Havells India Q2 Results Review - Demand Uptick Drove Revenue; Weak Margin To Revive By Q4: Systematix

Systematix Research Report

Havells India Ltd.’s weak operating result in Q2 (revenue/Ebitda/profit after tax up 16%/0%/8% YoY; Ebitda margin down 131bps YoY at 8.3%) was driven by weak margins across segments.

An inline revenue was led by cables (up 23%), ECD (up 17%), emerging categories (up 28%) and Lloyd (up 19%). Switchgears (up 3%) and lighting (down 1%) were in slow lane. B2C segment grew 20% YoY while demand in B2B (up 9% YoY) was soft.

Rural markets saw demand recovery while healthy traction sustained in urban markets. Festive season shift led to advancement of advertising and promotion spends to Q2, impacting margins across segments (to normalize over subsequent quarters).

Cable margins (impacted by high-cost inventory) is expected to revive by Q4. After setting up a cable plant in Tumkur, Havells has planned to further invest Rs 4.5 billion to add more capacity. Expected recovery in industrial segment can drive double-digit growth in Switchgear in FY26.

Lighting revenue would also revive on the back of price stabilization. After strong brand repositioning, Lloyd is expected to grow profitably with reduced A&P expenses.

ECD portfolio is growing at an industry leading rate. Emerging categories is still in the initial investment phase; launch of two-three new categories (coolers etc.) is planned soon.

Overseas business will see healthy traction FY26 onwards. On robust outlook, Havells has planned Rs 11 billion capex in FY25.

After a weak Q2, we cut our earnings estimates by 5-15% on lower margin expectations. We now expect 16%/22%/25% CAGR in revenue/Ebitda/PAT over FY24-27E (FY19-24: 13%/9%/10%).

Robust free cash flow (~Rs 12 billion annually), ~30% return on capital employed and ~50% return on invested capital in FY27E will support Havells’ rich valuation.

Maintain Hold with a revised target price of Rs 1,979 (50 times FY27E P/E, earlier Rs 2,074).

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