Havells Shares Tumble On Q2 Margin Stress, Company Optimistic
Here's what brokerages made of Havells' Q2.
Shares of Havells India Ltd. fell the most since March 12 as its second-quarter margin remained under pressure because of rising input prices.
The Noida-based electrical goods maker's revenue and operating income, however, beat estimates in the quarter ended September.
Key Q2 Highlights (Consolidated, QoQ)
Revenue up 25% at Rs 3,238 crore. The consensus of estimates compiled by Bloomberg stood at Rs 2,942 crore.
Ebitda up 26% at Rs 444.9 crore against the estimated Rs 438 crore.
Ebitda margin at 13.8% versus 13.6% in the preceding quarter.
Gross margin at 34.3% versus 35.7% and estimated 40.2%.
Net profit up 29% at Rs 301.5 crore against the estimated Rs 310.5 crore.
Declared an interim dividend of Rs 3 per share.
The company was "satisfied" with the quarter. "Despite commodity price headwinds, we have been able to pass on the prices to the customer," Anil Rai Gupta, chairman and managing director at Havells, said in a conversation with BloombergQuint's Niraj Shah. "However, due to constant volatlity in raw material prices, there's a lag."
Gupta cited the example of air conditioners to highlight the stress on margins.
"For the last two years, ACs saw degrowth because of two seasons going away due to lockdowns," he said. "Inventory pile-up happened across the board and the price hikes were not passed on, so there is some amount of pressure here, but we will stabilise our margins soon."
Gupta said the inflationary trend across raw materials could continue. But most of Havells' price hikes have been well absorbed by consumers so far and the company wouldn't have to pass more to customers if commodity prices stabilise, he said.
Demand, however, is improving.
"This time it's not only the festive demand, we're seeing good growth across segments--real estate, industrial and not just retail. B2B is also looking good, not just B2C," he said.
The situation has improved due to the government's intervention and continued infrastructure expenditure and the commodity supercycle. "The last 5-10 years of low-growth cycle could change in the next few quarters."
Shares of Havells India dropped as much as nearly 14% but pared some of losses to trade around 5.5% lower on Thursday. Of the 42 analysts tracking the company, 23 have a ‘buy’ rating, 14 suggest a ‘hold’ and five recommend a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 4.1%.
Here's what brokerages made of Havells' Q2:
YES Securities
Maintains 'buy' rating with a target price of Rs 1,390 apiece.
Strong revenue growth but gross margins remain under pressure; expect earnings upgrades reinforce positive view
The company continues to surprise positively on strong revenue growth, which is on the back of omnichannel strategy including online, rural, modern trade and enterprise business penetration playing out well with addition of new customers.
Contraction in Ebitda margin was restricted on account of strict control over other expenses.
Expects the stock to continue trading at premium valuations as it has been able to surpass expectations even in a difficult environment and has been able to manage its profitability much better than peers.
Sees earnings upgrades as the company continues to deliver strong growth in challenging times.
ICICI Securities
Maintains 'buy' rating, raises target price to Rs 1,650 from Rs 1,350, implying a potential upside of 17%.
Gross margin was down 605 basis points year-on-year due to revenue mix deterioration, steep commodity inflation and a lag in the effect of price hikes.
The company benefitted from the revival in economy and higher infrastructure spending.
Profitability of Lloyd segment remained under stress even in Q2FY22 due to higher input prices and negative operating leverage.
Remains positive on the company’s business model due to strong moats and growth opportunities.
JM Financial
Maintains 'hold' rating, raises target price to Rs 1,270 apiece against Rs 1,200 earlier, implying a downside of 8%.
Havells saw healthy growth across business verticals as it added new customers and broad based demand channels.
Raised FY22/23/24 estimates by 10%/7%/5% to reflect Q2 performance and improving outlook.
Note that there was sharp reduction in employee costs and other expenses in 2QFY21, which has resulted into near record Ebitda margin.
Demand momentum remains positive with a recovery in real estate, industrial and infra segments with increased conversion of projects.
While commodity price pressure seems to be easing (copper -2% QoQ in Q2), partial pass-through of cost inflation may impact margins in the short term.