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Havells India Ltd
| Q2 FY26 Earnings Conference Call
Summary : Havells India delivered decent Q2 FY26 results, with strong cable growth offsetting weakness in summer products due to high inventory, while management remains optimistic for a stronger second half driven by demand recovery and strategic investments.
Management Perspective positive : Management expressed optimism for a 'good second half' and 'positive momentum' in demand, especially post-GST changes and for the solar business. They are 'genuinely positive' about future trends.
Concall Report Analysis & Insights
Business Overview
- Q2 FY26 saw decent overall performance, but summer products experienced weakness.
- Air conditioners, fans, and coolers' revenue declined year-over-year due to shorter summer and high channel inventories.
- Cables maintained steady growth, driven by strong power cable performance.
- LED lighting saw price stabilization and initial pickup in residential demand.
- Higher working capital, especially in cables and Lloyd, reduced cash and bank balances.
Future Growth Prospects
- Channel inventories for summer products are expected to normalize by Q3 end.
- Capacity expansion for cables is on track with a new land acquisition.
- LED price stabilization and residential demand pickup augur well for lighting business.
- Solar business is expected to see very decent growth in Q3 and Q4.
- Company is investing in new product categories like EV chargers and automation.
Management Insights
- Summer products faced weakness due to a shorter summer and high channel inventories.
- Customer support schemes were offered to liquidate off-season inventory, not price cuts.
- Cables business continues strong growth, with enhanced capacities supporting performance.
- We are confident in passing on cost increases despite competitive intensity.
- Focus is on increasing productivity of the workforce and filling product portfolio gaps.
Signs of Skepticism
- Management found it difficult to quantify exact inventory levels across various channels and products.
- The GST reduction benefits are not fully being passed on to consumers due to other changes.
- Despite investments in Goldi Solar, detailed revenue and profitability projections for the next 3 years were not provided.
- Management stated it's 'too early' to comment on demand turnaround post-September 22nd slowdown.
Risk Factors
- Overhang of shorter summer and high channel inventories impacted Q2 growth and margins.
- Elevated working capital levels reduced cash and bank balance, impacting interest income.
- BEE rating changes for fans and ACs will require price hikes, potentially impacting volumes.
- Increased competitive intensity in certain categories could pressure margins.
- Raw material price fluctuations can affect profitability, as seen in previous quarters.
Good To Know
- GST reduction on AC, TV, and solar is expected to uplift consumer sentiment.
- FY26 capex is estimated at INR1,450 crores, with FY27 estimated at INR1,000 crores.
- Havells is investing heavily in sales infrastructure, R&D, and digitization.
- The company is focusing on premiumization across product categories like fans and ACs.
- B2B segment shows robustness, and international business has good traction.
Key Drivers
- Channel inventory normalization by Q3.
- Solar business growth in H2 FY26.
- GST reduction boosts consumer demand.
- Cables segment maintains strong growth.
Key Analyst Discussions
Competitive Environment
- New BEE norms for fans and ACs will require price hikes, which the company expects to pass on.
- LG's aggressive pricing in mass premium segments could enhance penetration but may increase competitive pressure.
- Management believes Havells' focus on innovation, distribution, and brand will counter increased competition.
- Competition has intensified across categories, but Havells maintains industry-leading margins in many segments.
- Management does not foresee increased competitive intensity from potential M&A in switchgear.
Market Trends & Consumer Behavior
- GST reduction on certain categories is a welcome step for consumer sentiment and demand.
- Demand for ECD was affected in H1 due to a weak summer season.
- Positive momentum in demand is observed post-September 22nd, with rural growth returning.
- Channel partners had high inventory, blocking cash flow, but normalization is expected by Q3 end.
- The festive period is showing signs of demand recovery and channel pickup.
Financial Highlights
- Contribution margins for Lloyd declined due to customer support schemes and under-absorption of manufacturing overheads.
- Cables and wires contribution margin is expected to be 15%-16% going forward.
- Switchgear contribution margins are expected to range between 37% and 40%.
- Havells stand-alone (excluding Lloyd) EBITDA margins are around 12%-13% and expected to improve.
- Premiumization efforts are expected to improve margins in the long term, despite initial R&D and marketing spend.
Product Composition
- Fans experienced mid-single digit degrowth, and coolers saw significant degrowth due to high channel inventory.
- Good growth was observed in water heaters and consumer small appliances.
- Almost 40% of Havells' fans are now BLDC fans, indicating investment in new technology.
- Havells is continuously evaluating and adding new product categories like chimneys, hobs, and automation.
- The share of premium products in the overall portfolio is high and increasing.
Strategic Considerations
- Havells acquired 39 acres of land for cable capacity expansion in Alwar.
- The company is exploring new segments like EV chargers within its renewable portfolio.
- B2B segment shows robust traction, with continued positivity expected.
- International business, particularly cables, switchgear, and Lloyd ACs, is a key growth contender.
- Investment in Goldi Solar is expected to drive good growth in the solar business over 2-3 years.