Havells India Limited ($HAVELLS)

Ladies and gentlemen, good day, and welcome to the Q4 FY '26 Earnings Conference Call of Havells India Limited [Operator Instructions] I now hand the conference call over to Mr. Umang Mehta from Kotak Securities. Thank you, and over to you. .

Thank you, Steve. On behalf of Kotak Securities, we welcome you all to Q4 FY '26 and FY '26 Results Conference Call of Havells India Limited. We have with us today the senior management represented by Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Kumar Gupta, Whole-Time Director and Group CFO, Mr. Amit 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, and then we will open the floor for Q&A. Thanks, and over to you, Anna. .

Thank you. Thanks. Good on for ending today's call. We hope you would have reviewed the results and I will now walk you to the key heads order overall normal cost just to who was backed by my start to the season. Momentum in Industrial & Infrastructure lavatories remain strong. work in retirees cost driven higher arising from recent global disruption. We have stepped up our advertising investments and brand ability still tentative. On the profitability front, margins held well, except Lloyd, which was impacted due to lower revenues. We can toast pressure cat price actions have also been initiated. Our renewable energy initiatives continue to scale . Investment -- this investment allows us to leverage Gold solar module manufacturing capabilities to expand especially in indeed of INR 283 crores on this investment. The gain is reported under other income for the quarter. So resident there -- we have invested in setting up a new refrigerator plant at Gilat. During the quarter, the capacity was commissioned and a refreshed product folio trillion of sister mass minds of pickup in demand for cooling products. We remain optimistic on our revival of summer demand while closely tracking in and end. We now move to Q&A. .

[Operator Instructions] The first question comes from the line of Ravi Swaminathan with Aveda. .

My first question is with respect to the Cables & Wire segment. During the quarter, we had registered a 14% growth. If you look at the copper prices, I think year-on-year, it would have increased by a much higher number -- so had we seen a decline in terms of volumes at the cable and wire segment level. If so, why was it so? And was it just related to dealer destocking alone or the end market was also on the weaker side, if you can give some clarity on that.

Yes. Thank you very much. So we see the forest in amber. .

Sorry, your voice is cracking a bit, sir. .

Okay. I'm a bit surprised. Can you hear me now? .

Yes, it's better. .

On an overall growth trend payable when the industrial cable segment has grown much faster than the domestic wire segment was in the are the is the thing in Austria, a very high base last year quarter 2, saw a major opinion and was seen in. There are some amount of price correction or in copper before the war and overall loans down the quarter. So you see wire segment remained flat, but the cable segment has been stopped .

Okay. And with respect to the other -- a couple of other segments, 1 is AC and France how much amount of price increase we would have taken over the past few months to compensate for the raw material price increase in both these products, if you can highlight that and how much are we likely to take? .

Impact to be able to further increase happened due to the energy efficiency ratings change during the quarter. And then there No, Royal happening toward February '24, there is increase of raw material prices in other -- so we would start from until April. There is calibrated price increases happening not only in France and but in our order series. So there given rights.

The next question comes from the line of Akash Jain with Phillip Capital.

I think ceding here is that right? .

Should we do on some other numbers on file .

Or you can call on my mobile .

Yes, sir, just a second, I'll correct on that. Yes, sir, you can continue.

Yes. Can you hear me?

Since your line was not clear. I will just repeat 1 question. I had incremental. In terms of wires and cables, you mentioned that the volume has been flat, but margin increase has been very sharp. So could you point out what would be attributed to inventory gains? And is there any mix change that has led to such a sharp margin despite volume degrowth? .

I think I would say rather than just looking at this particular quarter because there is usually, in this quarter, year-end adjustments also because of the final dealer incentives and all -- but overall, there were inventory gains because of copper and aluminum as well. But volume growth was only 6%, not flat, but volume growth of 6%. And -- but -- we have seen slight degrowth in domestic wire segment, but much higher growth in the industrial segment. .

Understood. Okay. So my second question is on Lighting. Now revenue there again has been broadly flat, but margins margin has increased extremely sharply. -- your contribution stands at 37% and you've mentioned in your presentation that the long-term average is 32%. So does that mean that there is some one-off even in lighting and that should normalize to 30% level going forward? .

Yes, you can take that as well. As I said, during the year, sometimes in the fourth quarter, there are certain year-end releases and that is for the entire year. So 1 can say, on an average, you can expect 32%, 32%. But sometimes the first 3 quarter releases also happened in certain cases, sometimes it's the other way around, but in lighting, this has happened. And so I would say a long-term would be 30% to 32%. .

And sir, this is even despite the fact that ASP decline has stabilized, that is what is mentioned in the PPT .

That's right. That's right. .

Got it. And sir, 1 last quick question. In terms of Lloyd fourth quarter, we understand that the summer was bad and in fact, it continued probably to beginning of April. Could you throw some color how the channel inventory right now is? And a little color on sell-in and sell-out both .

