Rating Rationale
January 05, 2023 | Mumbai
Bajaj Electricals Limited
Long-term rating revised to 'Watch Positive'; Short-term rating removed from 'Watch Developing'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.2100 Crore (Enhanced from Rs.2000 Crore)
Long Term RatingCRISIL A+/Watch Positive (Revised to 'Rating Watch with Positive Implications' from 'Rating Watch with Developing Implications)
Short Term RatingCRISIL A1+ (Removed from ‘Rating Watch with Developing Implications’; Rating Reaffirmed)
 
Rs.100 Crore Short Term DebtCRISIL A1+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its rating watch on the long-term bank facilities of Bajaj Electricals Limited (BEL) to ‘Rating Watch with Positive Implications’ from ‘Rating Watch with Developing Implications’ and removed short-term rating from ‘Rating Watch with Developing Implications’ while the ratings on bank facilities and short-term debt are reaffirmed at ‘CRISIL A+/CRISIL A1+’.

 

The revision in watch reflects improvement in the consolidated financial risk profile of BEL as reflected in the absence of long-term debt, improvement in working capital cycle and strong liquidity position. The working capital cycle has seen material improvement due to recovery of ~Rs 1300 crore receivables of the engineering, procurement and construction (EPC) division over the last two years. Further, the business risk profile of EPC division is improving gradually as reflected in order book of Rs 1354 crore as on September 30,2022 against Rs 800 crore as on March 31,2022 and strong counterparties for the new orders.

 

The ratings remain on ‘Rating Watch with Positive Implications’ due to the impending demerger of the EPC division. On February 8, 2022, the company announced to demerge EPC division into a separate entity, Bajal Projects Ltd. At present, approvals from regulatory authorities are awaited. CRISIL Ratings will continue to monitor the transaction and take appropriate rating action after completion of the same.

 

The consolidated operating income grew ~14% on-year in the first half of fiscal 2023 driven by the consumer product segment, which expanded by ~19%, followed by lighting segment (~9%). even as the operating income of EPC division contracted by ~16% due to completion of legacy projects and revenue booking from new projects will ramp-up going forward. The consolidated revenue is expected to report moderate growth going forward driven by new product launches and premiumization. The earnings before interest and tax (EBIT) margin in Consumer product (CP) segment moderated in the first half to 6.01%% from 6.8% in fiscal 2022 due to liquidation of high inventory cost and reduction in product prices. The margins, however, are expected to improve with cooling off commodity prices and continuation of cost efficiency measures.

 

The company is planning to incur a capital expenditure (capex) of Rs 200 crore, which will be funded by internal accruals. The capex will help BEL to increase the mix of manufactured products from 20% to 40% over the medium term.

 

The ratings continue to reflect the healthy business risk profile of BEL, driven by its leading market position in the consumer electronics and durables industry in India, diversified product range, improving financial risk profile and strong liquidity. The company will continue to benefit from the financial flexibility derived from being a part of the Shekhar Bajaj group. These strengths are partially offset by the modest operating efficiency, impacted by subdued return metrics of the EPC segment, and susceptibility to volatility in commodity prices and competition.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of BEL and its subsidiaries, Bajel Projects Ltd and Nirlep Appliances Pvt Ltd, to the extent of its shareholding in these entities. This is because these entities have common management and significant business and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Established presence in the consumer appliances and lighting segment: BEL has established itself as a leading player in the consumer electronics industry. Apart from being the top player (in terms of sales volume) in the mixer grinder, water heater and iron segments, the company is also among the top 2-3 players in the appliances (mixers, irons and water heaters) and light categories, and among the top five players in the fans category. It has a vast network of 596 distributors and 230,000 retail outlets across India. As a result, the consumer products segment registered a healthy compound annual growth rate (CAGR) of 11% over the past five years.

 

The company derives strength from its strong focus on research and development (R&D), resulting from consistent investment in people and infrastructure, and sound product development capabilities.

 

With continued focus on strengthening the product offerings, especially in the appliances and fan categories, and the overall brand, the company is expected to register stable growth in the consumer appliances and lighting segments over the medium term.

 

Diversified offerings in the consumer products segment: BEL is present across various categories, including household appliances (contributing to around 46% revenue), fans (24%) and lighting (24%). The balance 6% comes from the premium brand, Morphy Richards.

 

Within appliances, the company has products ranging from kitchen appliances such as mixers, juicers and sandwich makers to home appliances such as water heaters, irons and coolers. Under the fan category, the company caters to various price ranges. In the lighting segment, it is present in light-emitting diode (LED) and lamps segments. The company operates in the non-stick cookware category through its subsidiary, Nirlep Appliances Pvt Ltd.

 

BEL offers most of these products under the Bajaj brand. The company will increase its presence in the premium range through its Morphy Richards brand, which is witnessing a healthy growth.

