Ladies and gentlemen, good day and welcome to Q2 FY 2024 earnings conference call of Bajaj Electricals Limited, hosted by Ambit Capital. 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 and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Dhruv Jain from Ambit Capital. Thank you, and over to you, Mr. Dhruv Jain.
Hello, everyone. Welcome to Bajaj Electricals Q2 FY 2024 earnings call. From the management side today we have with us Mr. Anuj Poddar, Managing Director and Chief Executive Officer, and Mr. E.C. Prasad, the Chief Financial Officer of the company. Thank you, and over to you, sir, for your opening remarks.
Thank you, Dhruv, and good evening, everyone. Thank you for joining this call. It has been a tough quarter. When I say tough quarter, it is two reasons. They are more external factors. One is a weak consumer sentiment in the marketplace, particularly for discretionary products. Second, there is a slight delay in the festive season this year, with a little bit of a cusp between Q2 and Q3, unlike last year. That said, I believe we continue to make gains on our strategic objectives and initiatives. We have not stopped on that, primarily around strengthening of our brand, all the brand initiatives that you see, as well as on product launches. In the quarter gone by, as you have seen in the deck, we have had over 100 products launched in the consumer business, and similarly, a large set of products launched in our lighting solutions segment.
In terms of category gains, we have seen market share gains in fans, coolers, and mixers, which are all core critical categories for us. At the channel front, while general trade has been soft, a lot of that is because of weakness in the rural market, in the lower end of the urban markets. In the more modern channels, which is e-commerce, modern trade, as well as institutional government business, we have seen very handsome double-digit growth over 20%, as we have seen laid out in the deck, and that bodes well for us. Finally, our cashflow continues to be positive in this environment. Just a little heads-up on Q3. Q3 has started on a positive note. October has trended positive, so we are hopeful for a better Q3. With that, I will hand it back to you and the moderator for questions. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.
Hi. Good afternoon, gentlemen. Sir, can you first give us the growth or the degrowth in appliances, fans, and Morphy Richards respectively?
Natasha, thank you. We've had a degrowth in appliances in very low double digits, but also a double-digit growth in fans, and Morphy Richards has been flat.
Okay. All right. What I want to understand is, while we've been consciously building our premium product portfolio, then why have we not seen some kind of materially impact in the margin? A positive impact, rather. Because I believe this premium portfolio should give you some kind of operating leverage benefits, right, in the margin. So why is that not happening?
I will answer the other way, Natasha, and it is important for you to go and track, which is what we have been looking at from a two-year trajectory, and look at FY 2022 margins, 2023 margins, and in the first half that is out this year for us and competition. The reality is there has been a very steep or sharp margin contraction across the sector. If you look at that versus us, you will see everybody having contracted margins extremely sharply except us. In a reverse way, we have actually gained margins, but some of that is lost because of tactical pricing things in a soft and weak market. I think there is very heavy discounting that all players are resorting to. We are also having to engage in some of that to protect our market shares.
But net, the result of that, I do believe we balanced out the top line versus discounting versus margins better than all the competition. We are tracking that every quarter, and therefore, going back to my point, if you look at that over the last two years, our contraction or impact on our margins has been the least versus others that have significantly contracted. The reason for that, possibly because in reality, our margins have expanded but then gone back in the form of tactical things. That said, I do believe these are all signs of a weak demand environment. As soon as demand picks up, I think you will see a benefit in top line. A lot of that will flow directly to the bottom line, as well as some of this race to the bottom on discounting will stop.
I do think some of these are short-term quick wins that will happen in a healthy market.
Understood, sir. Sir, if you could just tell us how the BLDC fan portfolio did for you.
Natasha, we don't call out BLDC separately. Having said that, we are a later entrant into BLDC. We continue to see an uptick in that. Overall premium fan segment for us has been about 20% holding out there. At the other end, the sub-economy, which used to be a large percentage, is at about 55% contribution for us.
Understood. And sir, lastly, what-
Dhruv, I think we have lost Natasha. Hello?
Hello. I think Natasha has dropped the call, so we'll move to the next question. The next question is from the line of Manoj Gori from Equirus Securities. Please go ahead.
Yeah, thanks for the opportunity, sir. My question here would be, if you look at, obviously, the initial opening remarks you highlighted, Q3 has started on an encouraging note. Obviously, a lot of demand would have been driven from the festive demand. However, when I look at the base quarter, your fan gains were extremely strong in Q3 of FY 2023. Can you throw some light, like productively, how we are looking at Q3 in specific, given that the base is extremely high, and how do we see kitchen appliances ramp up during the quarter led by festive demand?
