The second quarter results announced by Havells India (HAVL) have elicited broadly negative reactions from brokerages, with most downgrading earnings estimates and price targets. The primary factors responsible for the disappointing results and outlook are softness in consumer demand, elevated competitive intensity, and continuing losses in the Lloyd business.
JM Financial cut its FY24 and FY25 EPS estimates by 4% and 5% respectively. It has lowered its price target from INR 1,500 to INR 1,460, but maintained ‘Buy’. The key concerns highlighted are slower than expected growth across segments like cables & wires, electrical consumer durables and lighting. While demand from infrastructure and housing remains healthy, consumer demand for electrical products is muted. Losses in Lloyd also remain high due to under-absorption of overheads and manufacturing costs.
Motilal Oswal trimmed its EPS estimates for FY24 and FY25 by 4-6% while maintaining its Buy rating. It points to revenues and margins missing estimates across segments, especially Lloyd which saw a sharp sequential decline in profitability. Demand outlook remains challenging amid weak consumer sentiment and elevated competition. The threat of margin erosion also looms large given Havells’ aggressive investments in branding, employees and Lloyd’s expansion.
IIFL Securities cut its price target from INR 1,660 to INR 1,535 while retaining its Add rating. The weak results were attributed to subdued consumer demand, especially in electrical consumer durables and lighting products. Lloyd continued to report losses due to under-utilization of the new manufacturing facility. The brokerage reduced FY24 and FY25 EPS forecasts by 5% and 8% respectively to factor in muted margin expansion going ahead.
Kotak Institutional Equities pointed to misses across revenue, EBITDA and PAT as the key disappointments. Persistent losses in Lloyd, price erosion in lighting and capacity constraints affecting cable sales growth remain matters of concern. While management has reiterated an optimistic outlook for the festive season, demand headwinds are likely to continue. Kotak cut its EPS estimates for FY24-26 by 5-6% and decreased its fair value for the stock from INR 1,150 to INR 1,140, reiterating its Sell rating.
Antique Stock Broking maintained its Hold rating while downgrading its EPS estimates for FY24 and FY25 by 7% each to factor in the continuing losses in Lloyd. The core business saw tepid 4% revenue growth amid soft consumer demand, with only B2B categories like cables and switchgears reporting healthy growth, it noted. With rich valuations and margin pressures from elevated competition, Antique believes the risk-reward is balanced for Havells at current levels.
Centrum Broking also kept its Reduce rating unchanged post the weak results. Its target price has been revised upwards marginally from INR 1,130 to INR 1,195 as valuations were rolled over to September 2026 estimates. The key disappointments highlighted were misses on revenue, EBITDA and PAT, with all segments barring Lloyd reporting muted growth. Persistent losses in Lloyd, lacklustre consumer demand and high valuations remain concerns. FY24 and FY25 EPS estimates have been trimmed by 6% and 3% respectively.
Q2 Results
Overall, Havells reported a modest 6% YoY revenue growth in Q2FY23, missing estimates across the board. The growth was largely driven by Lloyd which saw 19% growth, while most other segments lagged.
Among electricals, Cables & Wires grew 8% YoY as capacity constraints affected growth in underground cables. Electrial Consumer Durables revenues declined 5% due to weak demand for fans following transition to new energy ratings regime. Lighting was flat YoY as price erosion in LED lighting offset volume growth. Switchgears was the only electrical segment to see decent growth of 9% YoY on the back of demand from industrial infrastructure.
Gross margins improved by 240 bps YoY to 33.3% aided by commodity cost easing. However, increased investments in branding and manpower moderated EBITDA margin expansion to just 180 bps. EBITDA grew 30% YoY but missed estimates by a wide margin. Net profit grew 33% YoY but was below consensus estimates.
Lloyd continued to report losses as its newly commissioned facility faced absorption issues. Havells remains focused on gaining market share and investing in brand building for Lloyd rather than profits in the near term. The segment is expected to be a key growth driver over the long run, but will remain a drag on overall profitability over the next few years.
The outlook from most brokerages remains cautious given persisting headwinds like weak consumer demand, elevated competition across segments, price erosion in lighting products and continuing losses in Lloyd. Margin expansion is also likely to be limited given high input costs and Havells’ focus on gaining scale and market share. Valuations at over 50x FY25 earnings leave little room for disappointment.
While Havells offers a play on long term consumption growth in India, near term hurdles imply that earnings growth may not pick up meaningfully over the next 2 years. Most brokers believe the risk-reward is balanced to negative for the stock at current valuations amidst peak margins and an uncertain demand environment. Unless consumer demand stages a strong recovery and Lloyd losses start moderating sooner than expected, Havells stock could remain rangebound over the medium term.