I think your analysis is absolutely right. The first half of April was also slow. So there were some channel inventories. But now it's evening out. And South and West have started a good summer, and I think it's now coming in the north as well. So hopefully, by the end of this month, there will be normalized inventory at the ...

The next question comes from the line of Rahul Agarwal with ikigai. .

Sir, a couple of questions. Firstly, on outlook for both on volume and revenue growth. Given that fourth quarter we ended weak, my sense is, should we expect double-digit volume growth plus some price hikes into FY '27. Any outlook could you share, please? .

In today's environment, what do you expect an answer from me. We are just looking at month-to-month, who knows where the wall goes, how the I mean, okay, we are seeing sharp increases in prices for most of the product categories. So how much will volume growth be it is difficult to say at this point of time. And I'm not even talking about the summer but the kind of sharp increases in prices can -- hopefully, it should not, but if it starts affecting the demand also. So that's something which will have to be seen as you operate. maybe this is for other people's questions also. At this point in time, it is very difficult to say what the growth will be. We are very positive, hopeful the summer has started off at a good mode, but the demand is yet to be seen. And our focus will be to continue to strive towards getting more efficiency. If you will see, we have also continue to invest heavily on our brand building activity, which clearly indicates that we are in here for a longer period of time, and it's very difficult to predict short-term ups and now. .

Sir, base case, even if you do like mid-single-digit volume, along with the price hike, we should still reach like mid-double digits next year, right, in terms of value growth. Is that a reasonable assumption?

As I said, it's right now, I would not be -- it would not be right for me to give any numbers. . .

Sir, secondly, on the margin side, given various amount of price hikes and what we are seeing on the RM inflation side, should we assume that whatever RM inflation, ForEx issues in terms of cost inflation we are seeing, most of that is actually passed through and there should -- the entire absorption is actually getting done from Hal side? Is that understanding correct? . .

We are striving to do that. Again, we are in a -- we are in a competitive world, and we have to see how it holds up. We are striving to pass on the cost. But Again, as I said, we have to compete in the market. Our focus will also be to retain or gain market share. So we'll just play a balancing area. .

Right, sir. And last question, sir, on the aftersales service. My sense is we've seen a lot of premium product launches across all segments from Havels over the last 6 months. when you look at your website, a lot of new products are actually launched. Just to understand that I think from a technician perspective, whoever services the customer from an aftersales perspective is largely the same thing for premium as well as mass segment products. Is it really possible to have a separate team for luxury and premium products so that the customer experience is not compromised. Any thoughts on this? .

I think these are very operational issues, which we continue to ensure that we will give the best service to the consumer. But these are very operational issues and part of -- 1 part of the business that I think there's no point of us to spend time on this on this call. But the -- what you are saying is our objective is to continue to give the best service as well as best customer experience always. But it's good to know that you noticed that average is coming out with premium products. That is a reflection of our continued investment in innovation. .

The next question comes from the line of Anirudh Joshi with ICICI .

Yes. And the solar business, so we have seen almost 48% growth in other segments. And given the EBIT margin has also seen a good expansion. So if you can share more details on the solar business in have reached in a way, normalized run rate? Or there is still good scope to potentially grow in this business? I mean how long this growth rate can sustain? And again, margins of solar business? Have they reached to an optimal level or there is still further scope to see margin expansion in solar business also? That is question number 1. And in terms of question 2, as far as the volume growth in fans, coolers as well as the refrigerator. So how it would have panned out because probably there was no excess sale in December for these products. So have they also seen some impact on volumes? Or is there a healthy growth in these products .

So on your first question on solar, I think most of the growth that you see in the other segment is coming out of solar. And you see the way to look at it is that we are building capacities, both in industrial cables as well as solar. Solar through an investment in Gondi and because of the assured supplies, more capacity that we have. we're able to take advantage of the tailwinds that are there in these 2 segments. And going forward also in the coming year also, we do feel that there is enough opportunity in the solar segment to continue to grow, but we'll be also expanding our product ranges in the entire renewable space in coming times. So again, difficult to say about the margins. One, of course, volumes will benefit, but it is competitive space, and we also need to see our market shares growing. And also, we'll try and maintain or increase margins through better product additions and expansion of the product range in the renewable space. That's what we're looking for. As far as the second question, I think in fans in the third quarter, there was a -- there was a change in the B norms. So there was some stocking in the end of the third quarter and which impacted some volumes in the fourth quarter, but also the seasonality aspect also came in -- in the fourth quarter. So hopefully, we should be seeing better volume growth in the first quarter.

Sure, sir. But in terms of monsoon, like last year also was impacted by monsoon. So logically, the impact of monsoon this year is probably less compared to what it was last year. So on that favorable base, should all these segments report strong growth? Or will the impact is so high of monsoon this time also that we are still seeing some impact of monsoon. .