Sure, Manoj. I'll just share a little more qualitative commentary on this one.
Yes.
Firstly, if you look at the last three to four quarters, what has been a drag in the industrial sector is in kitchen appliances, particularly. I think it's been almost four quarters that kitchen has been doing weakly. Given our contribution from appliance and kitchen is higher amongst peers, the impact on us has been adverse or more impact on us, point one. Point two, therefore, the fact that we're holding our numbers is because of our premiumization, another thing that we're doing, including mixers in particular, has seen some traction against these headwinds in kitchen appliances overall. Second, on fans, it's been a little more volatile, more because of star rating in the sector.
That said, like you called out last year, Q3 as well as over the last two, three quarters, we managed to continue to grow fans, including in this Q2, at double digit, more because of our new launches and other endeavors that we did there. To your point, specifically on last year, Q3, if I remember correctly, we were 64% or so based in fans. But mind you, that was off a very small base. Q3 is not a big base for fans, so I wouldn't read too much into that. Therefore, if you look at Y-on-Y Q3, fans is the smallest component of that. I think appliances, including water heaters, really needs to kick in. In that part, coming back to so far what we've seen, October trend has been positive, particularly post-Shradh, post October 15. That is again led by tertiary demands.
I am not talking primary, but secondary and tertiary demand, we have seen good encouraging signs in October so far, which gives us little comfort on primary following and continue hold out. The only watch out for us right now is how does winter pan out, when does winter set in? Assuming winter sets in in time, water heaters is a big driver of sales in Q3, then we should be in a good wicket. Winter or the weather being the single biggest factor that we look at in this quarter.
Right. Sir, one more structural question on the demand side. If you look at specifically for last four quarters, demand has been very muted. But probably if you look at the lifeless growth has been for more than four quarters now. It has been long period. That is why even our performance, probably led by external factors, we have been not able to achieve the desired target. How do you see actually demand reviving? What are the key macro parameters that gives you confidence that we are moving, like industry is moving in the right direction, we are very close to demand revival? Are you seeing any green shoots, early green shoots, for that?
Manoj, I will hold off on commentary on future projection market because that is not a controllable for us. Your guess is as good as mine. That said, I will tell you the parameters that I track, the data points, which is not the GDP. I think the GDP is the biggest misnomer on addressing state of economy with consumption. Currently, it is being led, again, any economist tell you, more by banking, NBFC, infra, CapEx, other sectors. Consumption is not falling. I think what is more important to track consumption story is really household savings, income, employment, jobs, that kind of data. That data has been weak for a while, but that is where I am starting to see some positive traction. If you look at jobs, and I have shared this in the past, they used to be 90 million pre-COVID.
In COVID, they had gone as low as 60 million till the start of this year. We were yet at 70 odd million till we stuck to 80, 90. I have just seen the data today for September, that is at 91 million. So at 90 million threshold of jobs is an important threshold to be above for demand to kick in. The other flip side of that is unemployment rate. Unemployment, there is two sets of data out there in the market. One set of data is pointing to yet relatively higher unemployment rates. But I would yet say while percentage of unemployment may be not the most comfortable, I think if jobs are good, then at least somewhere there is a purchasing power coming in. The third important data really is the interest rates, and that is really putting a squeeze on discretionary spends.
With high interest rates, the EMIs have gone up for most households, and therefore disposable income has gotten squeezed. That is the one parameter that needs to change for real spending power to come in. That is not a controllable for us. Strategically, we have to just keep biding our time for that and keep strengthening. As that starts to correct or at least baseline itself without increasing more, then people will come back to spending. Right now, I think you are all hurting from that. To me, these are the more correct parameters linked to consumption that we are tracking and which gives us little more insight into why the demand is weak. Lastly, actually to that is rural income, rural segment. I think that, again, we look at certain parameters if that comes back. These are all the non-controllables.
For us, coming back to your question, as we continue strengthening our portfolio mix, like I said, when we look at t he internal mix data and our secondary market research, syndicated research. We are seeing gains in market share, either at category level, the one they called out were fans, mixers, and coolers. We will see what happens in water heaters. By Q3, Q4, we should see some positive traction there. At least in the channels that are doing well. General trade is not doing well, but if you look at the alternate channels that I called out, e-commerce, modern trade, et cetera, we are gaining share in that. For me, those underlying metrics are strong and therefore when the headwind convert to tailwind, then we do expect a better go forward on that.
Thanks, sir. Thanks for this detailed one. I will get back in the queue. I have few more questions.
Thank you, Manoj.
Thank you.
