Havells India Q2 Review - Margin Normalisation To Limit Earnings Growth: Motilal Oswal
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Motilal Oswal Report
Havells India (HAVL)’s 2QFY22 earnings were 8% below our expectation despite the topline beat of 5%. Key operating parameters confirm our thesis of margin normalization from highs of FY21 even amid a strong demand environment.
We expect the trend to continue over the next 2–3 quarters – leading to strong topline growth, but muted EBITDA/earnings growth.
Key positives include a) volume growth (ex-Cables) in the double digits, which is likely to sustain over the next few quarters; b) an uptick in the B2B business, with volume growth reflecting in Cables hereafter; and c) promising trends for the festive season.
Key negatives include a) inadequate price hikes taken to offset the commodity price inflation; b) ad spends continuing to be low at 1% of sales v/s guidance of 2–3% on a structural basis and 3.5–4.0% pre-COVID; and c) other expenses yet to normalise from the low levels of the last year or so.
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