Havells India Limited
8,375words
191turns
20analyst exchanges
5executives
Management on call
Rahul Agarwal
INCRED EQUITIES
Anil Rai Gupta
CHAIRMAN & MANAGING
Rajesh Gupta
DIRECTOR OF FINANCE &
Ameet Kumar Gupta
WHOLE-TIME
Rajiv Goel
EXECUTIVE DIRECTOR - HAVELLS INDIA LIMITED
Key numbers — 24 extracted
100%
entories are larger and then the season is also slower in the second and third quarter, we expect 100% normalized margins in the Q4. We do not see any major impact on margins because of the upcoming p
50%
sible to highlight if I just look at the electrical business X of Lloyd we have done about like a 50% growth in the current quarter how much you will be led by volumes and going ahead what do you exp
11%
ll be led by volumes and going ahead what do you expect in terms of volume growth so we did about 11% to 12% in FY2022 leaving aside Q1 because there is a base impact what kind of volume growth we sh
12%
ed by volumes and going ahead what do you expect in terms of volume growth so we did about 11% to 12% in FY2022 leaving aside Q1 because there is a base impact what kind of volume growth we should ex
40%
wth we should expect for the remaining part of the year? Anil Rai Gupta: We have seen about a 40% increase in volume in case of Havells and about 10% to 12% in terms of value but again this is no
10%
year? Anil Rai Gupta: We have seen about a 40% increase in volume in case of Havells and about 10% to 12% in terms of value but again this is not the right comparison because it was a disrupted qu
rs,
in each category so if there has been any reduction let us say in stable businesses like switchgears, PCB, and lighting so that will give us an opportunity to at least come back to those margin levels
Rs. 2200 Crore
portunity. Sir one question on Lloyds just to get this right the base revenue last year was about Rs. 2200 Crores to Rs. 2300 Crores my sense is that we are utilizing almost 90% capacity so is the understanding
Rs. 2300 Crore
question on Lloyds just to get this right the base revenue last year was about Rs. 2200 Crores to Rs. 2300 Crores my sense is that we are utilizing almost 90% capacity so is the understanding correct that the i
90%
e last year was about Rs. 2200 Crores to Rs. 2300 Crores my sense is that we are utilizing almost 90% capacity so is the understanding correct that the incremental growth is all going to come from ne
70%
particular category that has seen significant rise in volume because lighting we have seen about 70% plus growth. Most of other were in the range of 30% to 40% so any particular category which reall
30%
in volume because lighting we have seen about 70% plus growth. Most of other were in the range of 30% to 40% so any particular category which really stands out in terms of the volume growth that we h
Guidance — 20 items
“There was steady growth in quarterly and three-year CAGR numbers.”
“We expect benefits from the recent cost moderation to reflect in a couple of quarters.”
“I have two questions first on channel inventory on cable and wire and other products specifically and second on Lloyd margins as your media interview suggests that Lloyd margins will normalize in ensuing quarters so will that get somewhat impacted by new facility, which will be again operational from this yearend or so?”
“In cables and wires generally the system inventory is lower and hence we believe whatever short-term pain of as the inventory would be there would be over in this quarter so from the Q3 we expect normalized large margin levels to come back in cables and wires.”
“As far as Lloyd is concerned because the inventories are larger and then the season is also slower in the second and third quarter, we expect 100% normalized margins in the Q4.”
“The first one was on cables and wires, we did see another company also recording Q1 numbers and it seems the margins held up pretty well there so I wanted to understand when you expect margins to improve are we going to see sequentially improving margins starting with Q2 itself or there is something else which we need to make a note of here and the second bit was on Lloyd margins you said normalized margins?”
“That is why I said by the Q3 we expect normalized margins to come back and to revive fully.”
“Sir my first question is on the volume growth side so would it be possible to highlight if I just look at the electrical business X of Lloyd we have done about like a 50% growth in the current quarter how much you will be led by volumes and going ahead what do you expect in terms of volume growth so we did about 11% to 12% in FY2022 leaving aside Q1 because there is a base impact what kind of volume growth we should expect for the remaining part of the year?”
“So any outlook Sir if you can share how should we expect that type of trend of double digits to continue or do you see some risks because of the price hikes which have happened in the past?”
