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Excerpts from IIFL’s interview
with Shekhar Bajaj, Chairman & MD;
Ramakrishnan, ED; and Anant Bajaj, ED; Bajaj
Electricals
When India opened its markets in the early part of this decade in
deference to WTO norms, Shekhar Bajaj was one of the first to
identify value in importing good quality products at an affordable
price for the Indian consumer. He found significant value in retaining
the ‘marketing company’ business model of Bajaj Electricals for all
such products where there wasn’t much high-tech know-how
involved. He finds outsourcing sensible since Indian entrepreneurs
maintain strong control over costs and importing from places like
China offer scale efficiencies. Thanks to this, Bajaj Electricals has
been a pioneer in offering quality at an affordable price to Indian
consumers.
Bajaj Electricals is a fairly old company, established in the
1930s, but has seen meaningful growth only in the last
decade or so. What were the key growth drivers?
Shekhar Bajaj: The market for consumer durables opened up only
after 2000, when India had to allow imports of consumer products as
per the new WTO rules. Bajaj Electricals was also the very first
company to use this opportunity; we explored the option of
importing goods from China, where they have greater scale
advantages. We also brought foreign brands to India, including
Morphy Richards.
Do you see India’s explosive growth in consumption spending
continuing?
Ramakrishnan: I would not be surprised if it accelerates, because
when rural demand grows, it means about 70% of India’s population
would be a base from which we should see consumption growth.
Virtually every category today is under-penetrated. Thanks to
agriculture doing well, rural employment generation gaining steam
and infrastructure being built, we could witness a further spurt in the
buying power of rural India. Greater employment and greater
aspiration are a very potent combination. At the same time, even
urban consumption will continue to grow, amongst the lower and
lower-middle classes, driven by the same factors. So, on the whole, I
am even more bullish about the next 15 years.
How do you see the E&P segment growing?
Anant Bajaj: Our market share in the E&P space is still very small.
As we gain experience in implementing larger projects and a wider
variety of projects, I see our E&P segment attracting a greater share
of the order flow. Currently, we target not only domestic orders, but
also international orders. Recently, we won orders for turnkey
projects for the cricket and football stadiums in Dubai, in addition to
lighting projects in Africa. These projects have helped us improve
our expertise and quality control, and enable us to be more
competitive in the domestic market by offering greater quality at
affordable cost.
Where do you see your company ten years from now?
Shekhar Bajaj: I see us reaching Rs250 billion in revenues by
2020. While this will substantially be led by organic growth, we will
be happy to explore any suitable acquisition opportunities.
Ramakrishnan: In the medium term, I see our annual revenues
hitting Rs50 billion in three years and Rs100 billion in three years
after that. About 80% of this growth would be organic, and the rest
by diversification and acquisitions. Our strategy is simple—strong
growth in categories in which we are already present, and even
stronger growth in those that we plan to enter soon. We are entering
the water business, gas appliances, pressure cookers, LED lanterns
for rural areas, DG sets for small applications and industrial exhaust
fans and air circulators. We might get into non-stick utensils and
pumps.
Anant Bajaj: Specifically within segments, I think we’ll be a leading
player in luminaires in the next three years. We are not far behind
the leader today, and I think we can bridge that gap fairly soon,
thanks to our focus on quality control. I think we’ll be a leader in the
lighting segment in the next six to seven years, driven by new
products such as CFL. In the E&P space, we will be among the top 5
players in India and among the top 20 in the world, within five years.
How will your new products that are rural oriented impact
your margins?
Ramakrishnan: Today’s rural consumer is brand-aware; if he has a
choice between buying unbranded product vs a brand that assures
him high quality, he is willing to pay a premium. At the same time,
their incomes are also growing—agriculture is doing well, and
financial inclusion is gaining momentum. The rural consumption
story for any consumer company will be a function of three things:
1) product innovation—offering the right product at the right price
point; 2) rural distribution—how you can offer products through
channels which the rural consumer can reach easily; and 3)
consumer connect—a differentiated value proposition. Bajaj
Electricals is focussing on all these aspects, and I think will be ahead
of the race. So I don’t really see any risk to our consumer margins.
What can go wrong that may prevent you from meeting your
targets?
Shekhar Bajaj: We need to keep in mind that Bajaj Electricals has a
very low break-even, since our share of own manufacturing is very
low. Hence, a change in the demand growth trajectory should have
no major impact on our profitability. However, margins could come
under pressure in the event of any under-cutting by new players.
