Ladies and gentlemen, good day and welcome to Bajaj Electricals Q1 FY 2025 Conference Call hosted by ICICI Securities. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and over to you, sir.
Yeah. Thanks, Aditya. On behalf of ICICI Securities, we welcome you all to Q1 FY 2025 results conference call of Bajaj Electricals. We have with us today senior management represented by Mr. Shekhar Bajaj, Chairman, Mr. Anuj Poddar, Managing Director and CEO, Mr. EC Prasad, CFO, Mr. Vishal Chadha, COO designate Consumer Products, and Mr. Rajesh Naik,[audio distortion]. Their initial comments on the quarterly performance, and then we will open the floor for question and answer session.
Thanks, and over to you, sir.
Thank you. Good evening, everyone. I am Shekhar Bajaj, and thank you for joining us in this meeting. I want to emphasize that over the last three, four years, Anuj and the board have focused on putting a strategy in place that includes both market initiatives and building a strong executive management team. My role is that of a mentor, giving the depth of our team, some of whom you will meet on today's call. As you would have seen in our Q1 FY 2025 results, our strategy is starting to play out, and we have sharply improved our profitability sequentially vis-à-vis the March 2024 quarter, which is normally a very strong quarter for our business. Let me give you a few high-level business updates for the quarter.
On the Consumer Products vertical. Our Consumer Products vertical has demonstrated revenue growth after four quarters. We have also managed a few price hikes and streamlined some of our discounting schemes as our product gains greater acceptance with our customers. Our alternate channel segment continues to work well, and most sub-segments have shown a double-digit growth. Morphy Richards is also delivering high teen revenue growth since the past few quarters. Our pain point continues to be our kitchen appliances segment, which has been affected by sluggish rural demand and the need for us to continue to premiumization our portfolio. The monsoon updates and recent government interventions are driving a rebound in the rural economy, and whilst we are seeking early green shoots, we are confident we have a very positive second half.
The Lighting Solutions vertical continues to do well and has delivered double-digit EBIT margins with promise to continue to do better in succeeding quarters. Operational focus. Cash from operation in Q1 was INR 155 crore, which is a testament of our rigor on operational excellence. Strong balance sheet. Our surplus cash as on June 30, 2024, is INR 442 crore, which reflects our strong liquidity position. We remain committed to our strategy towards premiumization, digital transformation, and being more cost competitive. We at Bajaj Electricals are very conscious on managing all our stakeholders' expectations. The recent demerger of our project business, as you will appreciate, has been a great success, both in terms of better identity and focus for the two distinct businesses, and it's resulted in fact on market capitalization.
Now let me do a quick introduction of our executive committee that work closely with me and the wider board. Anuj, whom you know well and will be with us till September 30, 2024. I would like to reiterate our gratitude to Anuj for his efforts over the last six years, and equally importantly, the bench strength we have groomed to take BL forward. I would like to introduce the other members of our executive team. Rajesh Naik, who's been redesignated as Chief Operating Officer for lighting business and has spent over five years in BL as he leads our lighting business. He has played a major role in turning around the lighting business, and under his leadership, you will hear more from him on our future interaction.
As you are aware, Vishal Chadha is now in his first week as the Chief Operating Officer for our consumer product business. His expertise in FMCG, consumer devices, and e-commerce will significantly benefit our organization, bringing fresh perspective and new energy to our operations. Now Vishal will receive a comprehensive two-month operation handover from Anuj to ensure continuity and stability in the consumer business. EC Prasad, our CFO, as you know him well, has been driving cost rationalization, digitization, and implementation of our well-laid-out strategy. As I hand over to Anuj for the quarter update, let me assure you that we are committed to finding the best person to take over as MD of BL, and we will keep you informed in this regard.
Now I'd like to hand over to Anuj to present our results. Thank you.
Thank you. Thank you to our Chairman. Good afternoon, everyone. This is Anuj Poddar. Thank you for joining in. I think the Chairman has covered all the key points. I'll just emphasize a few points, and repeat them. Firstly, the lighting solutions business has had a good quarter. If you see our track record in lighting solutions, we've been growing consistently over there. The top line has been managed well despite price erosion in the marketplace. But at the same time, our margins have been consistently expanding, and we finally crossed a double-digit margin in quarter one. That's a very good trend. Going forward, I'm very confident about our consumer lighting business gathering pace and keeping pace along with the professional lighting business and overall continue to drive our top line, and importantly, our margins should continue to expand for our lighting business.
