Havells India Limited saw growth across all its businesses in the March quarter (Q4FY22), leading to a nearly 33% year-on-year (YoY) growth in standalone revenue. 4,417 crore. Lloyd’s Consumer segment performed particularly well with revenue up 62% 959 crore, helped by the onset of the summer season and slowdown in demand. In a post-earnings call, Havells said air conditioners (ACs) constituted about 80-85% of Lloyd’s revenue in Q4.
However, the segment’s profitability was a sore point. Lloyd’s contribution margin was lower at 5.2% compared to 13.3% in Q4FY21 as it was impacted by continued competitive intensification and inability to pass on the entire increase in commodity costs. The segment’s earnings before interest and tax (Ebit) margin was negative. The price hike in the lighting and fixtures segment was also inadequate.
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Thus, all major segments saw a decline in Ebit margins, except Electric Consumer Durables (ECD), which saw an increase of 200 basis points (bps) year-on-year. One basis point is 0.01%.
There was a renewed increase in the cost of goods due to the Ukraine crisis. Overall, Havells Ebitda (earnings before interest, taxes, depreciation and amortization) margin fell 340 bps to 11.8%. Profit before tax grew at a slower pace of 4.5% 475 crores.
With the harsh summer season approaching, Lloyd’s is likely to see a good demand for Air Conditioners. As volumes increase, the product mix is expected to weaken Havells’ overall margin profile as Lloyd’s has lower margins.
However, the company expects overall margins to eventually return to normal levels.
In the call, management said commodity costs have come down slightly recently and if they fall further, there will be no need to raise prices.
However, at current cost levels, there is a need to hike prices in certain categories such as air conditioners, fans, lighting and appliances, the management said. In FY22, the company hiked prices across all segments. In Lloyd’s segment, the price increase stood at 10%.
Meanwhile, shares of Havells gained 25% over the past year, but they’re down about 11% so far in CY22. Havells is likely to benefit from the shift in consumer preferences from unorganized to organized in the near future.
Analysts at Reliance Securities said in a first-cut note, “We expect Havells to report a strong growth over the next three years, led by improved consumer sentiment and pressure from the government for infrastructure development. “
While the outlook for its segment is good, there are also offsetting factors. Jefferies India’s results first-cut note said, “Key risks for the stock include its inability to pass on rising costs in a timely manner, leading to increased margins in demand impacting B2C categories such as ECDs and durables.” and could impact the overall slowdown.”