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Lower margin mars Havells' Q2 performance

ICICIdirect Research 21 Oct 2022 DISCLAIMER

What's Buzzing 

Despite strong topline growth, Havells' Q2 performance was hit by high raw material cost. 

Context 

Havells' Q2FY23 performance was once again negatively impacted by high cost inventory dragging overall gross margin. In addition to this, advertisement expenditure back to its pre-Covid level has led Havells’ EBITDA margin to multiyear low to 7.8% in Q2FY23. Lloyd business continues to be in loss, dragged by limited price hike and higher advertisement expenditure. On the revenue front, the company’s 14% revenue growth was higher than our estimate, largely driven by its wire & cable and Lloyd segment. Lloyd revenues increased 21% YoY driven by new product launches and dealer additions. Wire & cable segment reported a healthy 19% YoY led by strong volume tractions from both retail and institution demand. On the ECD front, de-stocking of fans by trade channels restricted segment growth at 6%. Finally, PAT saw a decline of 38% YoY to Rs 187 crore due to lower EBITDA margin. 

Our Perspective 

Havells has faced continued margin pressure owing to higher raw material costs and Lloyd's operating losses. We expect a margin recovery to start from H2FY23 supported by a pick-up in festive demand and no major inventory loss, going forward. The company has guided its Lloyd business to turn EBIT level positive from Q4FY23 onwards. On the revenue front, the company has reported an encouraging three-year revenue CAGR of 18% supported by new product launches and market share gains. We maintain our positive stance on the stock considering its strong brand, robust balance sheet and focus on improving profitability of Lloyds business.

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