BackLloyd brightens Havells’ Q2 as core business remains dull
Investors should not extrapolate the surprise improvement in margins as costs will increase with normal business
PremiumThe Havells India stock hit a 52-week high of ₹729.20 on the NSE on Friday following its impressive September quarter earnings.
The star performer of Havells’ Q2 results was Lloyd Consumer, which it had acquired in 2017. Lloyd saw revenue growth of 56% year-on-year (y-o-y) led by air conditioners, washing machines, and refrigerators. The consolidated revenue of Havells grew 10% y-o-y to ₹2,459 crore, ahead of Bloomberg analysts’ consensus estimates of ₹2,030 crore, because of Lloyd.
Lloyd’s robust sales growth comes on a low base, but it is positive considering the growth potential, analysts said.
“With the AC import ban coming, Lloyds is in the right spot. They have a stronger channel and manufacturing of ACs has stabilized. New products are coming in into refrigerators and dishwashers. These give ample runway for Lloyds in an industry pegged at ₹60,000 crore and growing," analysts at Dolat Capital Markets Pvt. Ltd said in a report.
Havells’ revenues, excluding Lloyd, grew 6% y-o-y in Q2, after declining for three quarters. Analysts do not expect a quick revival in the company’s core business as it comprises longer recovery products such as cables, wires and switches.
Industrial products, which contribute 25-30% to overall revenue, are in the slow lane, according to the management. In this segment, business-to-business (B2B) sales remained at 85% of last year’s levels, but is improving on a monthly basis. Consumer products witnessed a recovery in the second quarter with a sanguine festive outlook, the management said. Market share gains across categories were in the 10-11% range during the quarter, it said.
Muted advertisement spends and cost rationalization measures pushed operating margins to an all-time high of 17.2%. The management expects a large part of cost savings to continue. However, investors should refrain from extrapolating the surprise improvement in margins, analysts said. A repeat of such high-margin growth is unlikely as costs will rise with business normalcy resuming, they said.
The stock’s valuations at a one-year forward price-to-earnings multiple of 53 times are expensive and much higher than peers. Crompton Greaves Consumer Electricals Ltd and Orient Electric Ltd are trading at PE multiples of 35 times and 34, respectively.
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