A staggered pass-through of rising costs and higher advertising and promotion (A&P) costs adversely affected margins in the first quarter (April-June/Q1) of 2026-27 (FY27). Elevated competition and the inability to pass on additional costs could crimp margins further in the coming quarters. Despite the correction and multiple headwinds across major segments, the stock is trading at about 40x its 2027-28 (FY28) earnings and at a premium to peers.
Higher competitive intensity across its key segments is the major headwind for the FMEG major. The immediate pressure is expected to be on the C&W business, which accounts for about 40 per cent of its overall revenues and is the largest and fastest-growing segment of the company. Over the past seven years, C&W revenues and segment profit for Havells have grown by 19.4 per cent and 22.8 per cent annually, respectively.
In 2025-26, revenue growth for C&W was 20.8 per cent, while overall company growth was only 3.3 per cent. C&W has a disproportionate share of segment profits and accounted for more than half of operating profits.
Analysts at Kotak Research, led by Umang Mehta, say that even if UltraTech does not follow an aggressive pricing strategy, wire margins of incumbents are likely to be affected by higher media intensity and adverse terms of trade (channel margins, credit period, and influencer incentives). On the other hand, cables may have a better defence than wires due to industry tailwinds in both domestic and export markets, longer product qualification periods, project references, and customer approval cycles. The brokerage has cut the price-to-earnings multiple of Havells from 40x to 38x and its target price to ₹1,250 from ₹1,325 earlier.
Citi Research also believes that UltraTech’s announcement that it aims to become at least the No. 2 player in the C&W sector in the next three to five years is likely to weigh on the near-term stock performance and multiples of Indian C&W players, as this would imply higher capacity additions and increased competitive intensity. The brokerage points out that disruption in the wire category is likely to be higher in India, given that RR Kabel and Havells have higher exposure than Polycab India, compared with cables, given the relatively longer lead time for approvals and certifications, stock-keeping units, manufacturing complexity, and technical know-how.
The sharp jump in raw material costs (copper and aluminium) is another headwind for the company. Copper prices are up 46 per cent over the past year, while aluminium prices are higher by 27 per cent. The second quarter (July-September/Q2) could be beneficial from a revenue standpoint, given that higher prices could drive pre-buying in anticipation of price hikes, lifting volumes and revenues. However, the higher costs will have to be passed on going ahead, leading to an impact on volumes. If the company chooses to stagger the pace of price hikes, it could hit operating profit margins.
In Q1FY27, the company implemented staggered price hikes across product categories in the range of 7-8 per cent, while categories with higher copper and aluminium content, such as C&W, saw steeper increases of up to 20 per cent.
At the consolidated level, the company reported a weak performance in Q1FY27 due to a dip in switchgear revenue and margin contraction. The pressure on profitability was led by higher A&P spending and raw material costs. A&P spending in Q1 was 4.4 per cent of revenue, compared with the normalised 2.6 per cent. Following its Q1FY27 performance, Motilal Oswal Research cut its operating profit estimates by 6-8 per cent for FY27/FY28 due to lower margin estimates. The margin cuts also led to a reduction in earnings per share estimates by 8-10 per cent for FY27/FY28.
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