Bajaj Electricals Limited (500031) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bajaj Electricals Q1 FY '27 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Anirudh Joshi from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Thanks, Peri. On behalf of ICICI Securities, we welcome you all to Q1 FY '27 Results Conference Call of Bajaj Electricals Limited. We have with us today senior management represented by Mr. Shekhar Bajaj, Chairman; Mr. Sanjay Sachdeva, Managing Director and CEO; Mr. Vishal Chadha, COO, Consumer Products; Mr. Rajesh Naik, COO, Lighting Solutions; and Ms. Ashween Anand, CFO. Now I hand over the call to the management for initial comments on the quarterly performance, and then we will open the floor for question-and-answer session. Thanks, and over to you, Shekhar, sir.

Thank you. Good evening, ladies and gentlemen. I'm Shekhar Bajaj. It's a pleasure to welcome you to our Q1 FY '27 earnings call. We hope you've had an opportunity to review our financial results and earnings presentation, both of which are now available on the stock exchanges. It gives me great pleasure to say that we have started FY '27 on an encouraging note. From an industry and macroeconomic perspective, the quarter played out against the backdrop of continued input cost inflation, uneven summer demand across categories and the industry largely seeing calibrated price hikes. Against that environment, our team stayed laser-focused on execution, consolidating the channel, driving cost efficiencies and strengthening the foundation we built through FY '26. The result is visible in our performance this quarter and gives us immense optimism for the road ahead. I'm glad to report that this quarter reflects exactly that direction. we delivered an overall revenue of only 2.3%. However, our EBIT margin improved to 6.6% from 2.5%. I would say that this is a positive step towards implementing our learning through last year's actions. For a company that has stood for 88 years of the Bajaj Group's values, trust, transparency and quiet disciplined execution, I see this quarter as evidence that those values are being reflected in how we run the business today. The Board and I remain confident in the direction we have set and excited about the momentum we are building. With that, I would like to hand over to Mr. Sanjay Sachdeva, our MD and CEO, to take you through the operational and financial performance in detail.

Thank you, Chairman, sir, and good evening, everyone. Thank you for joining the call this date. I'm pleased to walk you through our start to financial year '27, which reflects good progress. We have started delivering top line growth with meaningful margin expansion. As the Chairman mentioned, our overall revenue grew by 2.3% year-on-year in quarter 1, with consumer products growing at 1.7% after a decline in multiple quarters -- for multiple quarters, and Lighting Solutions grew at 4.4%. Our EBIT margin improved to 6.6%, a meaningful step-up that reflects the operating discipline we have been building over the last several quarters. Consumer Products return to growth and positive EBIT is a meaningful and positive step for us, especially after the steps we have taken in financial year 2026. It gives us more confidence to believe that we are on the right path. This gives us more confidence. For this quarter, Consumer Products vertical was a story of 2 halves. While the cooling products contracted, the non-summer products had a meaningful expansion and double-digit growth across categories. Moreover, Morphy Richards also grew double digit post our acquisition in the last quarter. Our EBIT margin has expanded to 3.9% versus negative 1.7% on a year-to-year basis. This is primarily driven by expansion in our gross margin and efficiencies generated on account of operating leverage. We are confident about our trajectory for this business, and our focus will be to sustain and improve this momentum. Lighting Solutions continue to be the vertical carrying momentum for us. Following a year in which it delivered one of the strongest growth in the industry, a 4.4% growth in this quarter on the top of that stronger base is a credible continuation. The growth was fueled by double-digit growth in consumer lighting. We remain confident in this business as a structural margin and growth engine, including the newer categories we have entered. The 6.6% EBIT margin is very satisfying for us. It reflects that the growth we delivered this quarter was earned through cost discipline, value engineering and agile pricing. Actions that we have taken to offset commodity inflation even as top line growth itself remains measured. Our foundation is strong, momentum is building and opportunities ahead are significant. We are confident in our ability to keep raising the bar by driving innovations, expanding our market shares, strengthening our brands and demand generation to deliver consistent and profitable growth. With that, we now open to take questions. Thank you.

[Operator Instructions] The first question is from the line of Praveen from PL Capital.

My first question is related to the Consumer Products. In the press note, you have mentioned despite a double-digit of a growth in the Appliances and the Morphy Richards, still we see 2% of a growth. Is the Fans business remained very weak in terms of the volume declining or limited ability to take the price hikes or the both? How has been? And where do you see the demand pricing and the margin for this segment to go ahead in the coming quarters?

So yes, you're right. Fans, as was mentioned in the opening remarks, saw a decline for us. As far as the price increases are concerned, which you mentioned about, we kept pace as far as the commodity inflation was concerned. Going forward, we see improvements in margin this essentially because of 2 reasons. As was mentioned, we are looking at our continued focus on VAVE activities. And the second focus will continue in terms of looking at premiumizing our portfolio. Over a period of time, the BLDC contribution has continued to increase and so has the premium contribution. I'm happy to say that from a premiumization point of view, our journey is going well. So going forward, we are far more optimistic as far as the margins are concerned and this business is concerned.