“We believe that with these prices coming down we should expect that demand should also come back very quickly so I think going forward we are positive about the demand outlook.”
Risks & concerns — 4 flagged
Also, I think not all the costs have been passed on also to the consumers so it is not that he has borne the entire brunt of the inflationary pressure.
— Rajiv Goel
I think maybe it was largely also due to the trade being cautious because when the commodity falls they believe that there will be some price benefits being passed down so they hold so there have been some may be destocking at the dealer level.
— Rajiv Goel
Sir just last question that is on the I think we have at least the commentary phase from many of the players or OEMs that there is slow down in the lighting so what is your view on that because I would just consider lighting as more of say utility product so what is driving slowdown in lighting if there is not any?
— Keyur
Even margins continues to hold steady because lot of our business is now innovation driven and also very deep distribution driven so we have not perceived much slowdown.
— Rajiv Goel
Q&A — 20 exchanges
Q
Thank you for the opportunity Sir. I have two questions first on channel inventory on cable and wire and other products specifically and second on Lloyd margins as your media interview suggests that Lloyd margins will normalize in ensuing quarters so will that get somewhat impacted by new facility, which will be again operational from this yearend or so?
Anil Rai Gupta
Thank you very much. In cables and wires generally the system inventory is lower and hence we believe whatever short-term pain of as the inventory would be there would be over in this quarter so from the Q3 we expect normalized large margin levels to come back in cables and wires. As far as Lloyd is concerned because the inventories are larger and then the season is also slower in the second and third quarter, we expect 100% normalized margins in the Q4. We do not see any major impact on margins because of the upcoming plan because by the time that gets ready we would be venturing into the com
Q
I had just had a little more followup on the earlier two questions that were asked? The first one was on cables and wires, we did see another company also recording Q1 numbers and it seems the margins held up pretty well there so I wanted to understand when you expect margins to improve are we going to see sequentially improving margins starting with Q2 itself or there is something else which we need to make a note of here and the second bit was on Lloyd margins you said normalized margins? If you could help us with what is the definition of normalized margin any range that you have in mind an
Anil Rai Gupta
So as far cables and wires are concerned generally when there is a sudden reduction in the raw material prices, it is very evident that when you are selling in the market you would be expected to reduce your prices especially in cables and wires because when there is a sudden increase also or when there is an increase we pass it on to the consumer in a short period of time as well as in a reduction also and obviously there will be system inventory, certain purchases which will continue to happen because there is some imported raw materials also which continue to happen hence there will be cert
Q
Sir thanks for the opportunity. Sir my first question is on the volume growth side so would it be possible to highlight if I just look at the electrical business X of Lloyd we have done about like a 50% growth in the current quarter how much you will be led by volumes and going ahead what do you expect in terms of volume growth so we did about 11% to 12% in FY2022 leaving aside Q1 because there is a base impact what kind of volume growth we should expect for the remaining part of the year?
Anil Rai Gupta
We have seen about a 40% increase in volume in case of Havells and about 10% to 12% in terms of value but again this is not the right comparison because it was a disrupted quarter last year. ftHAVELLS So any outlook Sir if you can share how should we expect that type of trend of double digits to continue or do you see some risks because of the price hikes which have happened in the past? You are asking me to say to you what growth we are expecting in the coming quarters. Generally we do not give guidance. I think let us see how the market behaves. I think I have also mentioned on the media as
Q
Good morning. Thank you for the opportunity. My first question was if you could explain in terms of the ECD margins, we see that Q-o-Q the ECD margins at contribution level were fairly steady while in terms of the EBIT margin there was substantial drop? Is it entirely to do with the A&P or is there anything else as well Sir?
Anil Rai Gupta
It is entirely due to A&P because generally A&Ps I would say you have to look at the entire year so yes most of it is due to ANP. Understood. The second question I had is if you could give us some sense in terms of given the Q1 of FY2021 and FY2022 were impacted? On a three-year CAGR basis what would have been the volume growth across segments would that be in mid single digit, high single digits? ftHAVELLS It would be high single digits or close to double digits. Understood and what I am trying to also ask is given the cost reductions what we are looking at, is it fair to say that part of thi
Q
Thanks a lot. Sir just one question on this industry so now that we have seen Lloyd’s operating at negative margins through this season and obviously the market share has gone up and in the response that some of the larger players have indicated that they are willing to work at lower margins at least temporarily compared to what they were used to in past to retain their market share so do you think that there is a risk of entire AC industry margins structurally settling down at lower level because of this fight for market share amongst key players?
