Key Rating Drivers & Detailed Description

Strengths:

Established presence in the consumer appliances and lighting segment

BEL has leadership position in the consumer electronics industry. Apart from being the top player (in terms of sales volume) in the mixer grinder, water heater and dry iron segments, the company is also among the top 2-3 players in the other appliances and among top 5 in fans and lighting categories. It has a vast network of 600+ distributors and 230,000 retail outlets across India.

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, 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 household appliances (which contributes around 46% to overall revenue), fans (24%) and lighting (23%). The balance 6-7% comes from the premium brand, Morphy Richards.

Within appliances, the company offers kitchen appliances such as mixers, juicers and sandwich makers; and home appliances such as water heaters, irons and coolers. Under fans, it caters to various price ranges. In the lighting segment, it is present in the light-emitting diode (LED) and lamps segments. It sells non-stick cookware through the subsidiary, Nirlep Appliances Pvt Ltd. Majority of these products are sold under the Bajaj brand. The company will increase its presence in the premium range through its Morphy Richards brand, which is witnessing healthy growth. The company has also entered into premium offering through their newly launched “Nex” brand.

Strong financial risk profile

Financial risk profile is supported by the absence of long-term debt, healthy networth, comfortable gearing and strong liquidity. Debt protection metrics will remain strong over the medium term in the absence of external debt. Capital expenditure (capex) of Rs 200 crore over the medium term will be funded by internal accrual. Comfortable gearing provides headroom for modest acquisitions without any material impact on financial risk profile and key debt metrics. That said, any significant debt-funded capex or sizeable acquisition will be closely monitored.

Working capital cycle has improved after the demerger of EPC segment (Bajel Projects) with significant reduction in receivables. The GCA (excluding cash) days are expected to remain around 150 days in the medium term.

Also, BEL derives financial flexibility from being a part of the Bajaj group. The company has received 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 financial risk profile and low debt, BEL may not require additional support from group entities.

Weaknesses:

Susceptibility to volatility in commodity prices and increasing competition

Prices of key inputs such as copper and aluminium are highly volatile. Raw materials 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, which constrains profitability. 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.

Exposure to intense competition in the domestic consumer durables sector: Competition in the consumer durables sector in India has intensified over the past few years, with several players establishing a strong consumer connect and brand recall. BEL faces competition from players in the organised and unorganised segments, and cheaper imports from China limiting its pricing power.

Liquidity: Strong

Cash balance was healthy at around Rs 150 crore as on March 31, 2023. Healthy cash accrual of Rs 250-300 crore per annum over the medium term after yearly capex of Rs 80-90 crore will continue to support liquidity. Fund-based limit of Rs 380 crore remained unutilised for the six months through May 2023 (part of the limits are expected to be transferred to Bajel Projects Ltd). The company became net term debt-free in fiscal 2022 and is expected to have minimal dependence on external debt over the medium term. Access to funding from the Bajaj group, if required, also enhances 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 the society, led 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: there was 9.3 tonne of annual reduction in CO2 emission and 3.02% reduction in Scope 2 emissions in fiscal 2022
• BEL has recycled 99% of its waste material, and two of its factory sites are zero landfill certified
• The company is committed to ensuring 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) was zero for the 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. The commitment of the company 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.

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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