Key highlights from Havells India Limited (HAVELLS) Q3 FY23 Earnings Concall
Management Update:
- [00:01:36] HAVELLS said, its recent channel expansion initiatives continue to deliver healthy growth. And added that growth momentum was maintained in Lloyd; however, margin recovery was slow.
Q&A Highlights:
- [00:02:58] Renu Baid of IIFL Securities asked about the roadblock in demand in the B2C segment and the rebound timeline. Anil Gupta MD said that inflation over the last 1.5 years has slowed consumer demand and it’s uncertain if a turnaround will happen in 4Q23. RM volatility has made it difficult to predict the exact timing of a return to normal growth in consumer products.
- [00:04:32] Renu Baid of IIFL Securities enquired about the overall margin outlook, status of high-cost inventory across portfolio. Anil Gupta MD answered that HAVELLS has normalized its inventory costs for fans and cables, while Lloyd still had some left in 3Q. RM prices have been increasing recently, but the old inventory has been consumed for HAVELLS and there is a little bit left for Lloyd AC products.
- [00:05:41] Renu Baid of IIFL Securities asked about the performance of non-RAC portfolio. Anil Gupta MD replied that there has been some slowdown in the growth for HAVELLS’ other categories, but it is still quite high.
- [00:07:30] Rahul Agarwal from Incred Capital enquired about channel inventory currently for the ACs and fans for the summer season. Anil Gupta MD answered that currently it’s time for shelf-filling for ACs. On fans, there’s some shelf-filling for the lower end models due to energy rating changes, while on higher-end there’s some destocking due to lower cost increases. Overall, inventory is normal for fans.
- [00:09:34] Aniruddha Joshi with ICICI Securities asked about any one-time impact in good growth of B2B segment and if it would sustain in 4Q. Anil Gupta MD replied that there was no one-time impact of any demand. Currently B2B is showing robust demand.
- [00:09:48] Aniruddha Joshi with ICICI Securities enquired, when ad spends would near the pre-COVID levels. Anil Gupta MD answered that ad spends are at normalized levels. As the volumes have gone up, as a percentage the spend has come down. HAVELLS is not expecting major increase in ad spends.
- [00:11:15] Achal Lohade at JM Financial asked about the mix of B2B and B2C in 3Q23. Anil Gupta MD said that about 75% is B2C and 25% is B2B, non -Lloyd. Marginally B2B has come down to 22-23% in 3Q.
- [00:13:08] Achal Lohade at JM Financial queried about the employee cost going up 6% QoQ and if it’s a new normal run rate to consider. Anil Gupta MD answered that whatever the increase that’s been seen should be considered as the new normal.
- [00:17:33] Sonali Salgaonkar from Jefferies asked if the company has completely transitioned to the new BEE norms in fans and ACs and if any price hikes were taken. Anil Gupta MD clarified that HAVELLS has moved to the new inventories. In fans and ACs the avg. price hike is about 3-4%.
- [00:18:14] Sonali Salgaonkar from Jefferies enquired that with input costs softening, if HAVELLS has taken any rollback of pricing action. Anil Gupta MD answered that during second part of 3Q, RM prices started going up again, so there’s no room for rollback currently.
- [00:20:40] Praveen Sahay with Prabhudas Lilladher asked about the continuous contraction in lighting margin. Anil Gupta MD said contribution margins for lighting are usually around 28-30%, but there was a one-off spike in 3Q22. The contraction in margins seen in 3Q23 is due to new product launches and advertising inputs, but overall GM of products are well maintained.
- [00:24:15] Venkatesh Balasubramaniam from Axis Capital queried about margin improvement going forward. Anil Gupta MD answered that margin improvement will happen over a period of time. In 4Q23, very small improvement is expected, but more improvement is expected in FY24.
- [00:32:40] Amit Mahawar from UBS asked that from a 2-3 year view, if bulk of the capital allocation capacity expansion will happen on the Lloyd side. Anil Gupta MD replied that for 2-3 years HAVELLS has reached peak on capital deployment on Lloyd now. For next 2-3 years, it needs to be seen.
- [00:33:25] Shrinidhi of HSBC enquired about the construction driven demand playing out. Anil Gupta MD said that there is a pause in that new construction demand. But HAVELLS feels it’s temporary as people have delayed their purchases.
- [00:34:32] Shrinidhi of HSBC asked if HAVELLS will reiterate its guidance of low double digit contribution margin in Lloyd by 4Q23. Anil Gupta MD clarified that it will take time as the company holds some inventory and competition has continued. But as of now improvement will be seen sequentially.
- [00:44:20] Vipin Goyal from Mirabilis asked about the demand scenario in the house wires retail side. Anil Gupta MD answered that wires is going through little volatility due to RM fluctuation. Also, at times there was some shelf-filling as prices were increasing. HAVELLS expects some higher levels of inventory at the end of 3Q23 for domestic wires.
- [00:47:41] Abhineet Anand from Emkay Global enquired about the breakup of B2B and B2C on the cable and wire side. Anil Gupta MD clarified that 60% is wire and 40% is cable.
- [00:52:40] Rahul Gajare from Haitong asked about any other pricing action taken in products except for fans and ACs. Anil Gupta MD clarified that the pricing action for fans and ACs will happen in 4Q and there were no pricing action in 3Q23.
- [00:53:59] Harshit Kapadia from Elara asked that in 3Q23, why was contribution margin for switchgear flat, while lighting and ECD both improved. Anil Gupta MD answered that it was due to margins in 2Q23 going down and now it has come back to the normal level.