Havells India stock likely to lose spark as fuse blows on margins

Live-wire market share gain, but margin recovery and demand revival need a jolt

Havells India, the country’s largest listed consumer electrical company, reported a mixed performance in the 2024-25 (FY25) October-December quarter (Q3). While the top line benefited from festival demand, lower margins impacted operational performance.

  Although consumer sentiment improved towards the end of Q3 and the company gained market share, a strong revival in consumption demand and the pace of margin recovery will be crucial for the stock. Despite a 1 per cent gain on Friday, Havells India remains down 11 per cent from its December highs.

 

The segments that performed well in the December quarter were electrical consumer durables (ECD), Lloyd, and switchgear. ECD and the Lloyd business (air conditioners) both saw 15 per cent growth, with demand for small appliances spurred by festivals and season-driven upticks, while stocking for a stronger summer season boosted air conditioner volumes.

 

Sales in the switchgear segment also remained robust, rising 11 per cent year-on-year (Y-o-Y), driven by demand from real estate and projects. On the downside, the wire and cable segment saw a modest 7 per cent growth. While cable volumes rose 11 per cent, wire volumes fell Y-o-Y as fluctuations in copper prices led to destocking. The lighting fixture segment grew by 4 per cent Y-o-Y, driven by volume increases. However, the 14 per cent volume growth was offset by continued price deflation.

 

While overall sales growth aligned with Street expectations, Havells fell short on profitability. Operating profit dropped by 1 per cent Y-o-Y due to lower margins in switchgear and higher-than-expected losses in Lloyd. Margins slipped by 110 basis points to 8.7 per cent. 

 

Margins in switchgear were weaker due to a shift in product mix, with higher sales in the projects business and lower factory absorption due to plant relocation. Further margin erosion occurred from the wire destocking and changes in the ECD product mix. The company anticipates margin improvement in the ECD, switchgear, and Lloyd segments over the next few quarters, with some restocking of the wire segment expected in the fourth quarter of FY25.

 

In light of weak margin performance, brokerages have revised their margin estimates down by up to 9 per cent. Elara Securities has reduced its earnings estimates by 4 per cent for FY25 and 5 per cent for 2025-26 (FY26) and 2026-27 (FY27), citing intensified competition that will delay margin expansion in the electrical sector.

 

Analyst Harshit Kapadia of Elara Securities remains optimistic about Havells, considering it a top player in the electrical industry, with a diversified product portfolio, leading market share, capacity investments, and pricing power. The brokerage has maintained an ‘accumulate’ rating but lowered its target price to Rs 1,750 (from Rs 1,930).

 

Motilal Oswal Research has also downgraded its margin forecasts and cut earnings estimates by 5-8 per cent for FY25-27. The brokerage maintains a ‘neutral’ rating with a revised target price of Rs 1,740, citing high valuations. Analysts, led by Sanjeev Kumar Singh, believe Havells’ valuations at 59x and 48x its FY26 and FY27 earnings per share remain expensive.

 

While Nuvama Research has reduced earnings estimates for FY25-27 by 5-9 per cent due to delayed margin recovery, it remains bullish on the stock, maintaining a ‘buy’ rating with a target price of Rs 1,940. Analysts Achal Lohade and Harshit Sarawagi argue that Havells has been gaining market share in most categories over the past several quarters. They believe the company is well-positioned to sustain this trend as consumption demand and real estate recover, alongside sustained industrial sector capital expenditure.