HAVELLSNSEQ4 FY2022May 05, 2022

Havells India Limited

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20analyst exchanges

5executives

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Management on call

Renu Baid

IIFL SECURITIES LIMITED

Anil Rai Gupta

CHAIRMAN & MANAGING

Rajesh Kumar Gupta

WHOLE-TIME

Ameet Kumar Gupta

WHOLE-TIME

Rajiv Goel

EXECUTIVE DIRECTOR - HAVELLS INDIA LIMITED

Key numbers — 28 extracted

rs,

Swaminathan: Yes Sir. ftHAVELLS Anil Rai Gupta: I think these numbers, if you can specifically talk to the IR team that will be better because it may be difficult. Overa

11%

ically talk to the IR team that will be better because it may be difficult. Overall, it is around 11% to 12%. Ravi Swaminathan: 11% to 12% volume growth over last year. Got it, Sir. And with respec

12%

talk to the IR team that will be better because it may be difficult. Overall, it is around 11% to 12%. Ravi Swaminathan: 11% to 12% volume growth over last year. Got it, Sir. And with respect to pr

10%

nomenal growth on top line. So if you can highlight the way you stated last time market share was 10%. So what would be our exit market share for 4Q? And given that your stated price hikes will not b

INR1,000 Crore

s, again, on Lloyd. Firstly, the performance was pretty stellar, right? I mean we did like almost INR1,000 Crores in top line. Could you help us understand what drove this performance in terms of product mix fo

Rs.1,000 Crore

n-house and outsourced across all categories, AC, washing machine and refs because this number of Rs.1,000 Crores was pretty large. Obviously, it is seasonal, but overall, how should we… Anil Rai Gupta: Sor

80%

far as the number for the quarter is concerned, I think the revenue mix was almost ACs was almost 80%- 85% in this current quarter. And the SKU availability or the SKU launches in terms of washing ma

85%

s the number for the quarter is concerned, I think the revenue mix was almost ACs was almost 80%- 85% in this current quarter. And the SKU availability or the SKU launches in terms of washing machine

INR 750 Crore

nt. Rahul Agarwal: Got it, sir. And lastly, on the other category for Havells, like almost like INR 750 Crores of sales now for the full year. Could you help with the sales mix here like top three line items

15%

t some idea about the volume growth in ECD segment? Hello? Anil Rai Gupta: Approximately around 15%. Mayur Patel: And rest is mainly due to price hike? Anil Rai Gupta: That is right. Mayur

INR 700 Crore

INR 800

ns. You have indicated high capex for this year. I think that number was around INR 700 Crores to INR 800 odd Crores. Could you indicate where exactly is this money being spent? You indicated Sri City fac

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Guidance — 20 items

Anil Rai Gupta

“I think these numbers, if you can specifically talk to the IR team that will be better because it may be difficult.”

Anil Rai Gupta

“And we are waiting to see the medium-term trend of these raw material prices.”

Ravi Swaminathan

“And what kind of growth that one can expect over the next one to two years that we are looking at, keeping in mind the real estate recovery, the new product launches that we are doing, the channel reach, expansion, etc., like we are expecting to look and build our thought process?”

Ravi Swaminathan

“Early teen kind of volume growth is something that we will be betting for over the next two years?”

Anil Rai Gupta

“That is what something which you should expect.”

Naval Seth

“And given that your stated price hikes will not be fully passed on, so at what level of revenues one can expect at least breakeven at the Lloyd level?”

Latika Chopra

“And the other bit I wanted to understand was some thoughts on how you intend to revive profitability in this business.”

Latika Chopra

“And any sense on what kind of revenue contribution one could expect from these segments over the next two to three years?”

Anil Rai Gupta

“And most of it will be in-house manufactured or at least in-house developed.”

Rahul Agarwal

“Could you help with the sales mix here like top three line items or a new evolving category, which might be separated out of others now because That is a large number going forward?”

Risks & concerns — 11 flagged

While the initial few weeks of the quarter four were impacted by COVID in demand markets and slowdown in some construction activity.

— Anil Rai Gupta

I think these numbers, if you can specifically talk to the IR team that will be better because it may be difficult.

— Anil Rai Gupta

So again, difficult to give market share figures at this present moment because we are still waiting for the consumer research reports.

— Anil Rai Gupta

So I think overall put together, it is difficult to say that we may have difficult to point out if anybody would have lost out, everybody would have done well in this kind of a growth scenario.

