Havells' margins expected to improve in March quarter, say analysts

The Street gave a thumbs-up to the December quarter performance of Havells, which pushed the stock up 5 per cent on Tuesday.
 
The company’s revenue growth of 28 per cent to Rs 2,518 crore was ahead of consensus estimates.
 
The same was driven by the electrical consumer durables (ECD) and cable segments, which contributed 26 and 38 per cent to Havells’ stand-alone revenues, respectively.
 
The two segments reported growth of over 31 per cent each, compared to the year-ago period. ECD has been a consistent growth driver over the past few quarters, while growth in the cable business remains steady.
 

The festive season, in the December quarter, contributed to growth in small domestic appliances, even as water heaters continue to gain market share, says the company. It has maintained its leadership position in the fans segment, with newer products gaining traction. 
 
The government-led initiative in electrification and infrastructure has facilitated growth in the switchgear and cable businesses.
 
The acquired Lloyds business also recorded 22 per cent growth in Q3. Though sales of air conditioners (AC) have seen a soft first half in line with growth of its peers, the festive season and a favourable base aided the December quarter performance of Lloyds. 
 
The company is expanding the Lloyds AC business and eyeing premium segment sales. While the company is dependent on imports for a majority of Lloyds AC requirements, it is expected to start its own facility soon, which should rub-off well on margins.
 
During the quarter, Lloyds’ margins were impacted due to an increase in material costs and the rupee depreciation, while delays in passing increased input costs also impacted ECD margins. The quarter saw its operating margin decline 180 basis points, though operating profit at Rs 290.9 crore was in line with consensus estimates, along with net profit at Rs 195.7 crore.
 
The firm may consider price hikes in certain products and expects margins to improve during Q4, in line with the yearly average. The management sees a favourable medium-term growth environment.
 
Analysts such as Arafat Saiyed at Reliance Securities are optimistic about Havells’ growth potential on the back of low penetration, increasing urbanisation and a rising middle class.