Thank you. The next question is from the line of Rahul Gajare from Haitong Securities. Please go ahead, sir.
Hi, Anuj. Good evening and thanks for the opportunity. I have a couple of questions, maybe first on the financial side. Now, you'll have a lean balance sheet, with practically no debt and very limited change in the asset base. Still we've seen increase in your interest cost and depreciation, and I think you've touched on this aspect in your presentation. But how do you see, do you think that this expenditure is something which will be stable at these levels, or you see that this will fluctuate based on how the business moves?
Rahul, E.C. Prasad here.
Yeah.
If you look at the financing element, there are two components to it. One is the vendor financing, where actually we are operating about INR 800 crores worth of line on vendor financing. You have to also look at the income side, where there is a treasury income of about INR 5 crores sitting there. Net-net, we are operating at about net interest of about INR 3 crores for operating an INR 800 crores line, which will continue. But if you actually look at the cost which I am paying, it is actually very small. It is about 3.5% cost that I pay for the vendor financing, which is very lucrative.
Rahul, I will just add to that. We have added a payout obviously to Bajaj with this flip of the balance sheet. But obviously, on a quarter-on-quarter basis, our cash balance will continue to increase. We would have this quarter also except for the payout. So over time, as that balance sheet keeps getting stronger, that ratio will flip over. Yeah.
Okay. Yeah. The second question I have is on, could you talk about your A&P spending that you've done in the second quarter and first half, given we are basically facing a weak consumer sentiment or demand. Connected with this, also the logistics transition back from Mahindra Logistics to your, any benefits, cost saving that you have seen due to this transition. That is the second question.
From the A&P spend, Rahul, this quarter is about 3% and Y-on-Y, I think last year was 2.3%. Q1, I do not remember number, but I think it was 2.5% or 2.6%, so this quarter is slightly higher. That is built into these numbers. I think at 3%, we kind of balanced out between, if the demand situation was good, then we would spend more, but beyond this certain spend is not giving ROI on converting to sales. But it is yet healthy enough for us to maintain a brand push that we are doing given the strengthening that we are at in terms of brands. Okay? Coming to logistics, I probably would have shared this in the previous quarter call also. I think there are two aspects to the transition back from outsourced party to ourselves.
One is to, we did have service level and pure operational issues and logistics with the service provider, which is the reason to have brought it back. So our first strategic initiative on imperative was to make sure that service level drastically improved before we focus on the financial metrics of that. So in a way, we over-engineered and over-solved for that at a high cost when we took over, and that has been built into the numbers to make sure service levels and the flow of goods is good. That is extremely good. We are perfect like we used to be before the transition out. So we have corrected for the issues that we faced in that. That said, now month-on-month, we are starting to optimize the actual financial efficiency metrics on logistics.
The first results of that you will start seeing in Q3 because we had as part of the handover, takeover and transition, certain lock-ins on warehouse and other contracts. The first set of that starts releasing this October. So the first Q3, you will start seeing some optimization on logistics cost. But we have a roadmap from here right over the next 18 months on optimization of logistics cost. I think you should see about a 1 percentage point improvement by this March and about a 2- 2.5 percentage point improvement by March 2025 on logistics. We have a clear action plan and a bottom-up calculation of how that will be derived here.
Okay. That will be great. My last question is on the market share. In your opening comment, you did talk about market share gain. Possible to quantify some of them in some categories that you have had gain market share gains?
Rahul, to be honest, we have never put out market shares. This is secondly syndicated data. We look at that for our internal purposes, but not data that we put out there. But we are saying that we say that with a level of assurance or accuracy that we have gained share in these categories here.
Okay. So it is not quantitative, but qualitatively, you know that you have seen a significant ramp up in a particular category. Is there a qualitative angle that you can talk about?
Let us take fans. Let me call out fans and coolers because that is more visible. If you look at our growth over two years, et cetera, it is a clear, consistent growth in fans that we have had. And that is obviously translating to market share gain. In every quarter we have been clearly calling out in our own numbers also, we have seen strong double-digit growth in fans. So that is obviously leading to market share gain. I do not think that is representative of all players, at least not quarter on quarter. Everybody had data wall, we have seen that. And we are also seeing that if you do your own channel checks, et cetera, that Bajaj is becoming a player across fan segments, which we were not in the past year. You will also see some push from us
On the new brand, Nex, that we launched coming summer. That, like we said, is a soft launch, but we will see some more traction coming summer on fans. The other category that we've had very visible market share gains is coolers. We used to be number four player. We are the number two player. In this quarter, we've had extremely high double-digit growth in coolers, and I hope we will continue maintaining that trend. Mixers is less evident because we were already leaders in this category that has been overall seeing pressure or contraction. So in that, while we have gains, if you again look at some of the new mixers we launched, the 750, 800 watts, Ninja Series in particular, you go do the channel checks, you'll see very good feedback on that. Again, we've launched something called Military Grade Jars, et cetera.