Anil Rai Gupta
I doubt very much because last two years there was disruption in the air conditioning market. Ultimately it is a technology-oriented business in the product and hence it has to retain certain amount of margin levels to lead this back into technology and technology upgradation for the consumer so ultimately I think the entire competition should behave responsibly in this so we believe that raw material prices stabilizing over the medium term I do not see any major structural changes in the business. ftHAVELLS Sir following up on that as per your plan what will be the EBIT level normalized margi
Q
Thanks for the opportunity. Sir one question on Lloyds just to get this right the base revenue last year was about Rs. 2200 Crores to Rs. 2300 Crores my sense is that we are utilizing almost 90% capacity so is the understanding correct that the incremental growth is all going to come from new capacity additions and the existing infrastructure is all fully utilized? Is this correct?
Anil Rai Gupta
No that is not true because Rs. 2200 Crores also includes other product categories where washing machines, refrigerators, and LED. In the last financial year we were not at 100% capacity but going forward the kind of growth that we are envisaging we would definitely need to enhance our production facilities in South and that would also take a sizable part of the entire demand. FY2023 growth is there is still scope to utilize existing capacity to further grow on the last years number is that correct? That is right. Lastly we have been hearing from some dealer checks that Reliance through the BP
Q
Good morning and thank you so much for the opportunity. I have two questions. My first question was when would the mandatory BE ratings for fans kick in and the second question was that out of the entire fan market how do you see it evolving over the next three to five years especially in terms of the BLDC penetration?
Anil Rai Gupta
The BE ratings change from the first of January and going forward there will be market for the BLDC market fans and the ranges will continue to enhance and generally industry has seen over a period of time that products transition towards more energy efficient products and if the cost difference continues to reduce in this we will definitely see more of BLDC penetration in the business. Thank you so much.
Q
Thanks for the opportunity. Some of my questions are answered but on Lloyds could you give us a sense on what is the price hike that you would have taken in this particular quarter if that is something that you have done because you have taken about 10% price hike in the last year so in this particular quarter or till June if you could give us some sense?
Anil Rai Gupta
I would say that we would have maintained the prices what we would have continued in the Q4 in the Q1 as well. The second question is in terms of the shortages of raw material, supply chain issues is all of it behind or are you still seeing shortages of certain raw material or those kind of things? I think generally speaking it is all behind. The noise is more about chips wherein now we are in the process of having a long-term planning schedule, which means we are planning for the next year but the supply chain disruption did not really affect us in the past as well and it is not really affect
Q
What will be the key driver for this improvement in margin that we are targeting to double digit contribution by Q4 so will it be the lower discounts that we were offering to the dealers or will it be just the correction in commodity prices because that would impact everybody else as well so could you elaborate a bit more on this? Thank you.
Anil Rai Gupta
I think as I mentioned before that the raw materials went up and the entire cost increase was not passed on so when the raw materials go down there will be an expansion in margins going forward and that is what we are expecting by the Q4. I do not know whether I have answered your question or not, maybe I have not fully understood? Sir I was coming from the perspective that we have been more aggressive than the industry maybe in increasing our market share? I did not say that they were more aggressive in the industry. I mentioned that the industry did not take the entire price hike as commensu
Q
Good morning. Thank you so much for taking my questions. The first one just on the cable raw material procurement I was just hoping to understand the sourcing model a little bit better if you could just help us understand how much of it is imported versus procured domestically and also whether there is any kind of embedded derivative or any such time lag between the time you book the order for the metal versus the time that you actually make the payment?
