Havells India managed a decent revenue performance for the December ended quarter (Q3) despite challenges. Nevertheless, pressure on operating margins weighed on earnings, with net profit for the period down 12% year-on-year.
Overall revenues rose 15% year-on-year, with most segments, barring Llyod, contributing to the growth. Sale of appliance got a boost from festive demand, pushing up electrical consumer durables (ECD) segment growth to 14% year-on-year. The metric could have been better but for input cost inflation and Omicron scare that hit dealer offtakes.
The company's management said festive demand was encouraging, but demand tapered in the latter part of Q3.
Infra and industrial segments also showed signs of revival, with the switchgear segment marking a 13% year-on-year growth and the lighting segment clocking 15% rise in sales. The company said consumer lighting segment has shown a healthy mix of volume and value growth. Meanwhile, rising commodity price inflation leading to price hikes meant that the cable segment clocked a growth of 33% year-on-year.
Omicron led uncertainties had a bigger impact on stocking of larger appliances at dealers’ level, leading to steeper impact on the Lloyd range of appliances, with the segment's sales declining 9% year-on-year.
Steep input cost inflation hit the company’s operating performance, prompting Havells to take calibrated price hikes amid still weak demand leading to only a partial pass-off of higher costs. Advertising and promotional spends, too, have returned to normal levels.
As a result, operating margin declined to 12.1% from 16% in the year-ago quarter, and were lower than analysts' estimates. Analysts at Jefferies India Pvt Ltd said tmargins missed their estimates hit by elevated commodity costs and the lag effect in undertaking price hikes, especially in consumer durables.
With a miss on operating performance and margins, the stock lost more than 3% in opening deals on Friday.
The near-term outlook remains marred by commodity price inflation and Omicron spread. Analysts, however, have a positive view on the stock.
Analysts at Yes Securities Ltd said, “We expect the stock to continue trading at premium valuations given it has been able to deliver double-digit revenue growth even in a difficult environment." They also expect some earnings upgrade helped by the company's performance on the revenue growth front.