These are giving us fillip and reason to buy and reason to gain share. But that will be more visible as the category grows, then that gauge will be more visible. The fourth one that I called out, but we have to wait to see that season kick in, is water heaters. So I'm hopeful that as that season kicks in, you will see that in Q3 and Q4.
Just to confirm, Nex is going to be restricted only to fans category, right? You're not extending Nex to other product categories.
No, it's a fan exclusive brand.
Okay. Cool. Thank you very much and all the very best.
Maybe a test for that will be in the coming summer or so.
Okay, cool. Thank you.
But by the way, if I may plug, I must plug each of you on the call, please go buy a Nex fan. Tell us, we will help you do that. Give us genuine product feedback. We are extremely proud of that and confident of that product. The product is good. That is your best test, not what we are saying. See the product yourself It is superior technologically and design wise there. If that is right, you can bet your life that the market will pay us for it.
Okay. Thank you very much.
Thank you. The next question is from the line of Anirudh Agarwal from ValueQuest. Please go ahead.
Yeah, thanks for the opportunity. First question is on the gross margin. While overall gross margins continue to be flattish, on a Y-over-Y basis, if you can give us some sense of how this would have moved at a category level and a channel-specific level. Just trying to, behind the gross margin numbers quarter and where are the gains and losses that we would have made on the gross margin lines in the last couple of quarters?
Anirudh, if I were to try and give a generic answer to this one, I think like for like this, our gross margin actually have expanded 4-5 percentage points. I think that more from if I were to take a similar ASP for that product category that used to prevail in the marketplace earlier or our cost structures for that or product mixture. That said, some of that gain is lost back in the market because of discounts and why we were able to call that out. Sometimes the discount is not at a ASP level, but at a scheme level to actually get the sales and market share back in, which is really common across the sector. If you look at our product, at scheme level, our gross margins have expanded by 4-5 percentage points.
But at scheme level or volume level, some of these are given back to the market. The reason we are able to overall, therefore, to my earlier comment, if you look at a two-year trajectory on margins, have had the least impact versus competition is because we've actually fundamentally gained on our first level margins.
Right. And any impact on the channel mix changing from GT to alternate? I mean, our alternate growth continues to be strong even on a reasonably large base now, right? So any impact that has on the gross margins?
No, I don't think channels really have a bearing on the margins. I do think the product mix does vary a little bit on channels. Obviously, general trade has, because of the rural contribution, may not be as high index as modern trade. But that's really a function of the market or channel penetration, not so much of a pricing strategy. So I'm assuming your question is more into pricing strategy, so we don't have a bias on that perspective or basis on different channels.
Understood. Eventually, how should we look at margins? We had an expectation earlier of gaining about 100 basis points on margins every year, has been repeated in two, three years. Does that still hold in your view, and what will drive this? Is it just the missing growth which you expect will come back and that will drive margin expansion? Or is there something else also that you are looking at?
I will come back to my same comment, Anirudh. If you look at us, if you look at what has happened in the sector, the sector margins have collapsed significantly. We have held out. Had that not happened, our margins have actually expanded because there is no way for us to have held out margins otherwise, except because inherently they have expanded because we have to participate in the same pricing tactics in the marketplace. That is point one. Point two , therefore, I think some of this is tactical short term. When the market comes back, by default, these will come back. These are the signs of weak consumption sentiment. Point three is we are not going to rest on that. Like I called out on logistics, we have a couple of other levers that will continue to drive margins for us.
We will stay on that path, and we are confident about that path.
Understood. Final question is on the LED side. LED, how are we looking at the scenario now? Obviously industry growth as a whole has been weak since some time. How do you look at the pricing side now? How are we doing, particularly on the product and distribution front, both of which we were trying to realign?
If I talk about lighting, I split that up into consumer and B2B lighting. On the consumer lighting, there is a headwind in form of LED price erosion, about 15%-20% based on DOB-expected technology. The technology is probably, again, if I were to average it out, 8%-10% cost saving, but about 15%-20% price cut in the marketplace. Okay? I think that's the headwind you're seeing in the B2C segment across the industry. I do think some of that will stabilize. For us, what is important on B2C is just the product portfolio expansion. We share some of those products in this quarterly deck. Again, if you go do a channel check, et cetera, you'll see our whole product range. We're happy to share that with you in terms of product catalog, et cetera.
