the channel partners is encouraging, and it reinforces that we have a very strong brand. Lastly, professional lighting has also delivered good growth with high single-digit margins. We are confident this will continue over the next few quarters. In case of consumer products vertical, the first quarter of financial '26 had early onset of monsoon, and you're aware of that, and this has impacted our sale of our summer products. Even in Q2, the high channel inventory has put pressure on primary sales, which is our sales from us to our distributors and to our channel partners. Further, the GST rate reforms are sweeping and did not have any impact on our ECD business, but the uncertainty and anticipation of GST rate cuts led to pricing uncertainties across trade channels. This resulted in temporary postponement of demand. Further, when we dissect the results, while at an overall level, CP revenues are down by 4%, but certain categories have done well. These are categories like mixers, iron, and water heaters, where Bajaj is an undisputed market leader and where penetration levels are low and overall growth is, therefore, in our favor. Now this is where we have grown high single digit. Ceiling fans, in this quarter, we have grown by double digit, which again gives us confidence that for the resilience of our business. The drag in revenue is due to seasonal products like TPW, fans and air coolers. We have improved our gross margins in this quarter. However, the fixed cost absorption is creating an operating deleverage in this vertical. Over the next few quarters, our focus stays to increase top line and improve market share, while continuing to spend on the brands and other initiatives like go-to-market, digitization, manufacturing excellence, et cetera. Lastly, a few weeks back, as you know, our Board had principally approved the acquisition of Morphy Richards Brand. This acquisition is in line with our strategy of dual brand architecture. We are very positive about this acquisition and expect this to play out well in the future. With this, I would like to open the call for questions. Thank you.

[Operator Instructions] The first question is from the line of Renu Baid from IIFL.

Best wishes for Diwali to everyone. My first question pertains to understanding a bit more about -- so what has been your read-through of demand pickup after the implementation of GST, the festive offtake, Diwali offtake in October? How has it been so far? And how do you plan to offset the inflationary pressures through what range of price hikes being planned in this quarter or so? That's the first question.

This is Vishal. The initial estimations, which we have about the festive month is that it's muted. And coming to the second question around inflationary pressures, we will be -- we have already announced, in fact, price hikes in fans due to commodity price increase and we are keeping a close watch. And as and when we believe the market has the capability to absorb and as well as our own objectives, we will be taking further price hikes accordingly.

Sure. On the launch of switchgears earlier this year, how has been that reception of this product from the trade of the channel? And what kind of investments have we done or we have planned to do in terms of GTM as well as on the product performance and launch here?

Okay. So Renu, the launch even was very successful. Actually, we got orders much more than what we expected. So we are still in the process of fulfilling those orders. We are yet to get a feedback on the secondaries that is happening. So probably by the end of this quarter, we will come to know about the secondaries, but the primary pickup has been very great.

Right. And would this be a pan-India focus to start with or more regionally...

No, it's on a pan-India basis. And there is no investment for this project.

So it would be entirely bought out for us at this point in time.

Yes.

Got it. Right. And lastly, a bit more in detail in terms of while we have now -- as the Morphy Richards, coming under our umbrella technically. So this dual brand strategy of having Morphy clearly positioned across range for premium, mass premium segment and Bajaj for rest of the other categories. So what kind of subsegments are we looking to expand under the Morphy brand? And how do we plan to roll out our dual brand strategy in the market in the next couple of quarters?

So we are still evaluating -- Morphy already operates under -- in categories like kitchen, personal care, et cetera. And we are still evaluating, which other categories it could extend to. But in the short term, we expect it to continue to operate in the current categories it operates...

The next question comes from the line of Achal Lohade from Nuvama Equity Investments.

Sir, if you could talk about these one-offs or recurring, if you could explain, you've talked about the warranty insurance claim. What is the like-to-like number in the previous quarters? How do we see this in terms of the numbers? Is there a positive net-net, Y-o-Y, Q-o-Q? If you could give a comparable number for 2Q '25 and also 1Q '26?

So this is the warranty insurance that we have taken on our warranties that we give. So last year, it was an expense actually. So the expenses far exceeded the claims that we have got. So this year, the claim received is much higher than the expenses. And the delta, what you are seeing there is about INR 13 crores.

