Margin pressures offset robust topline performance of Havells in Q1

Havells posted robust Q1 revenue growth led by cable and wires, but higher input and advertising costs squeezed margins, with recovery expected from the September quarter

Consumer electricals and durables major Havells India delivered a strong revenue performance in the first quarter (April-June/Q1), while its operating performance fell short of expectations. While top line growth was led by the cable and wire (C&W), consumer durables, and renewables businesses, the Lloyd Consumer segment disappointed.

 

Although profitability took a hit due to higher raw material and advertising costs, margins are expected to recover in the second quarter (July-September/Q2), aided by price hikes and the normalisation of marketing costs.

 

The stock has sharply underperformed the BSE 100 over the past six months, falling 16 per cent during the period, compared with a 4 per cent decline in the broader index. Going ahead, the key monitorables, according to analysts Manish Valecha and Surbhi Lodha of Anand Rathi Research, are the pace of margin recovery in Lloyd, stability in raw material prices, execution of planned capacity additions, and the scaling up of the renewables business. The brokerage remains positive on the company’s long-term prospects and has maintained a ‘buy’ rating, albeit with a revised lower target price of ₹1,379.

 

The company reported 19.7 per cent year-on-year (Y-o-Y) revenue growth in the June quarter, aided by robust demand across categories. The revenue beat was largely driven by a 27 per cent Y-o-Y jump in the C&W segment, followed by 15 per cent growth in Lloyd’s revenue. Among the other segments, electrical consumer durables and lighting posted revenue growth of 12 per cent Y-o-Y and 4 per cent, respectively. The switchgear segment, however, reported a 3 per cent Y-o-Y decline due to lower exports. The 15 per cent drop in exports was attributed to disruptions in West Asia.

 

The C&W business recorded low single-digit volume growth in the C&W segment. Volatility in raw material prices remains the primary near-term challenge and has affected procurement patterns and ordering activity. The company, however, does not see any operational or execution-related issues and remains on track with its planned capacity additions.

 

Despite strong top line growth, gross margins contracted sharply by 218 basis points (bps) to 31.3 per cent, while the operating margin declined by 228 bps Y-o-Y to 7.3 per cent. According to Equirus Securities, this was below expectations due to stepped-up and front-loaded brand-building efforts in Q1, led by higher media investments, which are expected to normalise over the rest of the year.

 

Overall, healthy top line growth was more than offset by a sharp margin miss across the core business, along with wider losses at Lloyd, resulting in earnings below expectations. With recent price hikes and normalising advertising spends, management remains positive on the margin outlook, it added.

 

While Lloyd posted 15 per cent revenue growth, it came off a favourable base in the year-ago quarter. Analysts Shalin Choksy and Jignesh Thakur of JM Financial Research point out that despite being less aggressive in pursuing market-share gains, profitability remained elusive, as the segment reported a negative 4 per cent earnings before interest and tax margin. The brokerage has cut its 2026-27 earnings estimates by 8 per cent, while keeping those for 2027-28 and 2028-29 unchanged. It has maintained an ‘add’ rating on the stock with a target price of ₹1,300.