Electrical goods firm Bajaj Electricals is planning to go slow on bidding for new engineering, procurement and construction (EPC) projects from now on.
In an interaction with Moneycontrol, Anant Purandare, Chief Financial Officer of Bajaj Electricals, said the company will only be bidding for transmission line towers and illumination projects.
"We have stopped bidding for last mile power distribution projects like rural electrification," he said.
At the end of FY19, Bajaj Electricals' order book stood at Rs 1,730 crore. Of this, Rs 705 crore was for transmission line towers, Rs 828 crore for power distribution, and Rs 197 crore for illumination projects.
Purandare added that the EPC order business order book will have a size of Rs 1,500 crore to 2,000 crore for the next couple of years.
The company posted a consolidated net loss of Rs 81 lakh in the March quarter (Q4) of FY20 compared to a net profit of Rs 23.08 crore in the year-ago period.
"Our quarter numbers have been affected because of the lockdown due to COVID-19. The good news is we could improve our operating margins. Operating margins improved from Rs 36 crore to 50 crore and in percentage terms it grew to 6.8 percent compared to is 4.9 percent," he said.
For FY20, consumer products segment saw a 12.7 percent year-on-year increase in revenue to Rs 3,095 crore. EPC on the other hand, saw a 51.9 percent decrease in revenue to Rs 1,892 crore.
Consumer products segment that saw an improvement, despite the slowdown, is the company's focus according to the CFO.
He added that as people continue to be stationed at home, there will be a need for kitchen appliances like mixer grinders, choppers, food processors and also household items like iron.
"So there is an opportunity to grow the business for large players likes us especially since small unorganised players are finding it tough to sustain," he added.
As far as the cash flows of the companies are concerned, Purandare explained that Bajaj Electricals has generated cash from operations mainly by reducing the working capital of EPC business.
The company generated positive cashflow from Operations of Rs 626 crore and also raised Rs 350 crore in Q4 through a rights issue, the proceeds of which were used primarily for repayment of debts.
In its board meeting on June 19, Bajaj Electricals also announced a proposal of raising Rs 500 crore through Non-Convertible Redeemable Debentures (NCDs) or Commercial Papers (CP) subject to shareholder approval through a special resolution.
"If there is an improvement in our credit rating, then we can go for issue of commercial paper which will save the interest cost. There is a liquidity in the market and if the company credit rating improves, we can take an advantage of this by issuing CPs in the later part of the year," he said.
In November 2019, rating agency ICRA Limited had downgraded the credit ratings for Bajaj Electricals' debt instruments due to a decline in EPC business profits.
ICRA had downgraded the company's line of credit (long term and short term) to A- from A and to A2+ from A1 respectively, with negative outlook. The rating agency also downgraded non-convertible debenture to A- from A, with negative outlook.
Going forward as far as cost optimisation is concerned, Purandare said that the company is looking to optimise distribution cost.
"With EPC business dipping, there would be a reduction in manpower and other overheads related to sites. Also, at most of the branches we have started reducing the overall infrastructure because the sales/marketing staff is out on the field," he added.
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