Havells India lights dim in September quarter


One quarter down the line, the lights have dimmed at Havells India Ltd. The maker of lighting products, cables and fans saw just about 9% year-on-year revenue growth in the September quarter compared with 17% in the June quarter. Barring the electrical consumer durables (ECD) segment, growth across segments has slowed.

The lighting and fixtures business grew 9% last quarter compared to 22% in the June quarter. Within lighting, gains from the fast growing LED segment were offset by the decline in the CFL segment—a trend that the company anticipates will continue in the coming quarters. LED segment revenue increased 22% while the CFL segment fell 33% last quarter.

Cable business revenue remained flat last quarter compared to the 5% growth in the June quarter.

Despite volume growth in the segment, a drop in commodity prices—copper and aluminium—impacted value growth.

Revenue growth in the switchgears business, which had increased by 20% in the June quarter dropped to 5% for the September quarter. The ECD business sustained its 20%-plus revenue growth.

According to Rajiv Goyal, executive president of Havells India, 50-60% of the revenues are influenced by the housing market performance, which is not particularly impressive currently and that reflects in the company’s performance.

But sentiment around the ECD business is robust considering that it does not involve consumers making big purchase decisions like buying a house, added Goyal.

The trend in the ECD business may well continue in the coming quarters. But whether revenue growth revives in other segments is the key question.

“The expectation is to outperform H1FY16 revenue growth of 13% and not just repeat it,” said Goyal. But analysts say the favourable base impact benefits that Havells India saw in the first two quarters will be absent in the second half. That should make the going tough for the firm.

What augurs well is that the Ebitda (earnings before interest, tax, depreciation and amortization) margin has improved a bit compared to the June quarter. The company hopes to maintain margins at 13.5-14% for this year, which seems manageable.

Havells India shares have outperformed the BSE 200 index since the beginning of the current fiscal year. Currently, one share trades at about 42 times and 36 times estimated earnings for this fiscal year and the next, respectively. Strong brand recall works in favour of the Havells India stock. But valuations aren’t cheap. A recovery in the housing market will help, but there are few signs of that happening in a hurry.