Bajaj Electricals, the manufacturer of electric fans and lighting items, may hit the market for a qualified institutional placement (QIP).
The company has appointed investment bankers Edelweiss and IIFL to handle the offering, which may be in the range of Rs 400-600 crore, said people in the know. The proceeds will be used to pare debt.
“The bankers have been doing roadshows for a while now, and the QIP should be launched soon,” said a person familiar with the matter. “The company had earlier planned to raise Rs 700-800 crore, but may now opt to raise a lower amount,” added another person. An email sent to Bajaj Electricals did not elicit a response.
Mounting debt on EPC (engineering, procurement, and construction) projects had impacted Bajaj Electricals’ profitability in the June quarter, with interest costs zooming close to 3x year-on-year.
The company saw a 66 per cent drop in consolidated net profit to Rs 13.7 crore in Q1 over the year-ago period. Revenue for the consumer products segment grew 32 per cent to Rs 786 crore, while that of the EPC segment registered de-growth of 5.3 per cent to Rs 514 crore over the corresponding quarter of the previous financial year.
The Bajaj Electricals stock has slid 22 per cent on the BSE over the past year, but has gained 10.5 per cent in the past month alone.
Bankers say the improvement in market sentiment will help listed companies tap the market with their fund-raising plans. Last week, Axis Bank launched its Rs 12,500-crore QIP.
The rising debt level has strained its balance sheet, with the debt-to-equity (D/E) ratio deteriorating from 0.8 times in FY18, to 1.5 times in FY19.
Analysts believe that the key priorities of the management will be to reduce debt and collect cash from its projects in Uttar Pradesh — executed in FY19 — to improve cash flows.
Shekhar Bajaj, chairman and managing director of Bajaj Electricals, had said in an interview to a television channel last month that the firm aims to be cash-positive in FY20 and bring its D/E ratio to below 1.
“The management is looking to improve its D/E ration to 1x in the coming period, by raising Rs 600 crore via the QIP route. The management has also guided for strong revenue growth in the consumer durables segment, by gaining market share and adding new dealers. However, a shift in strategy to focus on selective orders would lead to a significant drop in revenue for the EPC business in coming quarters,” said ICICI analysts Sanjay Manyal and Hitesh Taunk in a recent research note.
Domestic brokerage Anand Rathi expects the company to clock 23 per cent compound annual growth rate on profit after tax, over FY19-21, on flat revenues following expanding margins toward consumer durables and lower interest costs.
The key risks, according to the brokerage, are volatile commodity prices, weakening exchange rates, and delayed project execution.