Coming to consumer products business, as we all know, last fiscal was a soft year for the consumer products business on the top line, and that had an effect for us on the bottom line too, because of various factors, including the discounting and other measures that we had to resort to. The worst is clearly behind us. The headline for us to take away from our current quarter is that we have bottomed out. We have grown sequentially quarter-on-quarter from Q4 of last fiscal to Q1 of this year. In revenue terms, if you see till the last quarter, our alternate channels, which is led by online and modern trade, have been growing, but our general trade had not been growing this quarter. You have seen a modest growth in general trade too.
This is despite our high dependence on rural markets and kitchen appliances, which are a bit of a drag. But overall, now we are back onto a growth track across all our channels. The margins sequentially also have expanded as a result, both of a moderate growth on top, but also of certain pricing actions that we have taken towards the end of quarter one. Finally, this is despite our ad spends in this quarter having picked up versus the previous quarter and last year. There is about a 1.5% incremental ad spend that is baked into these numbers. The headline I leave you with for our consumer products business is that we have bottomed out. Our trend line from here should look positive, and I will come back to a few comments on that.
The third point is really cash. Cash is something we have consistently, for the past several years, been very focused on every quarter. We continue to generate very strong operational cash flows, always well ahead of our reported profitability. This quarter, our team has done a great job of generating about INR 150 crores of cash from operations, and that is again a testimony to how we are managing our working capital and how we are continuing to strengthen our balance sheet. Well, this is my view and headlines in the quarter. I just want to take a couple of more minutes to talk about the larger view on where we are as a company with Bajaj Electricals.
If you look back at the last few years, we have solved for significant structural corporate-level issues and at the same time built the strategic foundation for our growth of our businesses, the consumer products and lighting businesses. We have taken a lot of initiatives that I think set the stage for this growth in terms of our internal operating structures, in terms of our product roadmap, in terms of our brand positioning, and in terms of our overall architecture and digitization, et cetera. We are starting to see the benefits of that in the lighting business, and I am also confident that we will start to see the benefits of that for the consumer business in the coming quarters and by next year.
What will really take us forward now in the consumer products business in particular is a lot of cleanup on the operational and execution side. On that front too, we are very clear on what we are doing. We are taking clear steps on that. We are seeing incremental improvements in that. We have internal metrics which go beyond the P&L numbers that you see at an operational level, whether it be in terms of NPD contribution, whether it be in terms of quality metrics, in terms of our portfolio mix and premiumization. All of these are trending well, which is what gives me confidence.
Finally, there are various operating levers, which I think will drive margin expansion for us. This, without getting into details, this includes our pricing strategy. We are reviewing some of these pricing approaches, discounting structures. We have seen some benefit in Q1. We will continue to guide that going forward. Our logistics, which has always been a pain point for the past few quarters, we have started to see improvements in our logistics function. Our digitization that I spoke about, we are starting to see becoming a lot more data-centric, and that data is helping us make more logical, quicker, more nimble decisions in the business.
Finally, the other measures such as VOB and other exercises in supply chain. All those initiatives are rolling now and therefore confident that you will start seeing the benefits of that in the coming quarters and by next year. With that, I will end my opening comments. I just want to use this opportunity to thank all of you investors for the faith and support that we have received as a company and that I have received as an MD for the past five-plus years. Thank you, and hand it over to the moderator. Sorry, before that, actually, let me, since the Chairman introduced Vishal Chadha and Rajesh.
In the past, we have not had the business heads join us on these investment calls because they have been very focused on the business. I think it is a good time for you to be introduced to them, for you to know the depth of our leadership and that the business is, both businesses are in good hands. First, I will hand it over to Vishal. The Chairman has already introduced Vishal, but I will let him introduce himself and speak a few sentences.
Good evening, everyone. I joined the company on August 1st. I am very excited to be a part of this iconic brand and organization, and in taking forward this transformational journey on consumer products. We will obviously interact more in future. Thank you.
I will just add to that, while it is only the fourth working day for Vishal, I think we have done our homework in the selection. It has been a very rigorous selection process. We are very confident about our choice there. The first four days at least augur well. Everything that we see in these first four days gives us post-purchase satisfaction. I think we are in good hands. He is picking it up much faster than we expected.
With that, let me also bring in Rajesh Naik. He is not new. He has been with the company for over five years, but he has been a big pillar of driving the change and growth of the lighting solutions business.