 

Healthy financial risk profile: The financial risk profile is supported by the absence of long-term debt, healthy networth, comfortable gearing and strong liquidity. Debt protection metrics will remain healthy over the medium term in the absence of external debt. The company will incur a capex of Rs 200 crore over the medium term, which will be funded by internal accruals.

 

Low gearing and debt provide headroom for modest acquisitions without any material impact on the financial risk profile and key debt metrics. That said, any significant debt-funded capital expenditure (capex) or any sizeable acquisition will be closely monitored.

 

Further, working capital cycle had improved with significant reduction in debtors of EPC segment to Rs 501 crores as on Sep 30,2022 from Rs 1833 crores as on March 31,2020 resulted in healthy generation of cash flows and is expected to improve further with completion of legacy projects.

 

Also, BEL derives financial flexibility from being part of the Shekhar Bajaj group. The company has received support by way of intercorporate deposits from Jamnalal Sons Pvt Ltd (key holding company of the group) in the past and through rights issue of Rs 350 crore subscribed by existing shareholders in March 2020. With improvement in the financial risk profile and low debt, the company may not require additional support from group entities over the medium term.

 

Weaknesses:

Modest operating efficiency, owing to subdued return metrics of the EPC segment: Operating efficiency was modest owing to volatility in operating margin. The margin was 3.8%-6.5% over the past five fiscals, driven by fluctuation in raw material prices, execution of low-margin EPC projects and changes in regulatory policies. In the EPC segment, the operating margin has been negative over the past five fiscals and is expected to be at breakeven in fiscal 2023. As a result, return on capital employed ratio was 5%-15%. Return metrics and working capital cycle are improving gradually with focus on cash flows and profitability of the EPC division. The metrics should improve further post implementation of the demerger process with shifting of the capital-intensive EPC segment to Bajel Products Ltd. CRISIL Ratings will continue to monitor the transaction, return metrics and working capital cycle post the demerger. 

 

Susceptibility to volatility in commodity prices and increasing competition: Prices of key inputs such as copper and aluminium are highly volatile. Raw material and purchases of traded goods account for around 70% of the cost of sales. Furthermore, in order to counter competition, BEL needs to absorb part of the increase in input prices or pass it on with a lag, and thus, profitability remains constrained. However, to mitigate this risk, the company has been rationalising its cost structure by adopting an asset-light production model and achieving higher economies of scale.

 

Intense competition limits the pricing power of organised players, including BEL. The company faces competition from large, organised players such as Havells, Crompton Greaves Electricals, V-Guard, as well as unorganised players and cheaper imports from China. Nevertheless, the company has maintained its market share in the kitchen appliances segment.

Liquidity: Strong

Liquidity will remain adequate, supported by healthy cash balance of Rs 213 crore as on September 30, 2022. Healthy cash accruals of around Rs 200-300 crs per annum over the medium term after capex of Rs 80-90 crores per annum will continue to support the liquidity of company. The fund-based bank limit of Rs 380 crore was unutilised for the six months through October 2022. The company became net term debt-free in fiscal 2022 and is expected to have minimal dependence on external debt going forward. Access to funding from the Shekhar Bajaj group, if required, also enhances BEL’s fund-raising ability.

 

Environment, social and governance (ESG) profile

The ESG profile of BEL supports its strong credit risk profile.

 

The durables and electrical sector has a moderate impact on environment and society driven by its raw material sourcing strategies, waste-intensive processes, and direct impact on the health and well-being of its customers.

 

Key ESG highlights:

  • BEL is continuously taking initiatives to reduce carbon footprint as there was 9.3 tonne of annual reduction in CO2 emission and 3.02% reduction in Scope 2 emissions in fiscal 2022
  • BEL has achieved 99% recycling of waste material generated, and two of its factory sites are zero landfill certified.
  • Company is committed to ensure the safety and security of its employees. There were no complaints of sexual harassment in fiscal 2022 and the Lost time injury frequency rate (LTIFR) ratio stood at zero for consumer durables segment
  • The governance structure is characterised by effectiveness in board functioning and enhancing shareholder wealth, presence of investor grievance redressal mechanism and extensive disclosures.

ESG is gaining importance among investors and lenders. BEL’s commitment to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Rating Sensitivity factors

Upward factors

  • Sustenance of comfortable financial risk profile and debt metrics; for instance, total outside liabilities to tangible networth ratio below 1-1.2 times
  • Healthy growth in revenue driven by market leadership across multiple large product segments, better product diversity and increase in market share
  • Improvement in the performance of the EPC segment resulting in improved working capital cycle
  • Successful completion of the demerger

 

Downward factors

  • Decline in profitability, along with lower market share in key product segments, and subdued performance of the EPC segment
  • Sizeable debt-funded capex or acquisition, leading to total outside liabilities to tangible networth ratio remaining above 1.5-1.8 times on a sustained basis
  • Moderation in liquidity will affect rated commercial paper or short-term debt rating.

