Bajaj Electricals to hive off power transmission biz into new listed company Bajel Projects

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Mumbai: Bajaj Electricals on Tuesday announced that it will be demerging its power transmission and power distribution businesses into a new company called Bajel Projects limited while retaining the consumer products and lighting businesses in the parent company.

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The new company will be listed on the bourses and shareholders will receive a stake mirroring their stake in the parent company.

Shareholders have been seeking this demerger for a long time now given the completely different nature of the businesses and an absolute lack of synergies between them.

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“It was a very logical thing to split the businesses up. We wanted to do this the right way, at the right time,” Anuj Poddar, executive director at Bajaj Electricals told ET in an interview.

Over the past three years the company pared debt and executed the various EPC (engineering, procurement and construction) projects taken by its power transmission and distribution business to help it start with a clean slate, Poddar said. The company will reach zero net debt by the time to demerger was affected, he said.

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“It’s all part of what we call building on the Bajaj Electricals 2.0. We’re working on becoming more agile and nimble. I think this demerger was a core step to making that happen,” he said.

The company reported a 12% year-on-year dip in its consolidated topline for the December quarter to Rs 1,320 crore while profit for the period halved to Rs 48 crore.

Earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 29% to Rs 92 crore while EBITDA margin contracted by 286 basis points to 7%. Higher input costs weighed on the margins.

The company has historically had lower margins than listed peers like Havells and Crompton Greaves. Poddar attributed this to the EPC business dragging down profits and lower margins for its consumer products business which is perceived to be more value-for-money in the market.

Bajaj Electricals also outsources the manufacturing of about 80% of its consumer products produced in India and it also has some legacy cost inefficiencies, the executive director added.

The company has now undertaken an exercise to improve its consumer products margins by 1% every year through internal cost reductions and premiumisation through its Morphy Richards brand. It has also increased prices to the tune of 11-12% over the past year, Poddar said.

Bajaj Electricals bought Nirlep Appliances in 2018 but the acquisition has “underperformed compared to the potential that management had expected.”

“We have not been able to focus on that acquisition and do justice to it, quite frankly. Post this demerger, which is very much on the drawing board. We’re looking at reviving that brand and getting the distribution right,” he said.

The stock of Bajaj Electricals Ltd ended 1.03% lower at Rs 1,209.6 on the BSE on Tuesday. The benchmark Sensex closed 0.33% higher.

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