Havells India Limited (HAVELLS.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Havells India Q3 FY '26 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICC Securities. Thank you, and over to you, sir.

Yes. Thanks, Danish. On behalf of ICICI Securities, we welcome you all to Q3 FY '26 and 9 months FY '26 Results Conference Call of Havells India Limited. We have with us today senior management represented by Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Kumar Gupta, Whole Time Director and Group CFO; Mr. Ameet Kumar Gupta, Whole Time Director; and Mr. Rajiv Goel, Executive Director. Now I hand over the call to Mr. Anil Rai Gupta for his initial comments on the company performance. Then we will open the floor for question-and-answer session. Thanks, then over to you, Anil, sir.

Thank you, and good evening and wish you all a very happy New Year. Thank you once again for attending the call today. I hope you would have reviewed the results by now. We delivered a healthy overall performance in the third quarter, which was primarily led by an accelerated growth in our cables business, driven by volume expansion and commodity price inflation. While overall consumption trends remain modest, we did see some pickup during this festive season. Also, there was a healthy uptick in demand for heating products supported by a good winter. As regards to the cooling products, we saw a challenging environment in the last couple of quarters. However, now the channel inventory is normalizing. Overall, revenue growth in Q3 backed with disciplined spends translated into operating leverage as the revenue grew by 14% and EBITDA was up 21% Y-o-Y. During the quarter, there was an exceptional item impact of INR 45 crores on account of additional provisioning of pursuant to the new labor cos. We remain optimistic about a gradual recovery in demand. However, we are cognizant of the industry headwinds such as cost increases on account of commodity inflation, be it [indiscernible] changes, e-waste, et cetera. We are in the process of taking calibrated price hikes and enhancing operational efficiency. We can now move to Q&A.

[Operator Instructions] Our first question comes from the line of Sucrit D Patil from Eyesight Fintrade Private Limited.

I have 2 questions. My first question is to Mr. Gupta. As Havells continues to expand across categories, how do you see the company balancing growth with profitability, especially given the margin pressures we saw this quarter, over the next few years, what role do you see Havells playing in the [indiscernible] and customer experience? And how do you -- and how will you differentiate against the [ fears ] in the consumer electrical space? That's my first question. I'll ask my second question after this.

First of all, your question is a bit breaking in between, but my line was not very clear. But what I understand is how do we ensure that over a longer period of time, we maintain growth as well as profitability. I think this is a general philosophy and strategy of the company that we've always balanced growth and profitability. And we have achieved that through brand building, distribution reach and innovation in the products itself. We are becoming complete product portfolio in terms of electrical and electronics is concerned. And I would consider this as a strength rather than as a weakness because this will give us more leverage at the channel as well as utilizing the brand fully as well as gaining operating leverage because of our large product range. So I think over a period of time, we do see that the advantage of having innovation in product categories in all product categories that Havells operates in, that will be a big benefit and it should ensure growth as well as profitability expansion.

My second question is with the revenue growth coming in and margins may be under some pressure, -- how are you thinking about balancing cost discipline with investment needs for innovation and distribution expansion? As Havells scales further, what steps are you taking to ensure financial discipline while supporting long-term ambitions?

I think overall, again, you are alluding to the overall strategy of the organization. Look, the cost pressures are long term as well as short term. So generally, short-term pressures are sometimes absorbed and sometimes passed on to the market. The long-term cost pressures are achieved through efficiency improvement over a longer period of time with growth and bringing in operating leverage. I think Havells has shown over decades and years that it has always balanced both growth and profit aspirations. And I think the biggest thing is, I think Havells has always remained very financially prudent in terms of -- whether it is in terms of providing, I would say, managing working capital in terms of inventories or receivables, but also in terms of CapEx. So I think we have been cautiously optimistic in ensuring that we have enough capacities built up for the incoming growth. So it's always balanced approach by Havells. And I think over the next few years, this kind of an approach will continue, which is the mainstay of Havells.

[Operator Instructions] Our next question comes from the line of Natasha Jain from PhillipCapital.

My question is on wires and cables, a couple of them. First, if you could tell us the volume growth in terms of wires and cables separately. Second question is that copper prices have risen very sharply. So -- but natural wires must have seen higher inventorization than cables. Since we are wire heavy, can you tell us how much inventory is there in the channel? And could that lead to a moderation for wires specific cables? And last question within wires and cables is, in your opinion, I would just want to know that what happens if copper rises very sharply again from here? Would that mean that there will be stress in terms of working capital at the dealers' end? And if that is true, would that mean that the company would have to directly do B2B, which means eventually margins will taper off from here? So those are my 3 questions.

So first, can you repeat your first question? I got your second and third. Can you repeat the question?