Good evening, this is Rajesh. As mentioned, I am part of this particular group for the last five years. Started in professional lighting where we were able to do a lot of cleanups in terms of debtors inventory, and now we are completely clean on that particular front. Consumer lighting is again a big area for us where we are very strong and we are working on a new GTM strategy which is going to give us the high double-digit growth in the both segments. Thank you for joining.
Thank you and moderator back to you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask question, can press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is on the line of Praveen from Prabhudas Lilladher. Please go ahead.
Thank you for the opportunity. The first question is related to the consumer product. In the press release you had mentioned that the green shoots visible in the rural area, even though we had seen a 3.7% growth in the CP business. Do we expect in the next nine months, the growth in the CP business to accelerate or to be in the double digit offer range?
Hello? Praveen, can you hear me?
Yes. Now I can hear you.
Praveen, thank you for your question. We do not give forward guidance in numerical terms, whether it is double digit, single digit. I will just emphasize what we have put in our note and what I said in my opening comments. We are seeing definitive green shoots. We are seeing a pickup in rural demand that includes trade channels. We are confident, therefore, that second half of this year should be strong, as the Chairman mentioned. All the signs right now augur well, whether in terms of what we are picking up or when you look at monsoon and other factors, et cetera, and some measures that the government has taken with budget, which should put more money in the hands of the rural consumers. We remain positive and the second half of this year should show growth.
Related to that, sir, in the presentation it is mentioned even after cooling product contributed more than 50%. Our margin has not improved on the YoY side, if I look at. Is that the appliances which has not done have a higher margin product as compared to the cooling product, which increased the contribution?
Yes. Where it is, there is two levels of margin, Praveen, at a gross margin level and at an EBIT margin level. At a gross margin, actually our margins improved by about 1.5 percentage points over last year. So that is a function of our product mix and premiumization continuing to happen and certain pricing actions we have taken. At the EBIT level, margins have not improved YoY for two factors. One is I said we have an incremental ad spend this year versus last Q1 of about 1.5 percentage points. Secondly, this is a function of operating leverage. While certain basic overheads, employee costs have gone up, our 4% top line is not adequate to cover that. That is what I feel that going forward as our operational improvements kick in.
Also second half of this year's operating leverage kicks in. You should see more of the gross margin improvements translate into EBIT improvements as well.
Okay. Second question related to the lighting business. Definitely on the gross margin front or on the EBIT margin front you have done very well. But if I look at on the growth side, it is still a single digit. Is it only the realization or the product mix changes, price increase change that delivered the numbers? Or is there a volume growth as well?
In terms of professional and consumer, there is price erosion which is still continuing and which is impacting the growth. Otherwise in volumes we are growing in consumer lighting part.
Okay. Is it possible to give any indication on alternate channel contribution, sir?
For lighting?
For overall business.
Give us a second.
Yes. E-com is contributing about 13%.
Who is speaking?
This is EC Prasad here. E-com is contributing about 13% and overall, if you look at alternate channel, it is contributing close to about 39%.
39% including e-com?
Yes.
Okay, great, sir. Thank you and all the best.
Thank you. Our next question is from the line of Nilesh Patil from ICICI Securities. Please go ahead.
Yeah, thanks for the opportunity. Hope I'm audible.
Yes, Nilesh.
Yeah. So, in the presentation we have mentioned that the demand for kitchen appliances has remained soft in Q1. Do you expect any recovery in H2 FY 2025 led by festive season?
Yes, Nilesh. A couple of factors. One is, what we said is the rural economy coming back. That would help the growth of the kitchen appliances. Apart from that, few more indicators are on the interest rate reduction, good monsoon, et cetera, should be in a position to deliver better results for the kitchen appliances. We get a confidence from the fact that some of products have done extremely well. The fans have grown, the coolers have grown. We feel that with all of these happening in the next two quarters, the kitchen appliances should also get back to growth.
Yeah, thanks. As you mentioned about the fans growth, we have seen that most of the peers have taken price hikes in the fan segment. Has Bajaj Electricals also followed the same trend?
Yes. We have also taken some price increase with effect from 15th of May. Yeah.
Okay. May I know the quantum of the same?
It is in the range of 2%-3%.
Okay. Sir, could you just throw some light on growth in the Morphy Richards segment?
It is in the higher teens, Nilesh.
Okay. Thank you. Thanks a lot. That's it from my end. Thank you.