— Anil Rai Gupta

So just wanted to understand is, first, the impact of commodity specifically on this particular category, which did ftHAVELLS not lead to you increasing profitability?

— Nitin Arora

Or there would be some more pressure on the commodity here?

— Nitin Arora

Well, I think difficult to say as of now.

— Rajiv Goel

So just clarification actually, what I wanted to understand is that if there is any slowdown because of this inflation, I mean, across companies or across sectors?

— Keyur Haresh

Is that after this steep inflation are we seeing any slowdown in B2B, or any construction-related activities, I mean, demand from that side, slower inquiry or, say, some orders or inquiries getting delayed, something of that sort?

— Keyur Haresh

Q4 of last year, I think difficult to predict what will happen in four quarters of next year.

— Rajiv Goel

So it is very difficult to predict what they will remain.

— Anil Rai Gupta

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Q&A — 20 exchanges

Good morning. Thanks for taking my question. My first question is with respect to the volume growth that we would have seen this year over the previous year. What kind of volume growth roughly that we would have seen across each segment?

Anil Rai Gupta

For the entire year, for each segment you are asking? Yes Sir. ftHAVELLS I think these numbers, if you can specifically talk to the IR team that will be better because it may be difficult. Overall, it is around 11% to 12%. 11% to 12% volume growth over last year. Got it, Sir. And with respect to price increase, are there any further price increases that we are likely to take across segments, given the fact that input costs have gone up one leg in the last quarter? Yes. I think to some extent we are holding some price increases because there has been quite an unprecedented price increase in the

Thank you for the opportunity. I have two questions. First on Lloyd. So there has been phenomenal growth on top line. So if you can highlight the way you stated last time market share was 10%. So what would be our exit market share for 4Q? And given that your stated price hikes will not be fully passed on, so at what level of revenues one can expect at least breakeven at the Lloyd level?

Anil Rai Gupta

So again, difficult to give market share figures at this present moment because we are still waiting for the consumer research reports. But we would say our primary sales increased at a ftHAVELLS higher level, probably a little bit higher than the industry. So there could be some market share gains there as well. But I think overall, the industry has done well because of the last two years’ pent-up demand as well and the summer is also coming at the right time. So I think overall industry has also done well. As far as margins are concerned, I think just not based on volumes, we are expecting c

Thanks for the opportunity. My questions are on Lloyd actually. One, I wanted to check what kind of difference was there on primary and secondary sales in Q4, and if you could comment on the inventory levels in the channel at this point. And the other bit I wanted to understand was some thoughts on how you intend to revive profitability in this business. What should be our reasonable expectation on margins here? This quarter was quite big on top line, but definitely, there were challenges on profit. So on a strategic level, how are you looking to balance market ftHAVELLS share growth versus ma

Anil Rai Gupta

Right. So as far as primary and secondary goes, I think this is generally a very good season, and the inventory in the system is at a lower level. If you look at the primaries, they start getting built from November onwards. And there is generally shelf selling till the month of February and March, April is the season where secondaries start happening in a big way. I would say that end of April, which is the inventory levels in the trade are not very high because the summer season has gone well. As far as profitability is concerned, I think generally, Havells has always been in the strategy of

Thank you for the opportunity. Sir, two questions, again, on Lloyd. Firstly, the performance was pretty stellar, right? I mean we did like almost INR1,000 Crores in top line. Could you help us understand what drove this performance in terms of product mix for the quarter or the full year, whatever is comfortable? And where are we in terms of washing machine and refs in terms of product portfolio, in terms of SKU presence? And lastly, on Lloyd’s is basically, could we understand what could be a peak revenue possibility for Lloyd, given the current capacity is both in-house and outsourced across

Anil Rai Gupta

Sorry, can you repeat the entire question, please? There was some disturbance in the call. Okay. I will repeat that. So essentially on Lloyd’s, Rs.1,000 Crores number was a pretty strong number. What I wanted to understand is could you help us understand a bit of product mix for the quarter or the full year, whatever is comfortable? And between washing machines and refs, ftHAVELLS where are we in terms of product portfolio, SKU launches? And what is the peak revenue for Lloyd, which is possible given current capacities across AC, wash and refs? Okay. As far as the number for the quarter is con

First of all, congratulations on a good set of numbers in a very tough environment. So my first question is basically on the ECD segment. So if you look at the segment has shown very strong growth on a very high base. And if you can give more granular details on the category-wise? And from here on, how we should see the growth in this segment coming in? And we have also seen a ftHAVELLS very good QoQ improvement in the margin. If you can also explain that what has led to the improvement in the margin in the ECD segment? That is my first question.

