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Havells investors to monitor valuations, Lloyd turnaround closely
Source: Live Mint
Shares of Havells India Ltd have fallen 6% after the company’s lacklustre September quarter (Q2FY25) results, weighed down by rising costs in raw materials, staffing, and advertising & promotion (A&P). The company, which reported earnings announced last week, saw its revenue grow 16.5% year-on-year. Ebitda growth, however, remained under 2%, prompting analysts to cut earnings estimates by as much as 10%.
Business-to-consumer (B2C) revenue rose 20%, buoyed by early festival season demand and recovery in rural markets, driving overall growth. In contrast, business-to-business (B2B ) sales grew just 9%, constrained by lower government spending, which the management expects to pick up in H2FY25. Cables & wires, accounting for 35-40% of Havells’ revenue, grew 23%, partly driven by restocking efforts. However, lighting revenue declined 1% due to pricing pressure, while switchgears recorded only 4% growth, impacted by weak industrial demand.
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Havells’ A&P expenses rose a steep 54%, driven by the early onset of the festival season this year, whereas staff cost grew 25%. The management attributed the increase to investments in building retail channels, including in rural areas, and in R&D, and these should pay back in future. The company was also hit by significant volatility in commodity prices and had to absorb high-cost inventory in cables due to a sharp drop in prices.
The management noted that competitive dynamics necessitate swift price reductions, though passing on price increases to consumers takes time. While the management expects margins to normalize with stabilization of raw material prices and demand recovery in the B2B segment, analysts are not convinced.
“We cut our EPS estimates by 4-8% for FY25-27 as we reduce our segmental margin assumption by 50-80 basis points across segments.” said analysts at Motilal Oswal Financial Services in a report dated 18 October 18. Nuvama Institutional Equities has cut their FY25-27 earnings per share estimates by 9-10%, as per a 17 October report.
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In September, Havells commissioned a new, larger cables manufacturing facility and plans to expand capacity further with a ₹450 crore investment, targeted for completion by September 2026.
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All said, Havells’ pricey valuations are a hurdle. The stock trades at 56 times FY26 estimated earnings, according to Bloomberg data. Consistent improvement in Lloyd’s margin is a trigger. While Lloyd still incurred loss at the Ebit level, its Q2 Ebitda margin rose to 14%, up from 13.2% in Q1FY25 and about 4% in Q1FY24. Last quarter’s 19% revenue growth was aided by rising sales of non-air conditioning products. Lloyd has initiated sales in West Asia but expects traction in FY26 only.