Thank you. Our next question is from the line of Achal from Nuvama.
Yeah, good evening. Thank you for the opportunity. Sir, I wanted to check with respect to fans, the kind of growth what you have seen, would you argue that you have gained market share or you were fairly in line with the industry? And, did we have any supply side constraint in terms of meeting the fans demand in the first quarter?
Achal, our growth in fans, while we've had growth, I would say it has been below industry growth. And the reason for that is our share of contribution from sub-economy continues to be very high. We've seen growth in the premium segment, which is, I think, growing much faster. While our percentage contribution of premium fans has grown Q-on-Q and Y-on-Y, it remains a very small part of our portfolio. And I think we should be doing a much better job of growing in the premium segment. As that happens, we should see better growth in fans moving forward.
Understood.
The supply has not been a challenge for fans, right? It's just our GTM and our product mix change that has to pick up at a faster pace.
Is it purely about the price segment or it's also to do with the rural-urban mix as well?
In fans, I would say it overlaps of course, but it's just a segment of product. Since we've traditionally been a sub-economy player, our acceptance as a brand in the premium segment is a journey that is happening. We are continuing growth, but that's not overnight. That's as far as Bajaj is concerned. Nex is the other premium fan brand that we've launched in the West. That is picking up pace. If you've seen, we've launched some campaigns towards end of Q1. While we did not have a supply constraint on that, the products are continuing to get rolled out. I think later half of this year and next season is where you should see a strong pickup on Nex. With that, our overall contribution in premium fans should jump up significantly from next year onwards.
Sure. The second question I had was with respect to kitchen appliances. If I recall previous commentary, a fair amount of discounting was playing out in this particular category. Are you seeing some stability out there or it still remains as they were?
Achal, kitchen appliances remains a challenge, particularly in our mixer grinder kind of a category. We have taken some pricing correction, which means an increase from May and June. We faced a fair amount of resistance from the market due to that. We have seen the market has not responded very well to that. But we are clear from here on, we will protect our margins. I think volume growth in kitchen also should come back from second half of this year. We started to ring-fence our margins. We had taken aggressive discounting approach last year. We pulled that back in leave of demand uptick that we expect here.
Understood. Thank you. I will follow back in the queue. Thank you.
Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions. Our next question is from the line of Anuj Sehgal from Manas Asian Equities Value Fund. Please go ahead.
Yeah. Hi, good evening. Can you hear me?
Yes, sir.
Hello?
Yes, Anuj. Please go on.
Okay. My question is on the consumer durable business. If I look at the business over the last several years now, the last time it did double-digit margins was in FY 2012, just 12 years ago. The business has gone through changes. You had the range reach expansion program, and there were disruptions through that. Then, of course, the company has now de-merged. I want to understand why is it that the consumer durable business has low single-digit margins, whereas other companies in the similar state with a lesser scale than Bajaj Electricals are able to do high single digit to low double-digit EBIT margins?
The other related question is that over the last three, four years, we've been aspiring to increase the margin profile of the business and are expecting the margins improve, but something or the other keeps happening, whether it is operating de-leverage or higher costs. I want to understand if there is any structural issue with the business with respect to maybe a bloated cost structure or the distribution efficiencies are not there, or maybe there is some other issue with the business. It would be helpful if you could highlight, because for the scale of the business you have, the margin profile is pretty mediocre and has remained that way for now several years. One is why is the margin low? Secondly, what can be done to improve the margin of the consumer durable business? Thank you.
Anuj, fair question. To be honest, this merits a much longer answer and discussion, but I'll try and give you the headlines on that. Firstly, while our business scale is large, you must remember that fundamentally, we've been positioning as a low price point, value for money, rural-focused company or brand, and significantly so. When I say significantly so, it's not a margin difference versus competition, but significantly more skewed on these parameters. If you look at the trend line over the last year or two years from a market base, this is not a favorable position to have been in. Rural markets are hurting. Value for money segments are actually de-growing. There's a lot of discounting that's happening for those segments, et cetera, and therefore, we've been caught in the vortex of that positioning.
Our strategic effort over the last few years has been to move out of that, reposition ourselves both as a product portfolio, premiumize, invest in our brands, create an R&D pipeline. We are largely a trading-led company in the past, so we are investing in innovation, R&D, and we are doing this. The strength of a large-scale business also comes with the challenge of investing in so many categories for R&D and refixing all of these and refixing our go-to market across all of these. That does come at an investment. What we have not shied away from the last two, three years, actually investing strongly behind this change. We are starting to see that change, which is what I was calling out in opening comments on our NPD contribution, our quality metrics, our brand scores, et cetera.