Related to that, sir, you are also highlighting the BLDC contribution to increase. How has been in the industry, BLDC as a contribution right now? And because we are hearing from every players regarding the BLDC contribution to increase. So where do you see this BLDC as the industry contribution from right now to the way forward, where we will see this?

So the estimates which we have on BLDC vary between 30% to 35%. We are slightly under-indexed versus the industry, but it's growing much faster, and we will be in our rightful share as we progress.

Right. And the last question, sir, related to the Lighting. So Lighting also, if I look at on the -- especially on the margin front, we are nearly around single digit, around 7% odd. So do you believe this margin trend to improve from here with the mix, B2C or the B2B changes and we will expect it to drive these numbers from here?

This is Rajesh, this side. And we are -- as we mentioned in last call also, we are continuously changing the premiumization and the mix change from our low commodity products to the more premiumized products. And we are driving that to have at least a trend towards -- going towards double digit. That is what the journey is, including B2B, where we are trying to bring the volumes up with contribution of high-margin projects to improve this particular margin.

So in this particular quarter in Lighting, we have legacy projects in professional Lighting, where we are not able to take the prices up because the contracts were signed on the rates before the war. However, commodity prices have gone up, so we had to take a hit on the margin in professional lighting. So that's getting reflected in the overall Lighting business margin. But we believe in a quarter or 2, as we exit some of these legacy contracts, we will build back our margins. So we see it a temporary blip in our margin journey.

So in a steady state, so where do you see this margin to be?

Excuse me?

So in [indiscernible]

So once we are off this legacy project, we'll go back to double-digit margins in Lighting -- overall Lighting.

The next question is from the line of Anirudh Joshi from ICICI Securities.

Yes. Sir, 2 questions. One, in terms of the market shares, can you indicate what will be the -- in a way, whether we would have gained or anything that you can share? Also, secondly, Bajaj as a brand has one of the strongest reach in the entire market and one of the best known brand in rural markets, too. So what will be the, in a way, growth in rural markets? And how do you see the market shares in a way panning out in rural markets too?

So overall share trend is a mixed bag for us. We have -- in a few categories, we have been growing share or stable. So we are stable in most of the categories and growing in iron and mixer grinders. The one category which is large where we have -- as we explained earlier, we have not done as well as we want to is Fans. This is where we are losing share. We know why we're losing share, and we have corrective actions in place. So we intend to claw back on our share loss in next 2 or 3 quarters. We don't have any special share report for rural, so very difficult to answer how we are performing there. Needless to mention, if the overall shares are either stable or growing, for most of the categories, our rural share -- and we are a large player in rural. So we should assume that our rural share should be intact.

Surely, sir. Just last question. So in terms of distribution, what is the current strategy now to focus on numerical reach expansion or to driving the throughput per store? Also, what will be share of e-commerce, modern trade, the alternate channels essentially? And what will be the plans to expand share in these alternate channels, too? Yes, that's it from my side.

Okay. The first part was -- what was the first part of the question?

Numeric...

Yes. So the focus remains on both. While we have a very large numeric reach. But as you know, market share is measured both in terms of impacted by both numeric as well as the counter share. So our focus remains -- I mean, we cannot let go of one and focus on another. So we are focusing on both in a calibrated manner. While numeric reach continues to grow, we are equally mindful about our counter share and the focus is on there also. The second piece was on e-commerce. E-commerce contributes to approximately 15% and again, depends on quarter-to-quarter depending on the festive or the sale events, which the e-commerce players do. But on an average, it's around 15%, which is in line with the industry. Alternate business contributes in all put together around 45%. It's a 55-45 kind of a ratio, which take a few percentage points here, they could be 57-43, but broadly it's 55-45. And alternate for us in this quarter has also grown very well. E-commerce has grown in double digits. And we have also almost doubled our exports.

[Operator Instructions] The next question is from the line of Achal from Nuvama Institutional Equities.

This is Achal from Nuvama. So the first question I have, with respect to the distribution change, what we were undertaking? Where are we in terms of that backlog? Is it done and dusted? Or is it still going on? And how long will it take for us to see a normal growth?

We haven't talked about any distribution change per se, Achal. Our go-to-market continues to remain what it is. If you are alluding to when we took stock correction -- right. Okay. So sorry for misunderstanding. Yes, we have taken stock correction. And it's an ongoing journey. We continue to do whenever it's required in a calibrated manner. But at an overall level, our stocks are in a much healthier position than what they were a quarter or a couple of quarters ago.

Understood. Understood. And on the GTM, since you thankfully raised that point, earlier, we were almost exclusively on the RREP program. And sometime back, we kind of started working on direct distribution as well, direct dealers. So if you could elaborate at this point in time, how it is structured? And do you see any changes to that structure in the next 2, 3, 4 years?

