Havells India Ltd had a tough December quarter (Q3FY24), due to weak consumer demand. Sales growth was slow across most businesses.
Investors are primarily concerned about the capacity challenges in the cables segment and the protracted journey to profitability for Lloyd Consumer.
Havells’ current investment in cables and wires is suboptimal in terms of scale, especially given the current growth in demand, said Alok Deshpande, executive director at Nuvama Institutional Equities. This situation may lead to Havells potentially losing more market share to competitors such as Polycab or KEI Industries, he added.
In its Q3 earnings call, Havells said its underground cable capacity will increase by 25% following the commissioning of its new factory in Karnataka. Additionally, the company is expanding the capacity of its home wires.
Meanwhile, Lloyd’s Consumer business continues to report operating losses despite posting 7% revenue growth in Q3. While Lloyds has huge market potential, margin improvement in the medium term is expected to be slow. Management refrained from predicting equity margins for Lloyd’s in the near term.
Other segments also faced challenges. The switch division saw lower sales in the category of telecom original equipment and flat exports. The lighting business struggled with price deflation issues. The electrical consumer durables (ECD) business saw a subdued growth of 3% due to weak demand and a higher base in the fan category. While the management said that it is witnessing some green shoots in B2C demand, it does not foresee prices in the ECD segment in the next two quarters. The good news is that Havells continues to lead in the segment of high-quality fans and expects normality in demand during the coming summer season.
Overall, Havells’ net profit was flat in Q3. Due to prolonged weakness in consumer demand and estimated margin compression in FY24, analysts at Elara Securities have lowered their earnings per share estimates by 9% in FY24 and by 4% in FY25.
In the past year, Havells shares have risen 11% against a 23% rise in the Nifty 50 index. The stock trades around 52 times estimated FY25 earnings.
Havells stock has consistently maintained a premium valuation due to the expansive scale, well-diversified portfolio and ranking among the top three players in all product categories, Harshit Kapadia, vice president, Elara noted. Here, an improvement in consumer demand and a turnaround in Lloyd’s are expected to boost the stock’s performance.
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