As that happens, that is a journey or process over the next two, three years or rather over a course of two, three years, we start seeing the financial benefits of that. I would say we are somewhere between three-five quarters from getting the benefits of that. Last point I would make on that is operating leverage. Operating leverage, when we have a business of this scale and is under pressure, works against us. When we start seeing tailwinds and growth in the business, that operating leverage again comes back very strongly in a business like ours.
To question on cost structure, the large business comes with fixed cost structure that we have not shrunk or cut back on severely in bad times because that is not how we would look at a growth business. But in good times, we think should come up, we will see the benefit of that.
Thank you.
Can I add , Anuj?
Please, CFO would like to add.
Anuj, one more factor. You had asked a question whether our costs are bloated. If you actually benchmark our costs with anyone else in the competition, you will find that our costs are in line with what others operate at. What we have done is we have controlled our unproductive costs pretty well. What we have spent is on the productive costs, like the brand spends and the R&D spends, et cetera, which is much higher than what the competition is spending today. As Anuj mentioned, as we reach where we want to reach in terms of the product architecture, in terms of the brand, et cetera, we will lower those spends. At that point in time, our margins would look much better. That is one aspect.
Second aspect, I would also like to remind you that unlike our competition, which are more into manufacturing centric, we are more traders. Only 20% of our products comes out of manufacturing. That also impacts a bit. But if you actually look at an ROCE level, we are not that far behind from where our competition are.
Thank you very much.
Thank you. Our next question is from the line of Dhruv Jain from Ambit Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, I had a question on your alternate channels. I think you mentioned that your alternate channel contribution is about 39%. Just wanted to understand if there will be a significant cost differential or a margin differential between the general trade and alternate channels, because that seems to be growing faster. That was my first question. Thank you.
Actually we are reviewing that, but ballpark, I can tell you that our margins are not lower in alternate channel as compared to the general trade. We are maintaining the MOPs, we are maintaining the pricing that we are giving to the competition. Plus add to that, the structure of the alternate channel is much leaner than a structure of a general trade. That way, we are not burning cash in the alternate channel.
Okay. Makes sense. Second question was with respect to fans and lighting. Last couple of years, we've seen that the market's been weak. There have been regulatory changes, technology changes, et cetera. But if you were to hazard a guess, say, over the next three years, how should we look at the growth of these categories? Even both of these categories are fairly well penetrated. Thanks.
Rajesh here. I will take that on the lighting, because as you have seen, technologically, LED has taken almost 95% of the space in the lighting business, and it is continuously improving in terms of efficacy. In my view, it will continue for next three, four quarters until you reach the highest efficacy in the LED chips. With that technology improvements, definitely there will be a continuous price erosion, which will be there. But again, in the market, the requirements of lighting levels are going up, which will compensate for this price erosion which is being. Being LED a semiconductor, it is having possibility of going on IoT spaces, which we are working closely with R&D. Fans, if I have to[audio distortion].
Dhruv, this is Anuj. I'll answer on the fans. I think your question is valid. It's a very high penetration category. Overall growth in terms of penetration or volume, room to grow is limited. But I think there are three levers of growth, two common to industry, one for us. On an industry front, I think the ASPs will continue rise for fans. There is a process of overall premiumization in fans that will continue to drive growth ahead of volume growth for the industry. Second, the replacement cycle is becoming shorter. The reason for people to change fans, despite high penetration, is becoming more compelling, either in terms of just the consumerism and disposable mentality or also because of star rating and energy efficiency. There's a strong case for ROI, strong ROI case for replacement of fans. Those are two external factors.
I think for Bajaj, there's a third factor playing, which is from where we are coming. This factor of high penetration has been true for many years, but despite that, over the last five years, we've come up from a number seven player to number four player in the fans category. I think that journey should continue. We expect to break into a top three. Again, various levers. We've had white space in our portfolio that will drive growth for us in fans. Now with the second brand, Nex, I think by next year, like I spoke about, that brand should also be in a much stronger footing. Therefore, we have a two-brand strategy that should help us break into the premium segment far more significantly than we've done so far. So that should help us drive growth in fans ahead of industry growth rates.
