Continuous margin pressure overshadows topline growth
Havells' reported strong topline growth in Q1FY23 but EBITDA margin pressure continues
Context: Havells reported strong revenue growth of 63% YoY much ahead of ours as well as street expectations, supported by favorable base. On a three-year basis, the revenue grew at a CAGR of 16% led by ~10% volume growth. Revenue growth was mainly driven by market share gains, dealer additions and new launches. On the segment front, Lloyd grew at a higher rate of 18% on a lower base and strong demand of cooling products. Other categories (cables, switchgear, ECD, lights) also reported a healthy growth between 14-15%. However, On the margin front, Havells’ reported a multi-year low EBITDA margin of 8.5% (down 505 bps YoY) led by inventory losses and higher advertisement expenditure. Lloyd business reported back to back EBIT loses in the last two quarters. The PAT came in at ~Rs 242 crore marginally up by ~4% YoY due to lower EBITDA margin
Havells has faced EBITDA margin headwinds (down by 170 bps over its pre-covid level margins) from raw material prices and Lloyd’s operating losses. Going forward, we believe inability to take price hikes (in the fear of further demand disruption) and margin pressure (due to high cost of inventory) will keep overall profitability of the company under check. We expect, margin recovery to start from H2FY23 supported by pick up in festive demand and no major inventory loss going forward. For the long term, we believe revival in profitability of Lloyd will be a key trigger for a re-rating of the stock
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