About the Company

BEL is an established player in the consumer electronics and durables industry. It is part of the Bajaj group and is under the leadership of Mr Shekhar Bajaj.

 

The company was incorporated in 1938 as Radio Lamp Works and renamed as BEL in 1960. It was formed as a marketing arm for consumer durables and has now diversified into engineering projects to parlay its presence in the lighting segment, to capitalise on the growing infrastructure spend in India.

 

BEL is also present in the premium range of appliances with the brand Morphy Richards.

Key Financial indicators (consolidated)

Particulars

Unit

2022

2021

Revenue

Rs crore

4808

4585

Profit after tax (PAT)

Rs crore

124

189

PAT margin

%

2.59

4.12

Adjusted interest coverage

Times

3.98

4.51

Adjusted debt / adjusted networth*

Times

0.23

0.55

*debt includes channel financing

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of
instrument		 Date of
allotment		 Coupon
rate (%)		 Maturity
date		 Issue size
(Rs crore)		 Complexity 
levels		 Rating assigned
with outlook
NA Fund-Based Facilities NA NA NA 547.5 NA CRISIL A+/Watch Positive
NA Non-Fund Based Limit NA NA NA 1521 NA CRISIL A1+
NA Proposed Non Fund based limits NA NA NA 31.5 NA CRISIL A1+
NA Short Term Debt NA NA 7 - 365 days 100 Simple CRISIL A1+

Annexure – List of entities consolidated

Names of Entities Consolidated Extent of Consolidation  Rationale for Consolidation 
Nirlep Appliances Pvt Ltd Full Subsidiary
Bajel Projects Ltd  Full  Subsidiary 
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 547.5 CRISIL A+/Watch Positive   -- 13-12-22 CRISIL A+/Watch Developing   --   -- --
      --   -- 14-09-22 CRISIL A+/Watch Developing   --   -- --
      --   -- 17-06-22 CRISIL A+/Watch Developing   --   -- --
      --   -- 21-03-22 CRISIL A+/Watch Developing   --   -- --
Non-Fund Based Facilities ST 1552.5 CRISIL A1+   -- 13-12-22 CRISIL A1+/Watch Developing   --   -- --
      --   -- 14-09-22 CRISIL A1+/Watch Developing   --   -- --
      --   -- 17-06-22 CRISIL A1+/Watch Developing   --   -- --
      --   -- 21-03-22 CRISIL A1+/Watch Developing   --   -- --
Short Term Debt ST 100.0 CRISIL A1+   -- 13-12-22 CRISIL A1+   --   -- Withdrawn
      --   -- 14-09-22 CRISIL A1+   --   -- --
      --   -- 17-06-22 CRISIL A1+   --   -- --
      --   -- 21-03-22 CRISIL A1+   --   -- --
      --   -- 17-02-22 CRISIL A1+   --   -- --
      --   -- 12-01-22 CRISIL A1+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 40 Bank of India CRISIL A+/Watch Positive
Fund-Based Facilities 40 Union Bank of India CRISIL A+/Watch Positive
Fund-Based Facilities 50 ICICI Bank Limited CRISIL A+/Watch Positive
Fund-Based Facilities 70 State Bank of India CRISIL A+/Watch Positive
Fund-Based Facilities 80 HDFC Bank Limited CRISIL A+/Watch Positive
Fund-Based Facilities 125 Axis Bank Limited CRISIL A+/Watch Positive
Fund-Based Facilities 132.5 Standard Chartered Bank Limited CRISIL A+/Watch Positive
Fund-Based Facilities 10 IDBI Bank Limited CRISIL A+/Watch Positive
Non-Fund Based Limit 60 DCB Bank Limited CRISIL A1+
Non-Fund Based Limit 75 Axis Bank Limited CRISIL A1+
Non-Fund Based Limit 100 IDFC FIRST Bank Limited CRISIL A1+
Non-Fund Based Limit 150 Bank of India CRISIL A1+
Non-Fund Based Limit 146 IDBI Bank Limited CRISIL A1+
Non-Fund Based Limit 140 ICICI Bank Limited CRISIL A1+
Non-Fund Based Limit 185 YES Bank Limited CRISIL A1+
Non-Fund Based Limit 295 Union Bank of India CRISIL A1+
Non-Fund Based Limit 340 State Bank of India CRISIL A1+
Non-Fund Based Limit 30 IDFC FIRST Bank Limited CRISIL A1+
Proposed Non Fund based limits 31.5 Not Applicable CRISIL A1+

This Annexure has been updated on 05-Jan-2023 in line with the lender-wise facility details as on 21-Mar-2022 received from the rated entity

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Engineering Sector
Rating Criteria for Consumer Durable Industry
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for rating short term debt

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