And sir, if you were just to break down the share of premium brand as a percentage of the industry or for you, that would be helpful. Thanks.
So Dhruv, industry numbers vary, so I don't want to be the one quoting industry contribution number. But I think our contribution is much lower than industry. While we don't give a specific number, both Q1, Q2 and Y-on-Y, our contribution from premium plus BLDC has been growing year. And this is just at a Bajaj level. By next year, when you add Nex also, we will grow much more sharply on this level.
Thank you so much. All the best.
Thank you.
Thank you. Our next question is from the line of Naitik from NV Alpha. Please go ahead.
Hi. Thanks for taking the question. Sir, can you please give me the breakup of what sort of contribution does fans make and what sort of contribution does kitchen appliances make to the consumer durables?
Naitik, we do not devote those numbers. But as far as the overall contribution is concerned, because we are in a sub-economy economy in fans, the contribution in fans is low.
It would be lower than kitchen appliances.
Yes.
Okay, sir. That's it from my side. Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions. Our next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Thanks. Question to Mr. Vishal. Obviously, this is your just first week, but what are the three key business areas that you plan to work on, let's say, in the first six months of the initial work? Means, whether it will be distribution or it will be investing more behind the brand or, in a way, you will focus more on the market share gains, or you will focus more on the margins. In a way, so what are the key priorities that you have in mind that you would be working on?
See, one, I don't want to get into the specific initiative. Anuj and the Chairman have talked about the transformational journey that the business is on. Which is all about improving the efficiencies and margins and the growth. All of these come together with obviously a top-line growth and focus on operational efficiency and the ability to extract more. To give an answer, for me, it's going to be not just one area. Anything which adds to any of these is where the focus is going to be. Specifics, I can only talk about in the coming calls. It's too early for me to comment on it right now.
Okay. Sure, sir. One question to Mr. Anuj. We have seen now there is 100% rural electrification, and Bajaj is the brand which is most penetrated in rural markets, distribution-wise as well as brand awareness-wise. The brand sweet is also very well known in the rural market. Why the growth rates are relatively noted, considering there is a very strong right to win for Bajaj Electricals in the rural markets. How should we read it over, let's say, next two, three year perspective?
Aniruddha, good question. Let me answer from a rearview mirror of the last one year and then talk in the future. I think right to win has to be accompanied with an ability to spend. While the electrification has enabled power and our presence as a brand or distribution is given right to win, but ability to spend of the rural consumer has been significantly compromised or curtailed in the last many quarters for reasons that we are all aware of here. I think once the ability to spend comes back, which like we said, we are seeing green shoots, then our right to win kicks in in monetary terms. That is my view.
That said, over the next three, four years, I think these are cyclical factors that has to come back, whether it comes back later half of this year, which remains our base case assumption right now, or in what quantum or manner that will come back and we should benefit from that gap.
Okay, sure, sir. Very helpful. Last question. On Nex brand, you had indicated in earlier quarters also that there will be more brand extensions and more number of products will also get launched. Any update that you would like to share on that? That is the last question from my side. Thank you.
Yeah, there is three expansions happening there. One is our ceiling fan range itself is continually expanding in Nex. Second is we have just recently launched a TPW, that is table pedestal wall fans in Nex. And third, we are starting to take bookings for coolers. So next summer, you will also see Nex coolers in the marketplace. So Nex, from being a specialist in premium fans that promise 20% higher air thrust in cooling, is broadening itself to being a cooling specialist across ceiling fans, TPW fans, and coolers. We will be the cooling specialist providing superior cooling to our consumers.
Okay, sure sir. Understood. That is very helpful. Many thanks.
Thank you.
Thank you. Our next question is from the line of Rahul from Haitong Securities. Please go ahead.
Yeah, hi, good evening. This is Rahul from Haitong . I just have one question, Anuj. Over the last couple of years, we've seen some bit of spending on R&D.[audio distortion].
Yeah, Rahul, please go on. Rahul?
Hello?
Yeah, please go on, Rahul.
Hello?
Yeah, Rahul.
Hello?
Rahul, we can hear you. Moderator?
Yeah.
Yes, sir.
Yeah, okay. Thank you. Anuj, my question is, given in the last couple of years, we have spent a good amount of money on R&D which is clearly reflected in the product quality, the look and feel of the product that we have put out, and which I am sure has got a good traction. I want to understand how has the warranty expense that you have had over the last couple of years changed? Maybe you could talk on an annual basis.
