Havells India To RR Kabel: Why Cable And Wiring Firms Underperformed On Margins In Q2

The cable and wiring industry faced a challenging second quarter on the margin front due to volatility in commodity prices, especially steep copper prices.

According to Nuvama, average copper and aluminium prices grew 13% YoY each in the July-September quarter.

Havells India and Polycab India experienced the largest declines in Ebitda margins, which declined 290 bps and 280 bps respectively to 8.3% and 11.5%, respectively.

Meanwhile, V-Guard Industries registered a 40 bps increase to 8.5%, but was still below its guided levels of 10.5-11% for FY25.

Q2 FY25 Results (Consolidated, YoY)

• Revenue up 17% at Rs 2,280 crore vs Rs 1,945 crore.

• Ebitda up 9% at Rs 221 crore vs Rs 202 crore.

• Ebitda margin at 9.7% vs 10.4%.

• Net profit up 11% at Rs 155 crore vs Rs 140 crore.

Revenue expanded 17% YoY in the second quarter led by 20% growth from domestic institutional cables and wires. However, overall Ebitda margins were impacted due to fluctuation in copper/aluminium prices.

For fiscal 2025, the management continues to guide for 16-17% revenue growth, and margins in the range of 10.5–11%

In recent developments, the board approved a QIP of Rs 2,000 crore to support the capex and working capital requirement, and to help the company remain debt-free.

Q2 FY25 Results (Consolidated, YoY)

• Revenue up 16.4% at Rs 4,539 crore vs Rs 3,900 crore.

• Ebitda up 0.5% at Rs 375 crore vs Rs 373 crore.

• Margin at 8.3% vs 9.6%.

• Net profit up 7.5% at Rs 268 crore vs Rs 249 crore.

High volatility in commodity prices impacted contribution margins, particularly in the cable segment with contribution margins declining to 12.3% as compared to 15.5% last year.

As per the management, margins were impacted owing to the absorption of high-cost inventory against falling raw material prices during May-August 2024.

The company expects cable and wire margins to be close to normal in third quarter and to revert back to normal in the fourth quarter of fiscal 2025.

Q2 FY25 Results (Consolidated, YoY)

• Revenue up 14.1% at Rs 1,294 crore vs Rs 1,134 crore.

• Ebitda up 19.2% at Rs 110 crore vs Rs 92.5 crore.

• Margin at 8.5% vs 8.1%.

• Net profit up 7.5% at Rs 63.4 crore vs Rs 58.9 crore.

The electrical segment (wires, pumps, switchgear, and modular switches) grew 16.3% YoY, although volatile copper prices impacted the margin slightly.

The wires category saw healthy demand, but volatility in copper prices slightly impacted the margin in the electricals segment. Therefore, despite reporting an uptick in overall margins, the company saw a margin impact of 0.6% at the company level.

The management aims to deliver 15% revenue for fiscal 2025. On the margin front, management expects this gap to disappear, fundamentally because the pricing pass-through is far more efficient in electrical categories as compared to consumer durables.

Q2 FY25 Results (Consolidated, YoY)

• Revenue up 30.4% at Rs 5,498 crore vs Rs 4,218 crore.

• Ebitda up 3.8% at Rs 632 crore vs Rs 609 crore.

• Margin at 11.5% vs 14.4%.

• Net profit up 3.6% at Rs 445 crore vs Rs 430 crore.

On a year-on-year basis, the Ebitda margin decline was because of these key reasons:

1) Within the wires and cables segment, lower contribution from the higher margin international business; 6.1% this quarter versus 9.3% in Q2 of FY24 led the bulk of the contraction.

2) Margin compression in wires due to sharp commodity uptrend added to the compression.

3) Higher losses in the FMEG (Fast Moving Electrical Goods) business on account of higher organisational expenses.

4) Higher contribution from the lower margin EPC business also added to the decline.

Management expects demand momentum to remain strong in the wires and cables business, with anticipated margin recovery in H2FY25.

On the recent developments, the company emerged as lowest bidder for a Rs 1,550-crore project from BSNL.

Q2 FY25 Results (Consolidated, YoY)

• Revenue up 12% at Rs 1,810 crore vs Rs 1,610 crore.

• Ebitda down 29% at Rs 86 crore vs Rs 121 crore.

• Ebitda margin at 4.7% vs 7.5%.

• Net profit down 33% at Rs 49.5 crore vs Rs 74 crore

The EBIT margin for the wire and cable segment stood at 5.1%, impacted by copper price volatility and delays in passing costs to consumers. The management stated that it couldn't pass on the prices due to high volatility in prices with a short span of time.

In the first half, the company delivered EBIT margins of 6% in the wire and cable business. However, for the second half of FY25, the company expects 8-8.5% EBIT margin in the wiring and cable segment.

On the volume front, it expects 15%/10-12% volume growth in H2FY25/FY25.