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Havells India Q2 Review - Margin Normalisation To Limit Earnings Growth: Motilal Oswal

Havells India Q2 Review - Margin Normalisation To Limit Earnings Growth: Motilal Oswal

Workers assemble component for E-Lite LED 18 W Pride Plus lights on the production line of the light-emitting diode (LED) fixture assembly unit at the Havells India Ltd. (Photographer: Udit Kulshrestha/Bloomberg)
Workers assemble component for E-Lite LED 18 W Pride Plus lights on the production line of the light-emitting diode (LED) fixture assembly unit at the Havells India Ltd. (Photographer: Udit Kulshrestha/Bloomberg)

BQ Blue’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BloombergQuint’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.

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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MOS-Havells.pdf

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