BackBajaj Electricals decides to focus on export, rural markets
Firm wants to double its revenue from exports by scaling up in regions where it already exists and entering new markets
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Mumbai: Bajaj Electricals Ltd, a maker of lights, fans and appliances, will increase its focus on two diverse markets—rural and exports—as a part of its turnaround strategy, after the company posted its worst fall in profits in over a decade.
The company wants to double its revenue from exports by scaling up in regions where it already exists and entering new markets.
“This (fiscal) year we will end with about ₹ 45 crore of turnover from exports, which is roughly around 1% (of ₹ 453.93 crore total revenue from the Consumer Durables vertical as on 30th September), and will increase it to around ₹ 100 crore by next year," said Anant Bajaj, joint managing director.
Some of this additional export revenue will come from South America and South East Asia, where the company plans to expand.
“We are looking at opening up new branches overseas. Currently, we are strong in the Middle East and Africa and are looking at expanding into another 25-30 markets from around 30 regions where we are selling our products currently," said Anant Bajaj.
“Exports are a major area the company wants to explore as customers are ready to pay a premium if it is India-made product," he said.
Bajaj Electricals reported a loss of ₹ 16 crore in the September quarter, its worst in a decade, because of tepid demand. The festival season just gone by gave nothing to cheer about. “Both Diwali and Onam sales disappointed even though the company invested heavily in promotions," said Bajaj.
“We are expecting 15% growth in consumer durables and lighting segment compared to 25% growth on average in the past seven years," said P.S. Tandon, executive president (appliances business unit), Bajaj Electricals.
The company, according to a Bloomberg poll of analysts, is likley to report an estimated net profit of ₹ 18.54 crore and net sales of ₹ 1,060.5 crore in the December quarter.
The competitors of Bajaj Electricals such as Havells India Ltd, TTK Prestige Ltd and V-Guard Industries Ltd are also adding dealer networks all over the country to push their products in the rural areas where penetration is low.
According to Hitesh Taunk, consumer analyst at ICICI Securities, “Players like Havells India are also investing heavily in branding and advertisements to increase penetration."
“Urban discretionary spending is in a cyclical slowdown, and consumer durables have seen double-digit volume declines for two consecutive years," Credit Suisse Securities Research and Analytics said in an 8 January report titled India Consumer Discretionary Sector. “We do not expect a near-term recovery for the sector, as urban wage growth remains muted, the government pay commission is 2-3 years away, and inflation remains in double digits
Naturally, rural penetration is an area of focus for Bajaj Electricals. “We are not looking at diversifying but are expanding our reach in the rural segment. Since growth is faster in the rural areas than the urban, we are targeting a total of 150-175 Bajaj World stores by March 2015, of which 60% stores will be in the rural areas," said Tandon
“Rural penetration is a long-term story for the next five years and it (Bajaj’s plans) is along the lines which most companies are doing in the consumer space," said Sanjay Manyal, sector analyst with ICICI Securities Ltd.
Also, “if the currency remains at these levels ( ₹ 62 per us dollar), import cost may remain elevated, so it should be a positive that Bajaj Electricals is expanding their share in the export market", Manyal added.
Bajaj expects the second half of the fiscal year will be better following the closure of unviable projects. “We have taken tough calls in the engineering and projects (E&P) business in the past year as we decided to shut old projects which were unviable, had time and cost overrun. We have already taken in a hit in the past few quarters," Anant Bajaj.
Bajaj Electricals is, in fact, bullish about its E&P business.
“Bajaj Electricals is targeting order book of ₹ 1,500 crore by the end of current fiscal in E&P division from ₹ 700 crore in the beginning of April. Around 80% of ₹ 1,500 crore will include new orders," said Shekhar Bajaj, managing director of Bajaj Electricals.
“Engineering and projects division is recovering, which has been supporting the share price," said Manyal.
Bajaj Electricals has outperformed the broader markets since the beginning of December, rising 33% compared to the Sensex’s 2% decline.
The engineering and projects division contributes around 30% of the firm’s revenue. “We are selective in pricing because of capacity limitations, hence our margins will not take much hit in this segment," said Anant Bajaj.
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