Volume growth, sir, individually in wires and cables, if you can call out?

So volume growth has been a good healthy double digit, over 20%. So -- but there has been a sharp increase in raw material prices, as you mentioned, which actually has given a sharp increase in revenue growth for both cables and wires. As far as you're right that Havells is more wire heavy, and there has been a decent amount of stock buildup at the channel level. There were continuous price increases in the third quarter and going into the fourth quarter as well. So if there will be sudden price movements, yes, there will be some amount of channel normalization, which can impact the volumes for some time. But I think it all depends upon how the consumption in the market goes. So some channel has gone from manufacturers to the retailers and now retailers have to eventually sell the products in the market. As far as I don't see any strategy change at least for Havells that we would move more B2B heavy than channel heavy. I think these kind of changes can happen. Yes, there could be -- depending upon the raw material, there could be some price increases or reductions in the coming times. It's very difficult to predict what the raw materials, how it will behave. For cables and wires business, at least, I think there is far more predictability in terms of passing on price increases or price reductions. So again, we have to see over a longer period of time or at least mid-level of period of time rather than 1 quarter to the next quarter.

Got it. Sir, and just 1 last question. In terms of Lloyd or rather RAC industry-wide, can you call out what would be an average price hike that players will have to take? If you could split it between BEE, copper and currency depreciation, that would be helpful.

I'm sorry, there's some echo in -- can you repeat the question?

Sure, sir. A question on Lloyd. So could you please quantify the price -- minimum price hike that the industry will have to take on 3 aspects. One is the BEE rating, the other is copper and the third is INR depreciation.

Yes. I think -- and you also have to figure the GST reduction. But if you take that out, I think overall, there could be a 5% to 10% increase in this quarter.

Our next question comes from the line of Aditya Bhartia from Investec.

Sir, when we look at the segmental capital employed and segmental assets, it seems that inventory is still a little higher in case of Lloyd. So I guess this would be all in respect of old BEE norm products. And I just wanted to understand how would we be able to liquidate the same given that norms got revised in January? Is it that pre-labeling would be required? Or we'll be able to just sell it in the next couple of months?

Yes, I think we should be able to sell in the next couple of months. In fact, it's not only in air conditioners, but also in fans also. So there is some amount of residual inventory of the old BEE norms, which get passed on during the season in the coming time. So usually, the system is almost like where we sell the old norms first and then the new norms start kicking in.

Understood, sir. So in this particular quarter, do you anticipate different companies to be having different strategies, some of the companies which have already possibly sold a lot of old BEE norm products to be moving to new BEE norms while some continuing to sell the old BEE norm products and therefore, some confusion in terms of pricing as well?

No, I think usually, the trade is very clear about the fact that when they are buying a product at a lower price, they are buying a lower BEE material. So this would not be a problem. I think this is -- this kind of a transition has happened over the last few years and the trade and manufacturers are quite mature about it.

Understood, sir. Just one last question. When we look at wires and cables, volume growth, I mean, leaving aside the realization benefit, but volume growth generally also has been pretty robust in the last few years. The same, however, is not translating into growth for other categories. So just wanted to understand why is there such a big mismatch? And at some point of time, would you anticipate other categories to also start catching up to wire growth?

I think as far as wires is concerned, there is generally a match between other product categories, at least in the other product categories. Cables has been higher because of the government infrastructure spends and if you're talking about the last few years. But if we talk just about the last quarter, it's primarily some sort of channel stock buildup, which has happened, and that should get adjusted in the coming couple of quarters.

The next question comes from the line of Rahul Agarwal from Ikigai Asset.

Just 2 questions. Firstly, on CapEx. I think we've done about INR 1,200 crores in '20 -- so far 9 months. Just wanted to know projects that are under construction right now. And my sense is a lot of expansion has been done in cable and wires as well as Lloyds, I think, should be under construction. So next year, I would imagine it should be a lower budget for CapEx fiscal '27. So should we expect some lower capital intensity? That's the first question.

Yes. I think as far as cables and wires are concerned, there will be continued CapEx in the coming year. So Lloyd pretty much is done in this present year. But there will be a higher CapEx spend for the new R&D center, which will come up. So overall, it should be in the range of another INR 1,000 crores in the coming year.

And right now, what are the projects which are underway? Like if you could just highlight the segments?

As I said, right now, cables and wires and Lloyd in this year, cables and wires being the main thing, which is continuing -- going to continue in the coming year and the R&D center will also continue in the next year.

Okay. Got it. And sir, secondly, on the room AC side, you shared that there is a 5% to 10% price increase. Inventory also you have clarified. Just in terms of the production planning because we have large capacities now under Lloyd's. How do you see this overall industry panning out? Like what kind of thought process would you have in terms of production planning for ref washing machines as well as for AC? Just highlight some top-down thoughts would really help.