Anil Rai Gupta
We have various businesses and you are specifically talking about any particular business. Cables in particular Cable generally speaking we buy most of the raw materials from the country but there are certain raw materials for wires like copper we import part of it and it depends upon availability as well as pricing at that particular period of time. It could vary between 20% to 40% the extent of imports and there are no derivatives that we believe in because we believe in the fact that there are not high levels of inventory in the entire system and generally the cost increase or reduction is
Q
This is Latika again here. I wanted to check with you to get some flavors on the demand outlook. I understand you said you have witnessed steady trend on the distribution side, but Q2 the high inflation did you sense any moderation in consumer sentiment as you progressed through the quarter and when do you anticipate this commodity deflation benefits to start getting passed on to consumers particularly for the ECD category and any color on consumer behavior towards upgrading? Has that got affected? Any sense on rural versus semi urban versus urban trends any thoughts Sir. Thank you.
Rajiv Goel
I think starting with the last question on the rural, urban or the upgrading I think we have explained this in the past. We have not seen much consumer behavior changing in terms of the high inflation. Also, I think not all the costs have been passed on also to the consumers so it is not that he has borne the entire brunt of the inflationary pressure. Yes I think as we just mentioned that towards the latter half of the last quarter we did see some moderation. I think maybe it was largely also due to the trade being cautious because when the commodity falls they believe that there will be some
Q
Thank you. Sir I just want to understand on the Lloyd side if you look at the calendar 2022 and if I do the back of the envelope calculation probably our facilities were utilized fully. Now in that context the incremental margin improvement should be driven by pricing basically price hike or lower commodity prices or are there any other lever so here the assumption is that since the facilities are fully utilized the operating leverage part has already been there in these numbers?
Rajiv Goel
I think we as we explained earlier also right now we are we are anticipating the lower commodity cost benefit to reflect in the margins and that is why we believe it should be in the later half rather Q4 because the season also starts late Q3 early Q4 so therefore we expect the benefits to flow in and largely it is predicated on the falling commodity cost. Understood. Sir second question I mean historically we have seen this cycle of destocking and restocking in at the time of say sharp commodity moves in wires and cables? Does similar trend happen in ECD as well or it is less prone to this ki
Q
Sir I had one question on the switchgear segment so can you just talk about what is the growth now we are seeing because this quarter the growth was exceptionally strong so does it have like any one-off kind of nature or by and large we are seeing very strong demand on the ground as well? ftHAVELLS
Rajiv Goel
Switchgear actually if you see last three years because that will be more relevant sometime on the lower base it may not reflect but I think we are very actually to some extent excited that we have almost 15% to 16% CAGR in three years which has been if you see the trend before that has been almost single digits so we believe this property upcycle and the construction cycle which has now kicked in and which we believe is sustainable that I think should further support the switchgear business so we continue to be confident about the switchgear and the switchgear segment. Sir what is the mix of
Q
Sure Sir. Sir thanks for taking my questions. Sir my first question is bookkeeping. We have spent Rs.56 Crores in capex in the Q1? What is the ballpark number for the year that we should be taking?
Rajiv Goel
I think we are because of some I think things do take time so I think we are expecting Rs.700 Crores to Rs.800 Crores. Okay so that number stays intact. I was surprised with the Q1 number? Sir my second question is when we look at our portfolio you know we have got premium products say for example switches and Crabtree and then you have got economy products under different brands? Have we seen a difference in terms of demand trends where the premium products have sold a lot more relative to the economy products any trends that you have seen based on different income levels because we've got a
Q
Sir thanks a lot for the opportunity. My question is in the last two years despite COVID we have seen a very healthy growth of 15% CAGR for this quarter and I think even organized industries also has seen a very healthy growth and the last few years have been challenging for unorganized players and now the things are reversing in terms of commodity prices, supply chain issues and all are you seeing unorganized player coming back into the system and disturbing the businesses?
Anil Rai Gupta
No we do not see that trend. Sure Sir and the second question is on the how are the inventory in the AC for us and for the system and how long it will take to liquidate these old price inventories? Generally in this system the inventories are not very high but obviously because of the manufacturing facilities we do keep inventory levels and we continue to build inventory even in the low seasons so as we have already mentioned that there are high-cost inventories in the system so it will take a couple of quarters because this is low selling season any way so to come back to normalize margin lev
Q
I have two questions both of them are regarding the competition. So one of the most competitive industries right so how do we differentiate ourselves when it comes to lighting, fans, and consumer durables how do we differentiate ourselves from the competition and the second question is ftHAVELLS regarding the distributors now how do we approach a distributor? What is our strategy of when we are going and trying to win new distributors and how do we sort of keep them and maintain them?