Our product range in consumer lighting is significantly expanded. I think as we said that expansion only happened in the last two, three quarters. I think next two, three years, we should see consistent growth in the consumer lighting business on the back of the product range and the distribution that is being put in place, the GTM being put in place for that. Coming to professional lighting side, I think that's more an order book-based thing due to some of our revenue booking got booked or rather got deferred from Q2 to Q3 in terms of just timing of invoicing and dispatch or installation of projects, et cetera. I do expect Q3 in professional lighting to actually pick up from where we are right now.
Right. This order book number that has been shared, what would be the execution time period?
About six months, but this is the October one number that we've shared. There is more orders since then. To assume on lighting in general at the project level, about a six-month order book. That's not static. That's constantly getting executed and more getting added to it.
Got it. Just final thing to wrap up. I think actually the point was that if we have a more normalized growth in H2 of this year, the margins will now stabilize.
Yeah, so margin expansion, to put it the other way, if you have normalized growth, then margin growth or absolutes will be much, in percentage terms, will be higher than the top line because you will see a reversal of right now you are seeing operating deleverage, you will see operating leverage kick in with top-line growth. That is separate from our own internal improvements that we are working towards, yeah.
Got it. Thank you for your time, and all the best.
Thank you.
Thank you. The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Thanks for the opportunity. Sir, we have seen that almost all players are doing excessive discounting. Do you see that probably almost nobody is having any additional growth rates? Is so much discounting really required or what should be the way forward in a way to gain market share or to grow at a really faster rate? Because the discounting is going on for quite some period of time, but almost no player has achieved any material benefit as such. Secondly, in terms of what are the possible ways to differentiate than the competition, instead of just doing discounting in line with the competition that we are doing and what has been the effort of that or the benefit of that? Thank you. That's it from my side.
I see. Very good question, Aniruddha. Let me answer this. Number one, discounting is the easiest tactical response to a weak marketplace. I think that's not a strong player's response. To me, that's a weak player's response or a weak industry response, where the industry is not able to defend itself. I do think our philosophy has always been that we don't lead the discounting. We don't initiate or trigger the discounting because we are not in favor of that because, and I'll tell you why, because discounting, at least in our sector, we're not a sector that has got elasticity of demand. If I discount a fan, if you need a fan, you're not going to buy two fans. Unlike if I'm a garment player, if I discount a shirt, you may buy two shirts.
I just think by discounting, industry is only hitting its bottom line, is not growing its top line. It is only trying to shift from each other. But also, while we're not leaders in that, we're not going to cede market share if somebody does that. So we will defend our position, but we'll never be leaders in that. So that's the more tactical short-term view. I think a long-term view, which is the good part of the question, is you have to be able to move out of this game. And for us, coming from where we are, which goes back to what I always share, that as a brand and product, we are strengthening our brand and strengthening our product innovation, everything that we're doing. Last one year, it's a journey to actually build greater brand ceilings.
Everything I have spoken about or shared in our deck, why we are following this multi-brand strategy, why we have a very core positioning defined for the brand, why the innovations that we talk about, durability for Bajaj or performance for Nex or lifestyle positioning for Morphy Richards, and you will also see what we come up with in Nirlep, I think is to take the FMCG playbook where brands will have to build brand ceilings back to differentiating product strategy. That said, that is not an overnight strategy. That is a three- to five-year strategy. That is how it play out in the marketplace. When that plays out, brand ceilings in turn translates to us not having to actually do these catch-up discounts with others. We will try and hold our price points into the future.
Not just hold our price points, I think pricing power is something that we will earn for ourselves over the next two to three to four years by these measures. I do think there are very clear strategic vision on that. To some extent, that is different from the commentary I hear from competition. Everybody is free to take their own approach to these things. But we are very clear that we do not want to be trapped in this discounting game, and we will work ourselves out of that by these measures, which are not short-term measures. They have to be done the right way over the right period of time. Hopefully that answers your question.
Yeah, sir. Thanks for the detailed answer. Just one thing. Anything about the new brand, the new premium brand that we have introduced? You have been silent on that, so any update that you would like to share on that? Any progress? Yeah. Thank you.
Nex, we have done a soft launch, which we announced it earlier, but the real test of that and push from us will come in summer because it is a fans category. So that is when we really communicate with the consumer, and that is when we have more to talk about that product. Like I said a couple of questions earlier, the best test for that right now is not the brand side because that communication will kick in later. For the product side, you are welcome to test out our Nex product fan. Looks better, performs better. You can't ask for better.