So RREP, I mean, the full form of that essentially is reach and range expansion. So those are the common things which we continue to drive. It's only the manner in which it could differ. So the bulk of our business still happens through the distributor channel. In certain markets, we have already started kicking off our direct models where it is required. So we have direct dealers, which we are now reaching out to in parts of South, in parts of West. And going forward, we will probably accelerate depending on the geography, our direct distribution model.

Understood. Sir, my next question I have with respect to the margins, with respect to particularly the ECD margins, if you could give us some sense, while I understand, obviously, the margins have improved, they will continue to improve. But how long do you think it will take for us to go back to closer to 9%, 10% margin, what we could have had, say, about 7, 8 years ago?

Okay. Let me take this, Ashween here. See, our gross margins have improved by 130 bps as a company and especially in the Consumer Products segment, it's grown by 220 bps. And this growth is coming from various factors. It's coming from premiumization. It's coming from productivity-led initiatives across better mix management, ROI-led investments, better commercial discipline. So we believe these current gross margins are sustainable directionally, but quarterly movements will depend on commodity prices, category mix and competitive intensity. Our focus is to keep improving the quality of the margins. And we do believe with the structural improvements that we have done, we should directionally move in the positive direction.

Got it. Any guidance or any thoughts on the normalization of the margins? Will it take a couple of years? Or you think it could be a bit more longer journey?

So normally, you're talking about here the EBIT bottom line margins or gross margin?

The EBIT margin, sir. Because Lighting, I think we are good now, like you've already talked about going to double digits. So I understand that completely, but I'm just curious for the Consumer Products margins basically.

So as we always said, we intend to go to a 10% margin, which I did not know we have 6 years back. I don't think we ever had it. But we are going to bring to that. I don't know maybe if it was there in the history. But we intend to go to 10% margin, which will be very close to industry-leading or industry -- close to industry top end of the margin. So we believe, as you can see the journey, we have very quickly ramped up our margins. We believe the first set of turnaround in margins will be quick and large and the second set will be slow and longer because first set of improvement is like low-hanging fruits, and you should be able to sort of deliver that quickly. So answering your question, so we do see our margins for next 2 years to stabilize between 6% to 7% because we would like to, at the same time, invest a bit more behind our brands. But once we have strengthening our brands and the scale coming, we will then build our margins further. So if there is a time line, I will say, certainly not next 2 years. But after that, you will see steady improvement towards 10%. That's all I can say. Whether it will take 4 years, 5 years, 3 years, that depends upon many other factors.

Got it. In terms of the competition specifically, are you seeing like competition actually getting more intensified, everybody wants to do everything? So -- and given our positioning at this stage in terms of the value for money, do you see that the market share improvement is more harder now to gain back compared to what it would have been, say, 2 years ago?

So it's 2 ways to look at it. When everybody is entering, you can see the kind of growth the market is giving to everybody. So the market will expand when everybody comes. A lot of player comes because of the investment, because of the innovations, because of other initiatives everybody takes education because it's still a very underpenetrated categories, most of them. So coming more players not necessarily mean it's not good for the current players. Now will the market share improve or decline or not, is a question of how well you play with your brands, your innovations, technology, go-to-market initiatives. And we believe in that knowledge becomes important, while we have one brand, Bajaj, but we have another brand, Morphy Richards, which is at the right space in terms of when the people premiumize this is one of the brands which will gain. So therefore, we do see many levers coming in as we get our act together. And we don't think -- and that's not our play, that our share will be questioned. So as I told you, except for Fans, most of the categories, our shares are rather stable or growing. And therefore, while as I said, competition is heating up, but it's not it's not something which is going to impact us too much in medium to long term.

Understood. Sir, I have a couple of more, if I may ask, with respect to wires contribution, if there is any contribution in the current year -- in the current quarter, ma'am, I mean?

So that will be sometimes -- we don't tell. All that I can say that in wires, our progress is better than what we were expecting, and that gives us confidence that it can play a significant role moving forward to our business.

And this will be part of the Consumer Products or the Lighting segment, ma'am?

So it's part of the Lighting segment and including switchgears.

Got it. In terms of the net working capital, if you could call out net working capital days, how have they moved from a March to June quarter?

Yes. So our working capital position has improved. On the debtor side, we've improved on the overall inventories, however, slightly up. And the reason for that is because we've locked ourselves in some good inventories. This is a seasonal period. So we've increased slightly over there. But normally, broadly, it's in the range. And it's largely hovering around between 50, 60. So that's the larger trend. And we see some buildup to happen because of the seasonal business. But overall, they're tracking healthy. We had -- in a space where we are looking at that and monitoring it very closely, but we think that we are building up good inventory.

Got it. Any quantification you could give for the OCF during first quarter, cash flow from operations?