Anil Rai Gupta

I think if you look at the segment, Fans came back strongly with a good season coming in. And all the product categories, appliances continue to be fast growth category. Water heaters did well. This is a very low quarter for water heater. And in terms of margins, I think at the third quarter conference call also we had mentioned that there was an unprecedented cost increase, which we would pass on over a period of time. In the fourth quarter, some cost increases were passed on. So we expect the margins to continue to improve. And generally, I have also mentioned that consumer demand continues

My first question is on the AC so like, sir, you said that there has been some bit of under recovery. So will it be possible to indicate I mean, from current levels, how much price increase you need to take for you to reach your double-digit contribution margin levels for the segment going ahead?

Anil Rai Gupta

I think we will have to. As I said, the raw material prices are at a high level, and we want to see the season go off, and then over a period of time, hopefully, the raw material prices also should ftHAVELLS stabilize. And then we should see contribution margins coming back. But there has been a lag between the cost increase and the price increase.

Thanks for the opportunity. Just a small question. Actually, two questions. First, can you give some breakup or at least some idea about the volume growth in ECD segment? Hello?

Anil Rai Gupta

Approximately around 15%. And rest is mainly due to price hike? That is right. Just one related question, Mr. Gupta. Given the kind of price hikes we have seen across fans, the water heaters and appliances and the entire ECD segment, do you see these price hikes have started to dent underlying volume growth, volume demand or the demand remained healthy, in your view? I think at the present moment, the demand is healthy mainly because in these products, there was some pent-up demand because last two summer seasons were lower. The real estate segment is doing well. I would still say that these a

I have two questions. You have indicated high capex for this year. I think that number was around INR 700 Crores to INR 800 odd Crores. Could you indicate where exactly is this money being spent? You indicated Sri City facility will be operational by end of this year. Which are the other areas that you are looking at spending money? That is the first question.

Anil Rai Gupta

So it is primarily because last year, we saw increased capacity in washing machines and cables and wires, but we also anticipate more capacity increase in cables and wires, a new completely new facility in south for air conditioners. So primarily, it will be dominated by air conditioners and cables and wires. And this will be 700 Crores to 800 Crores in this year? That is right. approximately, it may trickle some of it to the next year, but we are anticipating all the projects to start at least during the current year. Okay. Sir, the second question is on Lloyd’s. Could you highlight which is

Good morning. Thank you for the opportunity, Sir. Can you help us understand the price hike what you have taken in Q4 and if any in the current quarter? ftHAVELLS

Anil Rai Gupta

Most of the price hikes were taken during Q3 and some amount of price hikes in switchgears and ECD in Q4 as well, as far as Lloyd is concerned, the price hike mostly were taken by the end of December. Would you be able to quantify? In terms for the year, if you take Lloyd, it is almost about 10%. For FY2022, understood and second question I had, is it possible to give some colors with respect to fans market share what we had in FY2022? No. Got it. And just a clarification. In one of the interviews, you had mentioned that you are looking at exports going up to 10%. Just sort of checking if you

Yes. Sir, just on this working capital, like when I see we have had decent enough cash flows. But when I see the creditors, creditor days have increased by five days. So just wanted to understand your thought process, like despite having a good cash flows why there is a delay in terms of paying the suppliers? Or is there any other strategy towards that? Or if you just…

Anil Rai Gupta

There is no delay in payments to any vendor, and that has never been the strategy of Havells. And all the vendors are paid on due date. This is just normalized level. It depends upon the product mix. It is kind of sourcing that we are doing. Okay. And also, there has been a substantial reduction in inventory. So is that we should read that the dealers have been stocked up for the summer? So will we see this is that also a timing thing? No. I think you are comparing with last year March, and then there was anticipated inventory increase for the summer season. So that is not there in this season

Thank you. Mr. Gupta, this awesome growth in air conditioners that we have seen, would it have been supported by giving higher margins to the retailers or better credit terms or higher subvention for our products via financing. Anything that you could specify as to what led to the spurt in sales over the last three, four months? Thank you.