Okay. Sure, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Mr. Achal Lohade from JM Financial. Please go ahead.
Yeah. Good afternoon, everyone. The first question I had was with respect to the competition. Is this discounting very evident in particular category or it is across the categories? And also it is in particular region or it is across pan-India?
Achal, it is across categories and across regions. It's not being unfortunately led by the weaker players, but a couple of the stronger players are the ones who are leading it, which is why we are matching up to that. Again, I think sometimes this is, I'm repeating myself, sign of market. I don't think anybody wants to indulge in that. I do think at the first opportunity of discounting, and these are tactical schemes, these are not price. If you look at most discount announcements and competition also, they're typically at a scheme level. The moment these market picks up, it's very easy to withdraw schemes such as these here.
Understood. You said 400-500 basis point gross margin improvement. Was that a YoY coming through?
It's been a trend across the last two, three quarters that we've seen. It doesn't follow through, like I said, because then it gets lost in the scheme. Otherwise, it is YoY, but it's a mix between really product mix improving and some of our moving into segments where we are not operating in.
Right. My follow-up question was, this margin improvement, part of the reason is the raw material cost reduction, or it's purely their premium?
No. This is not to do with RM reduction. This is portfolio mix and our VAVE, et cetera, not the RM part.
Okay. Coming back to the discounting part, the kind of cost reductions, what we have seen in general, given the raw material prices kind of cooled off a bit, is that already been passed out fully by the industry, or you think some of that is actually retained and being reinvested?
It's no sense to try and correlate how much of RM is passed on versus not. It comes back to, if you look at it holistically, clearly the industry is taking money from its own pockets and passing it back to the market at the cost of its margins. Now, we can loosely say from which bucket or which pocket it's come, but net, if you look at either the, is the discounting more than the RM reduction? Yes. Is the price increase adequate to where you had cost increases, let's say fans or other categories? No. So whichever way you cut the cloth, the fact is, you've passed on more to the market than what you earned back by RM or what you should have rightly increased prices by.
Got it. Just one clarification. With respect to fans, has there been any change in the pricing in September, October, or November, or is there any plan?
I'm not sure I understood your question. By change in pricing, you mean-
In terms of retail pricing.
No, we've not taken any increments or anything of that sort.
Not taken any price increase?
No.
Okay. Understood. Just one more question with respect to lighting business. In terms of this price reduction 15%-20%, while the cost reduction is 8%-10%, is it purely the weakness in the demand, or is there more to do with anything else in terms of competition or anything? A new competition.
I think in this case it is both. It is weakness in demand you have seen last four quarters in B2C lighting. But this price erosion has happened only in the last two quarters. It is partly to do with technology and partly to do with competition.
Got it. Just one clarification. With respect to portfolio, where are we compared to the leaders? Are we at par now in terms of product offering in lighting segment?
Are you talking lighting?
Yeah. Lighting and luminaire basically.
Lighting we are about 90%. So there's the-
90% we are there
upper end of value-added lighting, decorative lighting. I'm not naming those products, but you probably are listening, which we are not in. I think this journey too, we can't leapfrog to that. From where we are coming, from the lamps, we need to just build in the recessed panel, DOB, et cetera, before we can move to the upper end of that because we'll not be accepted in that right now.
Got it. Thank you. I will come back in the queue, sir. Thank you.
Thank you.
Thank you. The next question is from the line of [Lax Chan from Plan Investment]. Please go ahead.
Hello.
Yes, Lax.
Am I audible, sir?
Yes, Lax.
My question is related to the EPC part of your business, sir. We have made net profit of, no loss in fact, INR 4.4 crore instead of INR 3.6 crore of profit year-on-year. We were very vocal on becoming breakeven from a bit point of view. Again, we are incurring losses. When can we expect this sustainable positive EBITDA and some reasonable profits? This is my first question.
No. Lax, thank you for asking that question. It allows me to clarify. Firstly, this is two months' data, July and August. Secondly, this is because it's a transition quarter. In this quarter, as we moved from Bajaj Electricals to Bajel, a lot of the client contracts, et cetera, needed to be novated and transitioned. That's a process across whether it's the transmission side, power grid, et cetera, and also the distribution side. Till that process of novation, conversion, system changes was not done at both ends, the client also has to do that. There was a fair amount of billing or invoicing or product supply that was held up. We're not able to bill that in Q2 because we have to dispatch in a new name. We have to do the GRN in the new entity name, and that whole loop has to be closed.
We've lost a certain amount of revenues and sales in this period. A lot of that will be caught up in Q3. Our order book, in fact, has significantly grown. We've made various announcements of new orders that we've got in that business. As that billing kicks in, the transition gets over, you will see a sharp uptick in the coming quarters on that revenue, and that's flowing directly to a smarter, better bottom line.
