Conference Call      
          Bajaj Electricals
Expects sales of Rs 3300 crore for FY12


Bajaj Electricals held a conference call on November 2, 2011. In the conference call the company was represented by Shekar Bajaj, R Ramkrishnan, Executive Director and Ananth Purandare, CFO.

Key takeaways of the conference call

Q2FY12 performance is an encouraging one though not a strong one for the company. Sales for the quarter grew by 19% to Rs 698.62 crore and the operating profit was higher by 14% to Rs 50.32 crore as OPM contracted marginally by 30 bps to 7.2%. However impacted by higher interest, the net profit was higher by 8% to Rs 24.99 crore.

Revenue mix - lighting 25%, consumer durables 48%, Engineering & Projects (E&P) 24%. Lumaineries 28%, fans 4%.

Revenue of all three businesses have grown with that of lighting grew by 25%, consumer durable by 21% and that of E&P by 10%. Barring that of Consumer durables the EBIT margin of all other biz has expanded.

Consumer Durable EBIT margin is down by 110 bps - The contraction in margin is largely on account of two counts commodity price as well as forex fluctuation impact. Commodity price in the quarter is relatively higher compared to corresponding previous period wherein the prices were relatively benign. About 10% of the cost is copper and aluminium. In terms of products the margin of Fans & Murphy Richards have contracted The indifferent performance by fans and Murphy Richards is largely due to sizeable sales of these two come from imported products which was susceptible to forex fluctuation.

The E&P order book was Rs 626 crore as end of Oct 31, 2011. But with inflow of Rs 116 crore order in first day of Nov 2011, the order book swelled to Rs 742 crore as of now. OB Break up - Special projects is Rs 286 crore, High mast Rs 140; TLT 200 crore +116 crore.

The company expects to close the current fiscal with a sales of Rs 3300 crore. The profit for current fiscal will be higher than last year though commodity prices are still uncertain.

E&P – Expects the EBITDA margin in Q3FY12 will be over 8% and that of Q4FY12 will be over 10%.

Corrective measures have already put in place during Second quarter of current fiscal. Closed to half a dozen projects where the money got stuck will come up in next few quarters. In case of project struck at advanced stage of completion where there was only expenses and no income. Having this projects got completed now, the cash inflow will improve from this projects and help bringing down E&P capital employed.

In future E&P projects, the margin will be around 9-10%.

The month of Sep 2011 is a reasonable indicator of how demand pans out – there was 40% growth in revenue of CD even Murphy Richard segment grew by 49%. Lighting grew stronger in Sep 2011, but fans 5%.

Current E&P order book is sufficient enough for current fiscal but it is important to start next fiscal with an order book of Rs 1000 crore.

Market leader in irons and water heaters, the company is a strong player in mixer grinders as well as room heaters. Since the company has pricing power and enjoys premium it stands to gain when RM prices eases.

In case of Fan, all fan manufacturers try to work together under Indian fan manufacturers association. The price hike will be done collectively and there won't be knee jerk reaction. The company broadly has staying power in terms of volume and strategic sourcing etc in case of Fans. The Fan Industry grew by 15-20% for last 7-8 years and during the same period there is also structural change in the industry with the share of Unorganised segment in the total Fan Market has gone down from 60% to 20%. So the industry had twin benefits of market expansion as well as change in industry structure. It is not such a profitable business and no new players getting into fans segment and the company is looking to become second largest player in this segment.

Appliance business – about 20-25% of murphy richards revenue is from imported products; in case of fans about 20% of turnover is from imports.

In next five years if the company achieves 1.5% margin improvement for consumer durable that will be a good one. The company expects the following factors to facilitate this reduction in working capital, value addition, segmental leadership and brand strength that bring price premium, deeper market penetration and broader product basket leveraging network/channel cost etc.

There is balanced approach when RM price increase there won't be knee jerk reaction from the company it takes a long term view/ stock of demand scenario and consumer reaction etc. And in case of marginal commodity price comedown there won't be passed it on to customers and directly goes to bottomline.

Typically the company have inventory of 45-60 days for imported products. It takes a little time for forex impact to get reflected as it have significant imported inventory. The weak Rupee has escalated the import cost by 10% especially Consumer Durables.

Induction cooker is doing well and expect Rs 100 crore in 2011-12.

Continue to focus on - Product innovation, value engg, cost reduction, new product introduction.

In terms of second quarter - Fans and Room Coolers were the culprit as their volume declined and there is pressure on Working Capital as well with inventory built up of the same as the season collapsed. With inventory moving up that escalated the working capital which in turn increased the interest cost.

E&P as white elephant is not standing in way of the growth of Consumer Durable and Lighting and Luminarie, the company gives priority and allocates money for the growth of the latter in spite of money struck in E&P projects.

A RoCE of 20% is expected in E&P business for FY2013. High Mast project requires least working capital. The company is doing RE work only for NTPC and NHPC thus the funds coming from RE is better than TL business.

High Mast to grow 10-15% next year. In RE and TL the opportunity is huge and its upto the company how much it wants to take.

Expectation is too higher after philips acquired preethi, the company is not averse to acquire exiting brands, but it should come at right valuations.

Impact of forex fluctuation is around Rs 2.4 crore for the quarter.