Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+' ratings on the bank loan facilities of Bajaj Electricals Ltd (BEL).

 

CRISIL Ratings has withdrawn its rating on the Rs 100 crore short-term debt instrument, (refer to Annexure - Details of rating withdrawn) on client request as this has not been utilised and the company does not have any outstanding debt. CRISIL Ratings has also withdrawn its rating on Non-Fund Based Limit of Rs 100 crore based on client request and availability of supporting documents (sanctioned letters) from the lender. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of ratings.

 

Revenue declined by 5.1% in fiscal 2024 due to degrowth of 7.8% in the lighting segment and 4.3% in the consumer products segment. The consumer products business faced the impact of weak demand, particularly in kitchen appliances. The decline in the lighting segment was due to price erosion because of the driver-on-board technology and has been stabilised now. The revenue is expected to grow in this fiscal with revival in rural demand.

 

The margin declined to 5.6% in fiscal 2024, from 7.7% in fiscal 2023, due to high discounting schemes because of weak demand situation and operating deleverage. Further, the company has been refreshing its product portfolio with better design and technology and phasing out old products which were heavily discounted. BEL has refreshed 40% of its product portfolio and is expected to fully refresh in the next two years. The margins are expected to improve by 1.5-2.0% in fiscal 2025 by 1.5-2% with price hikes and new product launches along with revival in demand. The company will be focusing on improving profitability through launching new products with better design and technology, value engineering, reducing logistic cost, improving brand presence and operating leverage.

 

The financial risk profile is marked by nil debt, with healthy debt protection metrics and comfortable liquidity. The interest coverage ratio moderated to ~5.5 times in fiscal 2024, as compared to 9.6 times in fiscal 2023, due to decline in profitability but may improve over the medium term. Liquidity should remain strong, with cash balance of Rs 305 as on March 31, 2024, and largely unutilised fund-based limit of Rs 380 crore.

 

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; and improving financial risk profile, including strong liquidity. The company will continue to benefit from the financial flexibility derived from being a part of the Bajaj group. These strengths are partially offset by exposure to volatility in commodity prices and intense competition.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of BEL. The subsidiary -- Nirlep Appliances Pvt Ltd -- has been merged into the company in fiscal 2024.

Key Rating Drivers & Detailed Description

Strengths:

• Established presence in the consumer appliances and lighting segments: 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 the top 5 in fans and lighting categories. It has a vast network of 749 distributors and over two lakh retail outlets across India.

 

The company derives strength from its keen focus on research and development, 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 operates across household appliances, with consumer products constituting 78% of the revenue while the lighting segment contributes the remaining. The company is focusing on better brand positioning and recall value associated with different brand products to meet the needs of different market segments. The consumer products segment includes fans, air coolers, mixers, eater heaters, irons and other kitchen and grooming appliance

 

Within the consumer products segment, the company offers kitchen appliances such as mixers, juicers and sandwich makers; and home appliances such as fans, air coolers, water heaters and irons. In the lighting segment, it is present in the light-emitting diode and lamps segments. 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 fans through their newly launched Nex brand. It sells cookware through the Nirlep brand.

 

• Strong financial risk profile: Financial risk profile is supported by the absence of debt, healthy networth and strong liquidity. Capital expenditure (capex) of Rs 200 crore over the medium term will be funded by cash 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.

 

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 the financial risk profile and nil 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 305 crore as on March 31, 2024. Cash accrual -- projected at Rs 250-300 crore per annum -- should comfortably fund the capex and working capital requirements over the medium term. Fund-based limit of Rs 380 crore remained unutilised for the 12 months through May 2024. The company became net term debt-free in fiscal 2022 and is expected to have minimal dependence on external debt over the medium term as well. Access to need-based funding support from the Bajaj group also enhances fund-raising ability.

 

Environment, social and governance profile

The environment, social and governance (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 wellbeing of customers.

 

Key ESG highlights

• BEL increased its renewable energy capacity, with 2.2 megawatt peak of solar and 2.8 megawatt of wind capacities operations as on March 31, 2023, helping the company to generate more than 4,000 megawatt-hour of green energy.
• In fiscal 2023, the share of female employees increased to ~11% from ~6% in the previous year.
• On the safety front, BEL’s lost time injury frequency rate for employees was zero in fiscal 2023 as compared to 0.34 time in fiscal 2022.
• The company’s governance structure is characterised by ~44% of its board being independent directors, ~22% women board directors, split in the chairperson and managing director positions on the board and extensive financial 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.

Outlook: Stable

BEL will continue to benefit from its established market position across product categories and established brand position. The financial risk profile should remain strong, driven by nil long-term debt, high financial flexibility and moderate capex.

Rating Sensitivity factors

Upward Factors:

• Healthy growth in revenue driven by market leadership across multiple large product segments, better product diversity and increase in market share
• Improvement in profitability, with earnings before interest, taxes, depreciation and amortisation margin of 8-10% on a sustained basis
• Sustenance of comfortable financial risk profile, including debt protection metrics; improvement in the working capital cycle

 

Downward Factors:

• Decline in market share in key product segments or material decline in revenue
• Moderation in profitability to below 6% on a sustained basis
• Sizeable debt-funded capex or acquisition, leading to total outside liabilities to tangible networth ratio breaching above 2.0 times on a sustained basis or significant weakening of liquidity

About the Company

BEL is an established player in the consumer electronics and durables industry. It is a part of the Bajaj group that is led by Mr Shekhar Bajaj.

 

The company was incorporated in 1938 as Radio Lamp Works and renamed BEL in 1960. It was formed as a marketing arm for consumer durables but has now diversified into engineering projects to parlay its presence in the lighting segment to capitalise on the growing infrastructure spend in India. The engineering procurement and construction division has been demerged into a separate entity, Bajel Projects Ltd, in fiscal 2024.

 

BEL sells premium range of appliances under the Morphy Richards and Nex brands. The company sells majority of its cookware under the Nirlep brand.

Key Financial Indicators

Particulars	Unit	2024#	2023#
Revenue	Rs crore	4461	4889
Profit after tax (PAT)	Rs crore	131	216
PAT margin	%	2.8	4.4
Adjusted interest coverage	Times	5.45	9.62
Adjusted debt/adjusted networth	Times	0.00	0.00

#Excluding Bajel Projects Ltd

Any other information: Not Applicable