Got it.
Second, there have also been one-off transition costs in this. There's a lot of duplication that's happened initially set up on IT people, offices, certain amount of, I wouldn't call it consultant fees, but just professional fees in this transition. That's built into this. It is not a matter of concern. It's not really an operating loss in that sense.
Yeah.
There's been one-off because of this transition and a hold up on certain billing and activities in this quarter. Yeah.
How much was this one-time expense, sir, approximately, if you could help us with that number?
One-time expense in this quarter?
Yeah. For EPC business.
Yeah.
In terms of-
Yeah, must be around two odd crores, but that's a one-time expense. What I'm really calling out is, we don't have a number, but let's say you had another INR 100 crores of billing that you could have done that was all held up
Okay
in this quarter, right?
All right.
It has not flown to the bottom line.
Got it.
In fact, at INR 100 crores also is much lower than, we are not putting out a projected number or we put that out in the original batch we did. We are looking at almost 2x of revenues on an annualized basis this year compared to FY 2023.
Got it.
When that kicks in, your fixed costs stay the same, your overheads that starts flowing into the operating margin.
Yeah. That's it, sir. One more last question. We generated INR 135 crore of cash from EPC business this year. This brings to, what will be our current cash, in the EPC business total as of today?
Current cash position as of today, I would check back, but I think it was about INR 10 crore, INR 20 crore which was left.
Okay, so INR 150 crore approximately. Hello?
Yeah. Are you sure we need to leave that for them?
Hello?
All right. Thank you. That is fine.
Hello?
Hello. Please continue.
It is approximately INR 150 crores, right?
No, no. So INR 135 crores was transferred from BEL to Bajel, which was infused into the business, and I think they are now sitting on about INR 20 crores of cash.
Okay, got it. Okay. Got it, sir. That's it. These are my questions. Thank you so much, sir.
Thank you.
And all the very best, sir, for your new journey on this separate entity. Thank you so much.
Thank you.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. The next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.
Yeah. Thank you so much for the follow-up. Sir, firstly, I would like to know what is our lighting mix in terms of B2B and B2C. I am sorry if you had said that data, I got disconnected in the call.
We will just do that with numbers. Any other question?
The other question, sir, is what is our alternate channel mix, and what was it in second quarter last year?
Firstly, on the lighting, B2C is about 40%, B2B is 60%. You got that?
Yeah. Yes, sir. And the alternate channel mix?
Yeah. Alternate channels. Trade is about 57%, the rest is all non-trade alternate channels.
Understood. Sir, my final question is more of a medium-term question now. While we did our channel checks, we definitely appreciate that the quality of the products has been quite good. A lot of our channel checks did tell us that. However, the challenge that we saw is that probably the perception of the brand is still not a premium brand, probably still an economy brand. I just want to know what is the strategy in terms of changing that perception, and how are we spending our ads to build that part of our portfolio?
Look, firstly, thank you for the feedback, and I think part of the answer lies in your feedback. I think brand can talk itself and say whatever, but the product is a real tester. That has changed. As that changes in the marketplace, that always has a greater weightage and impact on perception changing. The brand communication only amplifies that but cannot deliver that perception change in the absence of real product change on the ground. If you look at product change on the ground, while we have rolled out a lot of these products, it is a process of evolution ensuring it takes three to five years for the entire portfolio to refresh. So every year it is a refresh of 15%, 20% of the portfolio. It is a three to five-year period, by which time 60%- 100% of the product portfolio in the marketplace changes.
So you start hitting a tipping point on perception change after that three-year mark. Okay. And the best example that you will see to how perception of a company or a brand or product has dramatically changed is two of the leading Indian automakers. I am not naming them, but you can guess who these guys are. They were known as cheaper, ordinary automakers, but now look at five to seven years later into the journey. The perception of both of these auto companies has dramatically changed, both at the product and brand level.
So in a way, that is the best proxy for you, what we are aiming for. In three to five years, you will see us hit that inflection point or tipping point where suddenly consumers who have forgotten the old Bajaj and think of Bajaj or Bajaj Electricals and all of these brands together in a completely different way.
Understood, sir. That is helpful. Thank you so much. Those were my questions. And sir, thank you and happy Diwali to you.
Thank you. Wish you the same.
Thank you. The next question is from the line of Chirag Lodaya from ValueQuest. Please go ahead.