Rahul, firstly, so far we have not heard a question from you. I would have been disappointed if you are a regular and this last call of ours, of mine at least, I have not heard you, so thank you for being there. In terms of the warranty, clearly like I said, our quality metrics are looking up, which means the number of customer complaints we are getting for product servicing or spare parts replacement in the warranty period has been consistently coming down. That is very visible, quantifiable metrics for us. As a result of that, our actual servicing costs of this or product replacement or spare parts replacement costs are coming down. That said, I think there is another side of the equation, that this is a result of our investment in product quality, which means our cost of the product has gone up.
That has had a saving on this end of the leg of servicing. We need to also recover this cost at the pricing level. I think we have a gap in ability to have recovered that investment that we made in the product cost at the pricing side. That is what I have been alluding to. We are starting to make pricing corrections. By next year, we should be in a much better position to start seeing those upsides on the pricing front. Second, since you mentioned R&D costs, that is the other factor that you see us alluding to. If you remember on the previous call, we have spoken about we have pretty much matured in terms of the NPDs that we wanted to create.
From this year onwards, we should start seeing a stabilization of the number of new SKUs we need to launch, which also means that our catch-up is pretty much done. Therefore by next year, we get into normal cycle of NPD introduction and R&D costs. Going forward from FY 2026, our R&D costs also should start tapering down to normal levels. Directionally, qualitatively, what we expect to see that our double loaded R&D costs should start tapering off next year to normal fee levels gradually and our pricing power as that starts kicking in next year, that should start giving us an upside benefit there.
Sure. I think that is very helpful because these are some of the levers that you will have for margin expansion.
Let me share a little more data point for you. While we do not put out exact numbers, that is why we said we are tracking our NPD contribution to total sales very actively. That is growing year on year. It is sub 50 now. It is 40+ , sub 50 right now for CP overall revenue there. My view is as by next year, we should cross the 60% contribution from NPDs. That is when you know well you have crossed the inflection point where our perception of the brand, product portfolio, et cetera, starts changing significantly. Actually, still below majority on that. As we flip over on the other side, that is when you really come into the greener pasture and your pricing power in game will start from there. That said, keep in mind this is all a calibrated journey, but you should start seeing an inflection point there on.
Sure. Thank you. This is very helpful. Thanks, Anuj, for your time at Bajaj, that you have taken the company to the next level. Best wishes for your next ventures. Thanks.
Thank you.
Thank you. Our next question is from the line of Achal from Nuvama. Please go ahead.
Yeah. Thank you for the follow-up, sir. The question pertains to the logistic cost that has been a pain point for a while now. If you could guide us, where are we now? What kind of cost reduction have you seen in first quarter, and how much do we see over next few quarters or year?
Achal, I will be very transparent on logistics. I think there are two issues we have been grappling on logistics. First is cost, but before cost will come the quality of our logistics and efficiency of that. I think the quality of our logistics service and efficiency has been a bigger pain point for us because to my mind, that has been hurting our sales and we have been losing sales every month for that. We have been focusing on first getting that right. Q1 has also been a challenge in that we have had to change the C&F agent at our largest central warehouse in Bhiwandi, and that change happened in June and that disruption also had a certain impact on our revenues, our ability. That said, I think a change is completed in June that has gone off very well. All of July, the new C&F has done a much better job.
While July is not captured in the Q1 results, we have seen a significant improvement in our overall logistics service levels and efficiency. That is very important for us from a business operations and sales perspective. That said, we are not fully done. I think incrementally we shall continue to see improvement in logistics. We opened two more branch warehouses and there are two to three more on the anvil. As these warehouses kick in, I think our service levels should go up, our turnaround time should become better and our costs should come down because of transport efficiencies that kick in. I think naturally all of this bodes well for our core logistics to come down.
The way I see it is by Q2, which is this current quarter, logistics efficiency should translate to much better service to sales and by Q3, we should start seeing the benefit of the logistics cost coming down.
Any quantification you could provide, sir? What is the incremental logistic cost you had to incur in first quarter? What kind of savings one would expect in FY 2025 or FY 2026?
My view is it's sitting on about 2 percentage points of logistic savings. Percentage points in terms of percent of sales. That should come into our books by end of this year. How that comes between now and end of the year, we shall see. We should see at least 2 percentage point reduction by end of this year.
