Coronavirus impact: Bajaj Electricals looking at ways to trim dependence on China

Abhishek Law Kolkata | Updated on February 19, 2020

Eyes local manufacturing boost to combat potential supply disruptions

Bajaj Electricals, which is into consumer durables, lighting and engineering projects, is looking at ways to reduce its dependence on Chinese imports. This comes amid twin threats — supply disruptions in the wake of the coronavirus (COVID-19) outbreak in China, and a hike in customs duty proposed in the Budget.

Nearly two-thirds of Bajaj Electricals’ turnover come from its consumer businesses (consumer durables and lighting), while the balance comes from its EPC segment.

A report by Emkay Global Financial Services says the share of China in the imports of the consumer durables industry is high — up to 90 per cent of compressors, a large share of PCBs, etc — with negligible alternatives. Peak summer sales could be at risk for the industry if the supply disruption persists beyond February.

“I think the virus will have a much bigger impact than any one of us has been prepared for,” Anuj Poddar, Executive Director, Bajaj Electricals, told BusinessLine, referring to the industry in general. “The effect will be not just on me or the industry, but also on the value chain. For example, there will be an impact on my supplier and his supplier and so on. This is where the industry is yet to gauge the effect.”

The Indian electronics industry is heavily reliant on China for the supply of components, sub-assemblies and even full products. It is already anxious about supply disruptions, and is bracing for production cuts and a negative impact on prices. Product launches and some local manufacturing could also be hit. “There will also be a disruption in the (supply) chain at their (China’s) end and it could take time for recoveries,” Poddar added.

Made-in-India substitutes

Nearly 20 per cent of Bajaj Electricals’ goods are imported from China and there will be “some” impact on that because of COVID-19. But the primary worry, he says, is on the value chain getting affected.

Naturally then, concerns arise that Indian manufacturers — from whom Bajaj sources its offerings — could be left reeling. So far, the domestic electronics industry has been bracing itself with four to five weeks of stocks still left. But if the situation prolongs, the impact could be worse.

A short-term solution to the supply problem (from China) is to scout for locally made alternatives. For instance, if a particular component or an SKU is brought in from China, Bajaj may look at made-in-India alternatives; it will also try and shift consumer preferences towards the alternative.

“In the short term, we are trying to see (that) if a particular product is not going to come, we can offer an alternative and increase the sourcing of the alternative. Let’s say, the iron with particular specifications used for making fans comes from China and that supply is disrupted; we will see if there can be a made-in-India alternative and hopefully shift consumer preferences towards it,” Poddar said, adding that there may not be “like-to-like” substitutes always.

Local manufacturing

According to him, the long-term solution, though, is to increase local manufacturing. Here, again, there are limitations. For instance, products like toasters or steam irons may be difficult to completely manufacture in India simply because of the scale in which they are produced in China. But the company will look to scale up local manufacturing of items like table wall pedestal (TPW) fans, mixer grinders, hand blenders, oven, toasters and grillers.

“As a company, there will be not much capex (for increasing local production). We are heavy on OEM suppliers and will work with them to make this happen,” he added.

Price hikes

The Budget has proposed a 10-12.5 per cent hike in customs duty for different components. This will affect at least 10-12 per cent of Bajaj Electrical’s portfolio that covers offerings like toasters, rice-cookers, table, pedestal and wall fans, steam irons and so. Hence, a similar 10-12.5 per cent price hike will be initiated and passed on with immediate effect.

The electronics industry expects demand to remain muted in the immediate six months of 2020. Price hikes in such a scenario could hurt demand further.

However, Poddar clarified that these price hikes — which are expected across the industry — “will not lead to an improvement in margins”. Rather, these are being made to manage a cost escalation.

“This may not be the best time to hike prices, especially when demand continues to be slow; but we are hopeful that price hikes will mitigate some of the margins and bottomline impacts,” he said.

Published on February 19, 2020

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