Anil Rai Gupta

No, as I said, three or four reasons. First of all, there is no change in policy for Lloyd in terms of distribution as far as distribution terms or payment terms or anything is concerned. Three or four reasons. One, we said the distribution revamp, which happened over last few years. That was fully in operation because last two seasons were not good. So it was fully in operation. Brand positioning had happened. The plant which was commissioned in early January 2020 or December 2019 was fully in operation for the first year because in the last year, we could not operate it fully, plus a pent-up

Thank you. Sir, sorry, for again asking on Lloyd. So generally, you said there is a lead lag of a price hike, which should reflect going forward. But given the volumes, which we have done and as you said there is a market share gain, there is only a concept of operational leverage. So what I am trying to understand here is at a INR960 Crores, we are doing a 2.8% EBIT, and volumes would have been grown significantly for you Q-on-Q. How much impact did you see on the commodity, which really did not lead to any increase in profitability? So either we are gaining market by going very aggressive in

Anil Rai Gupta

Well, the entire impact on profitability is due to the aggressive increase in costs and not passing it on entirely to the market. And this is not necessarily to gain market share, but this is to actually ensure that the demand does not get affected because of unprecedented price increases in this market and That is an industry trend. But Lloyd is at a different position because we still are at a lower market share and lower volume, and hence, it will take time for the operating leverage to kick in, which when we start sustaining these kind of volumes over a long period of time and if growth co

Thank you for taking my question. My question is related to the volume growth, as you had mentioned for a year, 11% to 12%. So can you give in the pre-COVID era, how was the overall volume growth for the company?

Anil Rai Gupta

Yes. We will have to come back to you on this. What is the element of pent-up demand in this 11% to 12% of volume growth in FY2022? I do not know. Thank you. ftHAVELLS

Thanks for the opportunity. Yes. Sir, if the volume growth momentum remains strong in April also. That is one. And secondly, most likely, there will be star ratings on fans soon. So Havells has also introduced multiple premium fans. So do you see there is a significant scope to gain market share from unorganized to organized and even some of the organized players are also behind the curve in terms of new product launches or getting the BLDC rights at right price points. So do you see a significant scope to gain market share in this? That is second. And third is just on the clarification requir

Anil Rai Gupta

Yes. Generally the momentum continues to remain strong after the fourth quarter and we hope that this continues to remain strong. I would assume that most of the companies, organized companies would be ready for the energy efficiency change. And that should not lead to a massive change in the market structure or market share structures. So we would assume, hopefully, with the cost increases based on the energy efficiency, I really I hope that the unorganized sector does not gain any market share. Hopefully, it should not, but this is always a scare when the prices go up too much. So to answer

Thank you for the opportunity. Just one question on the white goods segment. Now this segment is dominated by the Korean MNCs and we are seeing some of these Chinese MNC giants also looking to gain entry and spending pretty large sums of capital in this space and spend billions of dollars on R&D. So for Havells to be successful in this segment, what is the strategy? Is it to differentiate on the cost, to differentiate on the technology front? And where do you see Havells on a three, four-year basis? And what is the kind of sustainable profitability is there in your planning that we see a reaso

Anil Rai Gupta

So your first part of the question was is very interesting. And now again, you come to around to numbers of profitability. But seriously, I think Havells is probably one of the few companies who has proven that we have stood against the large multinationals in terms of whether it is manufacturing or quality or technology in any product category, be it lighting, be it switchgear where there are large multinationals who are spending, in your words, billions of dollars. But I think That is a long-term strategy or play that Havells has taken for Lloyd as well that we will ftHAVELLS continue to inv

Thanks for taking my question. It is related to the one Bhavin asked. I just want to understand, again, over the next three to four years, what do you think are the gaps in the portfolio, which we would want to focus on? And secondly, how would we want to do it? Just given we have INR 2,500 Crores of cash on the books, would we want to do it on our own? Or are we likely to look at some sort of M&A.? So just a strategy over three to four years in terms of what more we could do in terms of portfolio, products, segments, etc., etc.

Anil Rai Gupta

I think in every business of Havells, there is enough of opportunity to grow categories. Just you take Lloyd, there is immense potential to grow on the other consumer durables and air conditions, and there, capital allocation will continue to happen. You take consumer durables electric consumer durables, there is enough opportunity in appliances, in fans to grow categories, to grow the distribution insight to give us a sustained growth over the coming years. Lighting segment itself given in professional lighting, there is huge opportunity to grow into newer areas like stadium lighting, museum

Good morning. Sir, I had two questions, one housekeeping. What is the growth in AC revenues for us on a Y-o-Y basis in this quarter?

