Higher sales, price hikes help Havells outperform Polycab

Demand recovery may help both companies post improved show in the coming quarters

Two of the largest listed consumer electric companies, Havells India and Polycab India posted contrasting results in the June quarter. While the former put up an improved operating performance led by a revival in business to business sales and price hikes, weaker business mix and muted hikes dented the latter’s profitability.

Havells revenue beat was led by stronger business to business performance and price hikes. Barring lighting and Lloyds business, all other segments (cable and wires, switchgears) posted a strong show. Analysts led by Nilesh Bhaiya of Motilal Oswal Research say that the 75 per cent YoY uptick in revenues was 27 per cent ahead of their expectations. “The two-year compounded annual growth rate at -2 per cent with core Havells performance at one per cent growth while Lloyds is down -13 per cent is remarkable given the second covid wave disruption,” they add.

Though Polycab delivered a revenue growth of over 92 per cent YoY on a weak base with institutional business witnessing a pick up, it was lower than analyst estimates. The lacklustre performance in the key markets of South and West due to extended period of lockdowns and restrictions pulled down the overall performance. With sales picking up pace in July and consumer sentiment remaining positive, the company is expected to benefit from pent up demand going ahead. The management believes that the second half to be better than the first half as business to consumer as well as projects/industrial business picks up. Havells also expects demand to improve across segments and hit pre-covid levels which coupled with increased penetration are expected to drive growth for the company.

The underperformance of Polycab vis-a-vis Havells was more pronounced on the margin front. Sequential margins for Polycab have halved while they are down by 180 basis points for Havells. In addition to operating leverage, Havells has been able to take timely pricing action which helped to perform better as compared to peers. The company has raised prices by 10-15 per cent on an average over the last few months with sharper hikes to the tune of 35 per cent in the wires and cables segment.

Polycab on the other hand has taken only high single digit price hikes against raw material inflation of early teens which led to pressure on wires and cable business. Losses in the fast moving electric goods segment increased due to negative operating leverage, employee increments and higher advertising spends. Say analysts led by Amit Mahavir of Edelweiss Research, “Polycab’s divergence in results vis-à-vis peers such as Havells is led by both revenue mix (higher B2B, cables) and cost-pricing gap—the latter should normalise going ahead.”

While the electric business should post strong growth on the back of favourable demand and penetration, analysts believe the growth in the Lloyd business will be a key trigger for Havells. For Polycab, though the higher business to consumer mix, gains from the unorganised space are positive, the ability to scale up the fast moving electric goods segment are key to further gains.