Ramakrishnan: It’s important to have a ready second line of
leadership. Not just at the top, but at every step within the
organisation. Secondly, as we grow in size, scale and complexity, we
will be faced with the challenge of retaining the entrepreneurial and
innovative spirit of the organisation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Excerpts from IIFL’s interview
with Shekhar Bajaj, Chairman & MD;
Ramakrishnan, ED; and Anant Bajaj, ED; Bajaj
Electricals
When India opened its markets in the early part of this decade in
deference to WTO norms, Shekhar Bajaj was one of the first to
identify value in importing good quality products at an affordable
price for the Indian consumer. He found significant value in retaining
the ‘marketing company’ business model of Bajaj Electricals for all
such products where there wasn’t much high-tech know-how
involved. He finds outsourcing sensible since Indian entrepreneurs
maintain strong control over costs and importing from places like
China offer scale efficiencies. Thanks to this, Bajaj Electricals has
been a pioneer in offering quality at an affordable price to Indian
consumers.
Bajaj Electricals is a fairly old company, established in the
1930s, but has seen meaningful growth only in the last
decade or so. What were the key growth drivers?
Shekhar Bajaj: The market for consumer durables opened up only
after 2000, when India had to allow imports of consumer products as
per the new WTO rules. Bajaj Electricals was also the very first
company to use this opportunity; we explored the option of
importing goods from China, where they have greater scale
advantages. We also brought foreign brands to India, including
Morphy Richards.
Do you see India’s explosive growth in consumption spending
continuing?
Ramakrishnan: I would not be surprised if it accelerates, because
when rural demand grows, it means about 70% of India’s population
would be a base from which we should see consumption growth.
Virtually every category today is under-penetrated. Thanks to
agriculture doing well, rural employment generation gaining steam
and infrastructure being built, we could witness a further spurt in the
buying power of rural India. Greater employment and greater
aspiration are a very potent combination. At the same time, even
urban consumption will continue to grow, amongst the lower and
lower-middle classes, driven by the same factors. So, on the whole, I
am even more bullish about the next 15 years.
How do you see the E&P segment growing?
Anant Bajaj: Our market share in the E&P space is still very small.
As we gain experience in implementing larger projects and a wider
variety of projects, I see our E&P segment attracting a greater share
of the order flow. Currently, we target not only domestic orders, but
also international orders. Recently, we won orders for turnkey
projects for the cricket and football stadiums in Dubai, in addition to
lighting projects in Africa. These projects have helped us improve
our expertise and quality control, and enable us to be more
competitive in the domestic market by offering greater quality at
affordable cost.
Where do you see your company ten years from now?
Shekhar Bajaj: I see us reaching Rs250 billion in revenues by
2020. While this will substantially be led by organic growth, we will
be happy to explore any suitable acquisition opportunities.
Ramakrishnan: In the medium term, I see our annual revenues
hitting Rs50 billion in three years and Rs100 billion in three years
after that. About 80% of this growth would be organic, and the rest
by diversification and acquisitions. Our strategy is simple—strong
growth in categories in which we are already present, and even
stronger growth in those that we plan to enter soon. We are entering
the water business, gas appliances, pressure cookers, LED lanterns
for rural areas, DG sets for small applications and industrial exhaust
fans and air circulators. We might get into non-stick utensils and
pumps.
Anant Bajaj: Specifically within segments, I think we’ll be a leading
player in luminaires in the next three years. We are not far behind
the leader today, and I think we can bridge that gap fairly soon,
thanks to our focus on quality control. I think we’ll be a leader in the
lighting segment in the next six to seven years, driven by new
products such as CFL. In the E&P space, we will be among the top 5
players in India and among the top 20 in the world, within five years.
How will your new products that are rural oriented impact
your margins?
Ramakrishnan: Today’s rural consumer is brand-aware; if he has a
choice between buying unbranded product vs a brand that assures
him high quality, he is willing to pay a premium. At the same time,
their incomes are also growing—agriculture is doing well, and
financial inclusion is gaining momentum. The rural consumption
story for any consumer company will be a function of three things:
1) product innovation—offering the right product at the right price
point; 2) rural distribution—how you can offer products through
channels which the rural consumer can reach easily; and 3)
consumer connect—a differentiated value proposition. Bajaj
Electricals is focussing on all these aspects, and I think will be ahead
of the race. So I don’t really see any risk to our consumer margins.
What can go wrong that may prevent you from meeting your
targets?
Shekhar Bajaj: We need to keep in mind that Bajaj Electricals has a
very low break-even, since our share of own manufacturing is very
low. Hence, a change in the demand growth trajectory should have
no major impact on our profitability. However, margins could come
under pressure in the event of any under-cutting by new players.
Ramakrishnan: It’s important to have a ready second line of
leadership. Not just at the top, but at every step within the
organisation. Secondly, as we grow in size, scale and complexity, we
will be faced with the challenge of retaining the entrepreneurial and
innovative spirit of the organisation.
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