Understood. Another question I had, while you have indicated that green shoots are visible, would you be able to give some sense in terms of how the July month has been for the entire consumer products as a segment?
Achal, at this stage it won't be appropriate. We will not talk of July right now.
All right. Just one more quick question. In terms of competition, we see several players kind of adding product categories, adjacencies, et cetera. Are you seeing competitive intensity actually going up, particularly in the kitchen? Even like what we understand today is, the market leader in air cooler is getting into water heaters. In such a scenario, how do we ensure, A, the growth and B, the margins? If you could give some sense on the direction, that would be helpful, sir.
Achal, good question. Competitive intensity has been increasing in our industry across various categories for the last several years. I think that will continue to happen and therefore you've been closely tracking us and engaging with us. That is why strategically we have taken a slightly differentiated approach, which you are familiar with. If I talk about Bajaj brand, the Built for Life, which is focusing on higher durability backed by technological interventions for specific product specifications that are superior to competition, we believe that is the only way to deal with and compete in otherwise what is becoming a cluttered marketplace. If I talk about, for example, water heater category that you mentioned, that we are getting into, I do believe the water heater that we are now coming out with a 10, six, four year warranty.
They are way superior warranty terms than anybody in the marketplace, but actually backed by way superior product quality or technical specifications that none of the competition players match up to. That product range of water heaters, it is this season that we will hit the marketplace on, and therefore we should start seeing benefits of that. But that is just symbolic of how we are trying to play this strategically, that competition will be there. It will keep getting more cluttered and competitive. The only way to create a right to win is to actually not be part of that cluttered, but actually have created a differentiated product approach based on technology or R&D that we have invested in. Many of these interventions are patented, and therefore we shall, over the next two, three years, get the benefits of that.
Understood. Thank you so much for the answer, and wish you all the best.
Thank you, Achal.
Thank you. Our next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.
Yeah, thank you for the opportunity. Sir, I just have one question. Historically, for many years, we were probably one of the fewest brands who was present across depths and breadth of India. This was one of our moats for a long period of time. Now, when I see your competitors, they are aggressively penetrating into deeper pockets of India, be it Tier 3, 4 or even below that. So do you think that moat which Bajaj enjoyed over so many years is now reduced or probably even gone away? If so, how are you planning to compensate for that? That's it. Thank you.
Natasha, good question. Let me answer that in many dimensions through this moat. While overall, numerically, our distribution reach was much wider than all of competition, that translates to numerical distribution. When you start slicing that in terms of weighted distribution, the urban counters, which contributed disproportionately to the sales volumes and revenue, we were actually under indexing because of our positioning of our products and brand. Therefore, that is something we were solving for. While we want to defend or have defended our ND, which is numerical distribution, the effort over the last couple of years with our brand and product strategy and now distribution, is to actually focus little more on weighted distribution in the urban counters where we may have been present, but we're not monetizing that adequately. Point one.
Point two, I think historically, if you look at any consumer company, there's two large levers of strength that you're building. One is product strength and second is distribution strength. With the advent of online platforms, e-commerce, et cetera, the importance of distribution moat has somewhat been coming down because every new company can also reach every part of India through online platforms. So distribution moat by itself is not adequate to defend or to win. You really need product moat becomes much more important than it's been in the past. Therefore, if you look at our narrative over the last three, four years, we've been much more focused on product-level intervention and changes that we're making while defending distribution. But going forward, I think product will renew far more than distribution will renew.
Understood, sir. Thank you so much and all the best.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day, and I will now hand the conference over to the management for closing comments.
Thank you very much. Shekhar Bajaj here again. After a long time, I got a chance to interact with the investors and I have been keeping a track, but I was not participating. So in future, I will participate much more active and therefore you will hear more of me in the future. But anyway, thank you for your various question answers, and I can assure you that we are working very hard and we have got a very strong team and a very good board of directors to guide us. So I see that next few quarters should be substantially better. So I think I am very positive about the future. Thank you.
Yes, this is Anuj Poddar. I will just add to that. Once again, thank you from my side to all of you investors and analysts. Like the Chairman said, I think we have a very strong team and that is one reason to also have Rajesh Naik and Vishal Chadha on the call today, so that you can get a flavor of that, I am sure, as you interact with them going forward. The entire team at Bajaj Electricals that we built, we are proud of that, and the Chairman has been a constant guiding force. I think your interests and the interests of all stakeholders are in good hands. My best wishes are always with the company and with all of you. Thank you very much.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.