Consumer durables companies appear to be gaining ground. The demand for consumer durables and electricals was healthy during Onam and the trend is expected to continue in the upcoming festivals.
Havells India Ltd is a key beneficiary of improving demand. Also, its diversified portfolio is a plus as weak performance in one segment can be compensated for by a strong performance in another. “The demand in the cables & wires segment is on a strong footing and Havells’ premium offering here is one factor, which is likely to support the company’s earnings, going ahead,” said Praveen Sahay, research analyst at Prabhudas Lilladher. In FY23, the cables & wires business formed nearly 33% of Havells’ consolidated revenue.
Also, there is a possibility that sales of air conditioners saw a boost last month as it was the driest August in over a century.
The ongoing September quarter is generally a lean one for companies selling air conditioners but if the tailwind of deficient monsoon plays out, it augurs well for Havells’ Lloyd segment. Air conditioners form the largest part of Lloyd’s revenue, but it also includes other appliances such as washing machines and refrigerators.
Overall, at the Jefferies Asia Forum 2023, the Havells management said the industrial demand, which forms 30% of the mix, has been strong amid weaker business-to-consumer offtake.
Also, the company expects the second half of FY24 to benefit from housing demand.
This would aid the sales of fans as 60-65% of demand emanates from new construction, said the management. Rising electrification in rural areas is also likely to generate growth opportunities.
All said, a key investor concern continues to be Lloyd’s profit margin, which is still in the red.
The segment’s loss is eating into the profits of Havells’ other businesses. In the June quarter, Lloyd clocked an Ebit loss of about ₹61 crore versus loss of ₹56 crore in the same period last year. Thus, a turnaround here is crucial.
For now, investors seem to be factoring in the brighter picture adequately. Shares of Havells have surged by nearly 29% in 2023 so far, sharply outperforming the 10% gain in the Nifty 50 index.
“The Havells stock is pricing in all the positives, and we do not see any significant near-term upside,” said Sahay. Moreover, it does not help that the valuation is expensive. The Havells stock trades at 49 times its FY25 estimated earnings, according to Bloomberg data.
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Updated: 12 Sep 2023, 09:04 PM IST