Anil Rai Gupta
I would say that this is not a quarterly analysis question on the call so I would suggest if you can spend some time with our team in the IR team and maybe that will be a better way to understand the strategy of the company. Thank you.
Q
Thank you for the opportunity and congratulations on strong topline performance. Anil ji I have just one question here. Sir we have seen some senior management exits from Havells and joining competition so in that topic I just want to know that these are the just few exits which gets reported from competition or are you structurally seeing a lot higher attrition rate in senior management?
Anil Rai Gupta
In fact, we have seen a very low attrition rate in senior management over the last few years. There are a lot of reasons for people to stick to Havells. In fact our attrition levels beyond the VP levels are low single digits, I would say so I would not say that there are higher attrition levels. Yes there were some challenges last year wherein we saw some sort of attrition in the technology side, IT side and the R&D side for which the company has taken various other steps also for example employee ownership plans and ESOP plans to give long term wealth creation opportunities for the employees,
Q
Sir how much price hike we have taken in Q1 Sir? Good morning Sir. Sir my first question regarding Sir how price hike we have taken in Q1 Sir and any price hike?
Anil Rai Gupta
Sorry any particular business you are asking. No overall Sir? It depends on business to business maybe in switchgear we have seen certain price hikes in the first half of the quarter but otherwise generally there were no prices hikes. Okay Sir. Sir my next question is regarding Sir any impact on demand of especially for window AC after some new energy norm implemented for July because this will increase the cost of say window AC? Yes we will see this in the coming quarters because this is a very recent phenomenon. ftHAVELLS Okay Sir. Sir my last question is Sir any plan to add new product or p
Q
Thanks for the opportunity again. The question is on if you can just give breakup of the capex either by product or by say growth capex and maintenance capex and second on the Lloyds side we have earlier highlighted that basically just want to understand what are we doing under the PLI or the scope of in-sourcing that we would be doing under PLI and earlier we have highlighted about export of AC as well so you can throw some light any tentative timelines whether it would be white label or under the brand Lloyd if you can touch upon these aspects. Thank you.
Rajiv Goel
The breakup we normally not provide but we can tell you the large amount of capex will be accounted for by the new AC facility which is coming in the Southern India and as far as the export of ACs are concerned I think they we are getting good response and this will be both in our own brand as well as the white label opportunity on a global basis. The third question was. What was your other question? So basically scope under the PLI what would be the scope of our manufacturing? PLI is largely a component based so we have also participated on few of the components which currently will be done b
Q
Sir I had some queries around why we do not hedge our copper requirement using derivatives? Is it because we do not find the cost benefit favorable? Have we hedged in the past and if we expect high volatility would we change our mind in future?
Rajiv Goel
No hedging is, you see our policy is not to do the hedging so this is part of the policy and these things keep coming up but we have seen in the past that ultimately these do not provide any tangible benefits. I think one event cannot define the long-term strategy. We believe that the real hedging is that we pass it on to the market maybe with a lag effect and it has been working well almost for a few decades now. So consistently we have not been hedging in the past also? No. That is all. Thanks so much.
Opening remarks
Rahul Agarwal
Thank you, Rutuja, and hello everybody. Good morning. InCred Equities welcomes everyone today on this call to discuss the Q1 FY2023 results of Havells India Limited. We thank the company for giving us this opportunity to host the call. We have the senior management of the company with us today represented by Mr. Anil Rai Gupta, Chairman and Managing Director, Mr. Rajesh Gupta, Director of Finance and Group CFO, Mr. Ameet Gupta, Whole Time Director, and Mr. Rajiv Goel, Executive Director. I now hand over the call to Anil ji for his opening remarks and then we will get into the Q&A session. Over to you Anil ji!
Anil Rai Gupta
Thank you very much Rahul. Good morning we hope everyone is staying safe. You would have reviewed the results by now. There was steady growth in quarterly and three-year CAGR numbers. Overall contribution margin sequentially maintained except cable which was adversely impacted due to commodity cost fluctuations. We expect benefits from the recent cost moderation to reflect in a couple of quarters. The demand outlook is stable in consumer and residential segments with slight deferment in industrial and infrastructure segments. We can now proceed for Q&A.