So is it fair to say that -- last year was impacted. Yes. So going forward, does it make sense to say that you will have more likelihood of claims than really additional expenses? Is that a fair assessment?

Yes, yes, yes.

Okay. Second question I had in terms of the A&P spend, would you be able to quantify how much was that in 2Q '26 and versus 2Q '25?

So we have spent about 2.3% in this year as against 2.5% last year.

Sorry, when you're saying this year, you meaning for the quarter or the first half, sir?

For the quarter.

For the quarter. Okay. And this is as a percentage of total revenue, right, and not just the CP revenue?

No, no. Total revenue.

Got it. And you've mentioned that you have seen a gross margin expansion. Would you be able to quantify? And how much more headroom do we have in terms of gross margin expansion?

So the VAV is still going on. So that's a continuous process that we have taken up. We have seen a significant improvement of close to 200 basis point improvement on the gross margin. And this is likely to continue. I mean there will be even more benefits coming in through VAV. Having said that, if there is a reason to pass on something to the market, we'll have to do that.

Understood. And if you could comment for the key categories like fans, water heater, irons. In terms of market share, have we kind of maintained, gained or lost a little bit market share over the last 6 months or whatever, 12 months?

So Achal, I think it's more or less flat. So I wouldn't say it's a drop. It's a very thin margin. Somewhere we have gained a few -- in few decimals, somewhere we have lost in few decimals. So it's more or less flat over the last 6 months.

So on a total basis, it is flat. In certain categories, we could have lost a little bit or in certain categories we could have gained, but there is no disproportionate change in any of the categories. Is that right understanding, sir?

Yes, that's right. That's right.

Understood. And given how October has played out, do you see that the worst is behind us? Or you think the consumption-related pain is still around, we still have to wait for a few quarters for us to have a double-digit kind of a growth in the CP business?

So, Achal, we are actually cautiously optimistic about what's happening. I mean, things are -- I mean the demand again is what you're seeing is skewed towards high-end consumer durables and all of that stuff. We do not see a lot of momentum happening in the small appliances. But having said that, I think there is a lot of money in the people -- much more money in the people's pocket because of all the reforms that government has done. So we are optimistic that things might come back, but we have to wait and watch.

Understood. Sir, if I...

Achal, sorry to interrupt in between, sir. You may rejoin the queue for the follow-up question. The next question comes from the line of Nishita Shanklesha from Sapphire Capital.

I had a question about the acquisition of Morphy Richards. So when will this acquisition be value accretive to us?

So it will be value accretive from the day 1. We are still in the process of getting the agreement signed. So hopefully, in a month's time, we should be done with the agreement and then the value accretion will start immediately.

Okay. So how much incremental revenue do you see from this acquisition in H2?

So we will save on the royalty that we are giving the Morphy, the Glen, the parent company. So quantum, we normally don't disclose, but we'll be saving on the royalty, which is a significant amount.

Okay. So like if you can quantify the royalty that you will be saving?

No, we cannot -- because it's a sensitive information as far as the competition is concerned, so we won't be disclosing that.

Okay. And if you can give any revenue guidance for FY '26?

No, we don't give a forward statement. So we would not like to do that.

The next question comes from the line of Balasubramanian from Arihant Capital.

Sir, my first question, what is the revenue contribution share for new product development in this quarter? I think we have an ambition to reach 40% of revenue. And what is the time line to achieve those targets? And what is the primary source for this innovation like internal R&D or OEM partnerships, et cetera?

So Mr. Balasubramanian, your voice is not very clear. What I could hear is what is the contribution from NPD. So that's about 40%. So when I say NPD, that is a product that has been launched over the last 2 years.

Okay, sir. And sir, for Nirlep restructuring, what is the potential onetime financial impact? And what kind of post restructuring, what kind of impact do you expect?

So as of now, where we stand, we don't see any major impact. We are still evaluating the various possibilities. And as and when we are closer to the deal, we'll let you know.

Okay. Just one small question. I think the launch of Turbo Prime BLDC and what is the plan to compete with specialized BLDC focused players and a commoditized offering? What is the target market share for BLDC fans? And how critical is this defending the core fan business?