Hello, sir. Thank you for the opportunity. I just have one question. Given the current situation, where we are seeing increased competitive intensity, slowdown is persisting more than we would have envisaged, and there is some change in technology on LED front, et cetera, which is leading to price erosion. Given this context, how you would like to revise your margin guidance? Earlier, we were pretty confident of reaching 9%-10% kind of EBITDA margin in near to medium term. Given this situation, how you are looking at the margin trajectory now going ahead?
Chirag, I always prefer to look outside in or future back. I think over medium term, there is no change in our guidance. I would say, the reason why is because markets you cannot control, therefore, our strategy does not change for that unless my fundamental medium to long term view of the market changes. That has not changed. I do think any economy goes through cycles. This cycle has got to change at some point of time unless we believe the India story or consumption story is gone away. If anything, some of these longer cycles or pain, in a way also weeds out the weaker players or cuts back the nuisance value. If anything, if you look at from a three, five-year perspective, it is actually better for stronger established players. That cuts out the nuisance value of weaker players.
It comes back much stronger than had you not gone through this weaker phase. That is why I remain confident not just of margins over the medium to longer term, but actually with a greater upside on top line on that, you will see greater consolidation happen because of such a phase here.
Right. But if I have to just extrapolate how FY 2025, 2026, even situation improves, say from second half, will it still be near to 9%-10%, or it will take more time than what you would have initially thought? Because, see, a lot of the things have changed versus the six months back. Trying to understand, are you changing the time period for reaching that double-digit margin aspiration or you are still confident that whenever economy picks up, we will see this double-digit margin coming soon?
A very easy answer. As soon as the economy picks up, you will see that. If the economy is in good shape by 2026, we should beat that number.
Okay, got it. Thank you, Anuj.
Thank you.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. The next question is from the line of Manoj Gori from Equirus Securities. Please go ahead.
Thanks for the opportunity, sir. One question, if you look at, we have been emphasizing a lot on the new product launches and more towards the premium end. Probably can you give some data points with regards to what would be the contribution, sorry, products that have been launched a year back, and probably how this would have been in the same quarter last year from the products which were launched in the preceding one year.
Manoj, we don't put out actual NPD contribution or revenue contribution of that. That's very clear. But the best metric for that is things like, for example, when you call up category mix and you look at fans, our category mix out there is improving. That's because of the back of new products. If you look at the new mixer that we put out, a lot of that 750 is new, and what's in the back of new products. If you look at coolers, our growth, which has been very high, it's in the back of new products. If you look at, I'll tell you two smaller categories. These don't get mentioned, but these all add up to long tail. If you look at things such as personal grooming that we launched right now online on Morphy Richards, it's taken off extremely well.
If you go through channel checks on something like kettles, we've really grown kettles at almost 300% in the last one year, et cetera. These are all new products that are adding up and giving us some buoyancy. The big categories such as kitchen appliances, et cetera, that will kick in as the market really kicks in. But in the meantime, all of these segmental launches, new products, all these long tail products are now driving growth for us.
Right, sir. And one last question. Probably we have been seeing price erosion into B2C business setting in the lighting segment. Do you see this as a risk even to your B2B business probably, in some time of probably few quarters ahead?
Not really. That B2C erosion is happening particularly because of this DOB thing, which is particularly et cetera. Also because that's an easier entry business for new players to come in, some of whom lead that at unsustainable business models. I think B2B does have more serious established players. It's got a higher entry barrier. It requires more solution orientation, et cetera. It requires execution, project skills, et cetera. So I think that is slightly more insulated from this.
Right, sir. That was very helpful. Thank you and wish you all the best.
Thank you, Chirag.
Thank you. A reminder to all the participants, you may press star and one to ask a question. A reminder to all the participants, you may press star and one to ask a question. As there are no further questions from the participants, I now hand the conference over to the management for the closing comments. Go ahead, sir.
Thank you. I will keep my closing comments very brief. It is just wrap up of my opening comments. We know it is a tough environment. The results are mirroring the tough environment externally. I think internally, we continue to maintain our focus on our strategic initiatives. I think internal metrics continue to look strong. The one thing we will not shy away from is focusing on medium to long term. Hopefully we will not make short-term myopic decisions in the interest of sacrificing the medium to long term. If you do look back at both our two-year access and performance, you will see the merits of what we are saying. Also qualitatively, like one of you also mentioned in the call, our product profile is changing the marketplace. We do have brand scores that are reflecting that.
To me, those are two biggest, most important parameters of any consumer-centric business. We are getting our product and brand strategy right. I think numbers will follow based on market conditions. With that, I will wrap it up. Thank you very much, and good evening to you.
Thank you. On behalf of Ambit Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.