Havells: Near-term demand uncertainty to weigh on Street sentiment

While Havells managed to post a better than expected performance for the quarter ending June, it is the near-term uncertainties on demand and stock valuations that are likely to weigh. The stock lost 1.85 per cent on Monday.

Despite the lockdown, while revenues declined 45 per cent year-on-year to Rs 1479 crore, it was a better than expected rebound in June sales that pushed revenues ahead of consensus estimates of Rs 1,302 crore.  June saw sales grew 4 per cent year-on-year (40 per cent decline in May). Higher revenues helped Ebitda at Rs 131 crore to beat an estimate of Rs 66 crore (though down 53 per cent yoy). Analysts said that decline in employee costs surprised, while selling and general administrative expenses too, declined. Not surprising then, that pre tax profits at 86 crore beat analysts’ expectations of a loss.  

The company said that demand markets were tepid initially because of lockdowns, but picked momentum in the later half of May. The stock prices too, have reflected the same with gains of 30 per cent since May lows. However, owing to frequent regional disruptions and shutdowns, demand scenario remains hazy and uncertain, feels the company.

In core business segments, switchgears, cable, lighting & fixtures and electrical consumer durables (ECD) saw a 41-46 per cent decline in revenues, while the acquired Lloyds business suffered a steeper 53 per cent yoy decline. Consumer portfolio within all segments recovered earlier and better than the industrial portfolio.  Cables (13 per cent of overall) and switchgears (31 per cent of overall) are more dependent on housing and construction activities that remain subdued and thus segmental growth hinges on further recovery.  The lighting segment though, may grow well, but is seeing very high competition. The lighting margins at 2.1 per cent were much lower than 14.2 per cent in the year ago quarter. ECD segment that contributes about fifth to revenues is well placed as appliances sales are likely to remain decent even though the peak season for fans may have been impacted. The work from home culture is also boosting requirement of appliances.

Lloyds too, has seen impact and peak summer sales for air conditioners have suffered. Nevertheless, the low base of last year still remains a support area for the segment, say analysts. The company that had added LED panels to its range is also launching refrigerators and this will be a positive for overall segment revenues.

It is the near-term demand uncertainty that will weigh on Street sentiments, feel analysts. Tarang Bhanushali at Yes Securities feels that looking at the slowdown in real estate and construction activities and disruption in metro towns (larger contributors),a cautious outlook prevails and the stock is trading at 47xFY22 earnings estimates is not cheap.