Sorry, could you please repeat the question? I didn't understand the question.

Sir, on that I think the launch of Turbo Prime BLDC and what is the plan to compete with specialized BLDC focused players and commoditized offerings? And what is the targeted market share for BLDC fans over next 3 to 5 years' time frame?

So I can't really comment on this Turbo because I have no idea. We have launched. But on the BLDC piece, BLDC continues to -- at this moment in time, our BLDC contribution to our fans is around 15% to 20%. And it's -- as you all know, BLDC is a fast-growing market. So we will be coming up with new models and new offerings, and we will take our fair share in the market.

Sir, what is the market share, sir? So market -- sorry, what is the market size for the industry?

Our understanding is that in value terms, BLDC is now 1/4 of the total fan market.

The next question comes from the line of Keshav Lahoti from HDFC Securities.

As I can see from your presentation, your fan total have declined in spite ceiling fan growing by double digit means the TPW fan has seen a significant decline. Possible to a range about what is the decline of TPW fan as well as [indiscernible]? And what is the TPW and ceiling fan mix?

Well, as can be inferred, TPW is a double-digit degrowth. Sorry, what was the next question?

Percentage of TPW.

So we don't share that data in terms of the split.

Okay. Got it. So we see the lighting margin is still healthy, but although there is a decline sequentially, what is the reason for the same? And how should we see the margin going forward? And secondly, once you will now enter switchgear business, so switchgear margin would be in line with lighting or possibly it would be dilutive because the business is at initial stage?

So sequentially, the margin improved -- sorry, please continue.

I was just mentioning about switchgear, it will be not diluting the overall margin of the lighting business. It will add to that because initial sales first quarter -- first 2 quarters we will be investing in [ BTL ] and other activities, so that we get the traction in the secondary as well as the tertiary. And then it will be in line with what Lighting Solutions is delivering. So there will be no drag in the margins.

Got it. So Lighting, I can see there is a sequential decline, like EBIT margin is 8%, while last quarter, it was 11% sequentially. However, it is higher year-on-year. So how should we see the margin going forward? And whether you have given higher incentives this spend, so there is a decline sequentially?

No, no, it's not because of that. It's because of the mix of the B2B versus B2C. So that's why you see this changes quarter-on-quarter. Nothing to do with dilution in the margin. So that's why the better comparison is with June '24 last year, where we have increased from 6% to 7.9%. The B2B contribution of the last quarter was much higher, but it is highly margin accretive, and that's why the EBIT was close to 10%...

Understood. Got it. And how is the channel inventory on TPW and cooler side?

The channel inventory, as was mentioned in the opening remarks by Managing Director, continues to remain high.

The next question comes from the line of Aniruddha Joshi from ICICI Bank.

Sir, 2 questions. Now with this brand restructuring that is getting implemented, so where does the brand NEX stand now? Because earlier, there were a lot of hopes around that brand. Now how should we think about NEX positioning? Question #1. Question #2, we have seen this year unusually high rainfall even in October month. And even the small season generally, the summer product companies get in -- due to October heat, that also seems to be washed out. And again, that's called out by some of the paint companies or even, let's say, the ice cream, et cetera, also. So how do you see the season in Q3 in a way working out? Yes, that's it from my side.

Yes. I'll take the second question first. You're absolutely right. There is usually a small second summer, which this time did not pan out. And that's why I said in the beginning that we see a muted number in October also. Coming to the first question, we had indicated some time back that NEX is now a sub-brand under the Bajaj brand name. It's no longer an independent brand as it was earlier. And with the 2 brand strategy which we have of Morphy as well as Bajaj brand, NEX will be a subset of the Bajaj brand.

The next question comes from the line of Natasha Jain from PhillipCapital.

My first question. Sir, in your presentation, you've written that there is a single-digit value decline in domestic appliances. Could you call out which product category would these be?

Coolers.

Okay. Sir, because just below that, you've written coolers have witnessed double-digit value decline. So I wasn't sure what would be the single digit in domestic appliances? Would that be geezers and water heaters or...