Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Havells India Ltd (BOM:517354, Financial) posted good growth in Q1 FY25, driven by strong performance in cooling products like air conditioners, fans, and air coolers.
- The company leveraged its manufacturing capacity, brand strength, and omnichannel presence to capitalize on market opportunities.
- Cost efficiency initiatives have improved the profitability of the Lloyd segment.
- Cables registered double-digit growth despite some revenue impact due to channel destocking.
- The company continues to invest in brand building, differentiated offerings, and talent pool to strengthen its market position.
Negative Points
- Despite a 20% revenue growth in the ECD segment, margin expansion remained flat, possibly due to higher ad spend or significant de-growth in other categories.
- Increased competitive intensity in the switches and switchgear segment could potentially compress margins.
- The Lloyd segment, while showing profitability, still faces challenges in maintaining consistent EBIT margins due to seasonal sales fluctuations.
- Raw material volatility impacted revenues in the Cables & Wires segment, with a significant destocking observed in June 2024.
- There is uncertainty about sustained improvement in consumer demand, with the company cautious about whether recent growth is a one-off or indicative of a longer-term trend.
Q & A Highlights
Q: In the ECD segment, while the growth has been 20%, the margin expansion has been pretty much flat. Can you explain why margins are not expanding despite the growth?
A: The consolidated contribution margin has improved due to premiumization and cost-saving initiatives. However, quarter-on-quarter variations can occur due to fluctuating ad spends. It's important to track the contribution margin stability or expansion.
Q: Regarding switches and switch gears, do you feel that increased competitive intensity can further compress margins in this segment?
A: Competitive intensity has been consistent for some time. Despite this, we have maintained switchgear margins in a close range of 38% to 41% over a longer period. We aim to continue this trend.
Q: What has contributed to Lloyd's business moving from a loss to a profit, and can we expect this profitability to be sustained?
A: The profitability is due to premiumization, cost efficiencies, and operating leverage during peak sales periods. While we don't provide specific numbers, we expect improved price realization and reduced costs over time, with continued investments in brand building and R&D.
Q: Can you provide more color on the demand perspective, particularly for fans and kitchen appliances?
A: The summer season and a low base from last year contributed to higher growth. While we hope for sustained improvement in consumer demand, it's too early to confirm. Our outreach in smaller towns and villages and better traction in kitchen appliances will help increase sales in the ECD segment.
Q: Have you seen any pickup in inventory levels for Cables & Wires after the destocking in June?
A: Yes, June saw heavy destocking due to raw material fluctuations, but July is returning to normal levels.
Q: What is the status of the new capacity for Cables & Wires, and are there plans for further expansion?
A: We are awaiting final approvals for sales from the new facility, which should start within this quarter. We are continuously adding capacity for both export and domestic segments, with more expansions planned over the next one to one-and-a-half years.
Q: Can you provide an outlook on exports, particularly for the US market?
A: We are focusing on tapping global opportunities, including the US, Australia, and Europe. While it's too early to provide specific numbers, our aspiration is for 10% of our business to come from international markets over time.
Q: Have there been any price hikes in Q1, and what is the current stance on pricing?
A: Most price increases have been implemented in various product categories, including consumer durables, in the first quarter. As long as raw material prices remain stable, no further pricing actions are planned.
Q: What is the rationale behind rebranding Crabtree as Havells Crabtree, and will similar changes happen with Standard and Lloyd?
A: The rebranding aims to reduce overlap with customer segments and influencers. However, Standard, Rio, and Lloyd will continue as independent brands due to clear differentiation in consumer segments.
Q: Can you comment on the inventory levels and CapEx plans for FY25?
A: Inventory levels have improved, but we aim to balance growth and inventory efficiency. For FY25, the CapEx budget is around INR800 crore, with potential adjustments based on spending needs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
