Havells no more a cool stock as Covid-19 dents Q4 show, FY21 outlook

Margins across segments were weak due to absorption of manufacturing expenses amidst lower volumes
Havells’ March quarter (Q4) numbers came in way below estimates, even though expectations were already low on account of the Covid-19-led disruption.

All of Havells’ business segments reported a steep 14-24 per cent year-on-year (YoY) decline in sales. Consequently, revenue and operating profit fell 20 per cent and 22 per cent YoY, respectively. 

Revenues at Rs 2,216 crore lagged the Bloomberg consensus estimate of Rs 2,549 crore by a huge margin. Net profit at Rs 177 crore, too, fell way short of the Rs 194 crore estimated by analysts, despite the cushion of lower taxes.
The firm highlighted that if not for the lockdown, revenue would have grown 9 per cent YoY. A chunk of sales that happen at end of the quarter was lost due to the lockdown. This took away the sheen from the January-February period. Its switchgear and electrical consumer durables (ECD) segments were witnessing good momentum, but could not sustain.


Switchgear (16 per cent of top line) and ECD (a fifth), both posted a decline of 14 per cent YoY.
While a slowdown in the infrastructure and realty segments had already impacted the cables (30 per cent of revenue) and professional lighting categories, lower commodity prices (weighed on product prices) and pricing pressure (on weak demand) led to a 23-24 per cent decline in sales of these segments.

Margins across segments were weak due to absorption of manufacturing expenses amid lower volumes, while pricing pressure in cables and wires dented operating performance further.
The Lloyd’s business has always been a focus area for investors waiting patiently for this acquisition. Lloyd, contributing to a fifth of Havells’ revenue, posted buoyant growth till mid-March, but the lockdown pulled sales down by 20 per cent YoY.

Almost 25 per cent of sales in the AC and ECD segments, which happen at the end of the quarter, were hit by the lockdown. With sales of seasonal products like fans and room ACs adversely impacted, revenue and profit for FY20 also contracted.

The lockdown extension has hit FY21 prospects. Not only are peak summer season sales lost, high channel inventory will also limit future sales. Emkay Research says revenue recovery will be long-dated. Some of Havells’ businesses depend on real estate and infrastructure growth, which take longer to recover. All these will keep capacity utilisation at lower levels.

Consequently, analysts at YES Securities and HSBC have sharply cut FY21 and FY22 earnings estimate by 35-38 per cent and 22-23 per cent, respectively. At over 35x its FY22 earnings, valuations are rich.

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