I think usually, as a company, we are far more positive looking and more optimistic as a company. However, given the very bad season in the last year, which has led to degrowth in the air conditioning industry as well as fans or air coolers also. I think we'll be a bit more prudent and just work along with the channel to see how their inventory is getting cleared and new inventory keeps going in. So we will have to act with optimism and prudence both in the coming couple of quarters for the summer products.

So inventory basically normalizes by March '26, right? That's what we should build for Lloyd's, right?

Yes, inventory should get because season starts for South in February and March in North.

Our next question comes from the line of Latika Chopra from JPMorgan.

My first question was on ECD. Would it be possible for you to share some color on how the subsegment growth behaved? What is the broad pricing growth contribution to this 4% growth in the quarter?

For which division, sorry. Rajiv, can you just take it.

You're talking about ECD, Latika.

Yes.

Yes. So ECD, largely the growth has been led by also the winter products. Winter has been pretty decent. So there is a good growth in our OFR segment. We continue to be the #1 player in the country now in this segment. There has been a decent growth there as well as water heaters. So across -- except for fan, I mean, which was still expected. I think they are having still the summer challenges like we have in AC. So I think all other categories have seen growth. And these are not largely driven by pricing. These are largely volume-driven growth in the ECD segment.

Sure. The second question was on margins. A&P spends were lower on a Y-o-Y basis. Just wanted to check which product segment is driving this? And at a very broad level, when you look at the next 4 quarters, any thoughts on the overall margin outlook given the company is going to face commodity inflation on one side and then your comment on modest demand outlook and competitive challenges on the other. So how do you view -- what's your best guess at this time? How would you try to manage revenue growth push versus the margin pressures?

So A&P spend is not something very specific to any product category. I think this is pretty much across the board. So I don't think we have picked up any category and said, let's stop investing in the A&P on that. So I think you should see this -- and if you see in the past, we have commented that you see we have been investing decent into A&P, and this is normally driven by the demand and we see the need in the market. So I don't think you should read too much into the A&P as to be sort of tacked to any particular product category. As far as the margins are concerned, Latika, these fluctuations in the commodity prices definitely will have some degree of effect. And I think this, this tactical balancing between growth and margins will continue to play out. So I think difficult to comment any specific on these. But as Havells philosophy has been, I think we will continue to focus on margin improvement. And even with these cost increases, I think there are opportunities of cost rationalization as well. So I think it will be a mix of calibrated price hikes, you see managing cost much better, productivity improvement. So there are a lot of levers which the company has, and I think we will definitely optimally use each of them to ultimately have a good balance between growth and profitability. Both objectives will continue to be paramount for us.

Our next question comes from the line of Siddhartha Bera from Nomura.

So first question is on the other segment. We have seen pretty healthy growth now in the past few quarters, but margin seems to be quite subdued in that category. So if you can talk about what is really driving or impacting the margins? Is it the ramp-up in solar, which might be low in the initial part of the ramp-up? So if you can help us understand this? And how big will be solar as of now for us? And second question, sir, is on the ECD side. Do you expect further improvement with more price hikes? And if you can highlight in terms of price hikes, how much is still yet to be taken? And should we expect more expansion on the ECD margins as well?

Yes. I think in the other solar is moving much faster than the other product categories, and that is why there is a large opportunity there, which does affect the overall margins because right now, it's getting balanced between utility type of orders and C&I installation type of orders. So it's getting balanced right now. But overall, we have a very positive outlook for solar in the coming times, both in terms of revenue growth as well as margin expansion. As far as the ECD is concerned, look, it's a process which is on the ensuring that we come back to our normalized levels of ECD margins. That's going on. It has definitely been impacted by current raw material price movements. How much of that can be entirely passed on to the market, that will only be seen during the season time for the fans. So I think it's difficult to give you a margin outlook at this point of time, but company always strives to improve margins. And again, we really don't compromise on margins because of volume growth in branded and distribution-oriented business, that really doesn't play a huge role. So ECD continuously, there will be aspiration for growth and improvement of margins.

Our next question comes from the line of Praveen Sahay from PL Capital.

My question is related to the solar because in this quarter as well as in the 9-month other growth has been very good and driven by solar, what I believe. So solar in that is the larger contribution is of a solar in water for Havells right now?

No its module and both modules and inverter. But yes, the growing is in the modules. The higher growth is the modules. We have also tied up with -- invested in Goldi, which is helping us to get sort of more strategic supplies from them. So I think that was the purpose as well. But yes, I think the growth in module -- the inverter is also there, but clearly outpaced by the modules growth.

Okay. And margin profile in this kind of a product is of single digit?