Havells Q3 Earnings Disappoints – Margins Take a Hit

Havells Q3 earnings disappoints

Electrical equipment maker Havells India continues to disappoint investors by reporting below expectations quarter earnings while sluggish outlook poses questions on high valuations.

The company reported disappointing Q3 FY20 results, that missed analyst’s expectations significantly amid broad-based revenue weakness.

The cut in government expenditure is likely to put further pressure on the cables and lights business.

The company’s Q3FY20 consolidated net profit was up 2.8% at Rs 201.2 crore versus Rs 195.7 crore in the same quarter last fiscal.

Its revenue was down 9.9% at Rs 2,273.3 crore against Rs 2,523.8 crore. EBITDA was down 9.7% at Rs 269.6 crore, while EBITDA margin was at 11.9% on the year.

Havells share price slumped to 52-week low earlier in the trade as disappointing earnings release promoted analysts to change outlook and price target.

Havells attributed the dismal performance to the slowdown in the industrial segment.

The consumer segment remained stable while contributions to margins have improved marginally. The company is hopeful of better earnings prospects in the future led by improvements in consumer demand and low channel inventory.

Weak construction sector demand on account of tighter liquidity situation in the sector and slowdown in the industrial segment impacted these segments.

Revenue from Lloyd business declined significantly on account of weak demand in Air conditioner and decline in LED TV sales on account of higher competition. While management reiterated their strategy of penetration into existing product categories through retail expansion and re-positioning of the Lloyd brand.

Lloyd’s steep decline in an off-season quarter (RAC) was led by cut-throat competition in TV panels (30% Lloyd revenue mix).

Havells plans to build Lloyd portfolio over the next 3-5 years with its entry in refrigerators (in 1QFY21) and scaling washing machine.

Havells will de-focus on TV panels and use it as filler. Eventually, Lloyd will have RAC at 50% of the portfolio (vs. 70% currently).

Going ahead of the company’s new RAC plant has now been commissioned which should produce superior products (vs. earlier imports).

Co has also worked on Lloyd’s distribution with a focus on large format retailers vs. earlier dependence on few distributors (supplying to low-cost stores).

Net net the management commentary has continued to be weak and despite the fact that the stock recovered post Q3 FY20 results the industrial segments will continue to remain under pressure and hence any significant rerating is ruled out as of now.

We expect better numbers from FY21 onwards on the back of new product launches and better working capital management but near term prospects are likely to be challenged due to weak demand prospects.

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.