Anil Rai Gupta

Sorry, Ashish. As I said, almost 80% to 85% of revenues for the quarter were air conditioners. So you can say a sizable growth of air conditioners in this quarter. Sir, secondly, from a margin standpoint, you did touch upon that there could be some under recovery on the commodity side. Is it possible to quantify, in your assessment, what is the blended under recovery today? And also given the strong demand momentum that is there, are we kind of contemplating price hike maybe in that next few weeks or so? Or there is a longer wait-and-watch policy on pricing side? If you are specifically talkin

Hi sir. So just on Lloyd’s, if it continues to see a good traction, so will you dilute the overall margin profile of the company because as of now, the margin profile of Lloyd is much lower? And second is on the exports, sir. Which are the subsegments we are targeting? And with the current kind of continued costs, would that be an impact on your strategy? Thanks.

Rajiv Goel

See, what you asked on the margin profile, definitely, I think there is a product mix. And so I think as we mentioned earlier also, as the margin profile improves, I think it will also improve the overall level. But as of now, this is a fact, it is a portfolio mix. And as Lloyd increases, there will be some dilution. But we expect over a period of time, I think we will gravitate to our normal, as I said, Havells as a whole. And your second question on export, what categories are we targeting? Is that the question? Yes. So pretty much the whole portfolio. But we are very strong in Switchgear. N

Well, I think difficult to say as of now. As we said, the momentum is there, which is reflecting pretty much all categories so switchgear if you see because there was some construction-related restrictions in the first few weeks of this Q4. So I think there was some dampening effect on that. But that we believe also we apart from the harsh summer also in fact there is a real state up cycle. So I think that is also a bit of a tailwind for other non-summer-related products. So in general, we may not single out that only the summer-related products are growing. I think there is a good growth in o

Keyur Haresh

Okay. So just clarification actually, what I wanted to understand is that if there is any slowdown because of this inflation, I mean, across companies or across sectors? It may not be visible in these summer-related product because there is a pent-up and there is harsh summer so probably non-summer products would be a right indicator to understand whether how the demand trends ftHAVELLS are. So that if anything is visible and just one follow-up to this from your answer. Is that after this steep inflation are we seeing any slowdown in B2B, or any construction-related activities, I mean, demand

Hi, thanks for the follow up. Sir, assuming Lloyd, the raw material prices stay where they are, and I believe that Lloyd will eventually take a price hike over the next three to six months for different categories depending on the season. Could we say that fiscal ’23 would be a bit breakeven year?

Rajiv Goel

I think we will see this. Q4 of last year, I think difficult to predict what will happen in four quarters of next year. So I think let us park it for some time and maybe discuss it again after a few quarters.

Speaking time

Anil Rai Gupta

Moderator

Rahul Agarwal

Renjith

Rajiv Goel

Ravi Swaminathan

Mayur Patel

Rahul Gajare

Achal Lohade

Ashish Jain

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Opening remarks

Renu Baid

Thank you, Rutuja. A very good morning to everyone. On behalf of IIFL Securities, I would like to welcome everyone to the 4Q FY FY22 Earnings Call of Havells India. Today, the management is represented by Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Kumar Gupta, Whole-Time Director Finance and Group Chief Financial Officer; Mr. Ameet Kumar Gupta, Full-Time Director; Mr. Rajiv Goel, Executive Director and other members of the leadership team. Without taking much time, I would now hand over the call to Anil Ji for his opening comments. Thereafter, we can take on to the Q&A. Thank you, and over to you, Sir.

Anil Rai Gupta

Thank you, Renu. Good morning, everyone. We hope everyone is staying safe. You will now have reviewed the results. We feel encouraged by operating performance with healthy value and volume growth across the segment. While the initial few weeks of the quarter four were impacted by COVID in demand markets and slowdown in some construction activity. There was a swift recovery in the latter half of the quarter. Timely onset of summer and pent-up demand helped Lloyd register high revenue growth. Contribution margins continue to be impacted due to higher material inflation and time lag in passing on increased costs. We expect gradual recovery here. We exited the year on a momentum and remain confident on sustaining the same. We may now proceed to Q&A.

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