No it's difficult to predict what will happen in the monsoon. But you are right, the last year was a low base. So we should be seeing good growth in this year. .

Okay. And any internal target estimate that the company will be working on the summer products that you can share with us?

I think we do not give any guidance on those numbers. And frankly, in this scenario, we are hoping for a faster growth. As I've already said in summer projects, last year was a very low base. So we are hoping to get a good growth in this first quarter.

Okay. Sure, sir. Just last question. The weighted average price hike at the company level would be more than 10%? Is it a fair assumption? .

No, I think we would like to see it that in many product ranges that ranges between 5% to 20%. .

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in The next question comes from the line of Pal Subramaniam with Arian Capital. .

Sir, trade receivables fallen drastically from INR 1,254 crores to INR 782 crores, almost even data days it used to be 20 or 21 range in the last 4 years, but right now it came to 30 days. So I'm trying to understand -- this is majorly because of faster collections are changing payment terms with these distributors? And how do we understand in upcoming years. .

Give normally a large way, we are to channel funding. So this kind of restriction nothing untoward to them. There is no subsequent change there are payment terms or -- depending upon the mix, something we still happen. But I think you should keep them as normalized a SP98230956 Not take them something you see with the exceptional happening in this particular March quarter. .

Okay, sir. Sir, on the ECD side, in Q3 is majorly described as largely Yes. Sir, on the CV side, in Q3, it's majorly described largely volume driven, not stressed . Price level. But in Q4, we saw volume decline . But there is no major price reversal. So I'm trying to understand if we could share volume growth or degrowth for fans, water heaters and FR for Q4. .

Yes. We don't give separate volume details for fans and motors. So -- but as I said, overall, there was a degrowth in value terms in Fans segment because of the initial push in the third quarter because of the energy efficiency and a delayed some.

The next question comes from the line of Sadara with Nomura. .

Sir, first on Lloyd, I mean, can you highlight broadly how much price hikes have been taken until now and how much is required to sort of go back to that double-digit contribution margin level which we had last year? .

Work in progress. .

Any price hike sir, if you can quantify how much is more needed? Or how taken .

Cigas, we have already said that there were quite a few prices, especially in case of Lloyd, because of the energy efficiency change, the 3-star state. So a lot of that happened during Jan to March. And now as -- because I said work in progress because now we're really seeing the impact of the cost increases postwar. So that is now being passed on. So there is a work in progress, but it ranges between at least 8% to 15%. . Depending on ...

Okay. And on the cable side, I mean, we -- what will be the utilization levels of the new cable plant, which we started. And I think Phase 2 should come sometime this year as well. So if you can just give us some color on that as well? .

So right now, whatever capacity has got added, we've been still operating at high capacity utilization. and more capacities will come up, as you like we said during the year. So hopefully, by the end of this year or early next year, first quarter, we'll be having the entire capacity, which are in .

The next question comes from the line of Aditya Bhartia with Investec. .

Good evening, so given that some of these price increase announcements for fans and rooms could have been made by March end, did we not see any element of prebuying given the sharp price increases that you would have announced? That's my first question. And the second question is just on the other segment margins that we are seeing in the other segment. Is it operating leverage benefits that are now starting to help us. And in that context, should we expect high teens kind of contribution margins to be sustainable from here on?

On the first part, yes, there was some prebuying in March, especially in the cooling products. And -- but generally, that is the case also in most of the years because it's also the upcoming season time for April and May. But that was also accentuated by the fact that the price increases were happening. And again, as I said, it's -- right now, solar is Sunrise industry for us. We are evaluating this. We -- our major focus is to gain -- continue to gain market shares and get the tailwinds of this industry. And difficult to say what's the final margins will be, but they will continue to improve as you rightly said about the operating margin -- operating leverage. .

The next question comes from the line of Renu Baid with IIFL Securities. .

Sir, my first question is, you did allude to the fact that the current environment has been extremely difficult to predict and you have been looking at the business on a month-on-month basis. But going by your experience of how consumption and consumer demand has been, given the steep inflationary pressure across board across segments and categories. Do you think consumer offtake in broad is likely to remain slightly muted in the near term, in the next couple of quarters? And the entire pieces of expectation in recovery and consumption is getting prolonged.

Yes, I've not seen this kind of a price escalation in the recent past in recent memory. Usually, it happens, but it is not so and not across all product categories. Sometimes there are more fluctuations in the case and wires across tier or -- so while we are very hopeful of the overall structural things which have happened within India as well as within Havells. But ultimately, it is -- we are bound by the fact that the consumer can -- consumer offtake can get affected if the price hike is too high. Let's see how it pans out, let's how the war and out. And hopefully, we should have some sight in the coming months. .

But for us, the priority would be to ensure to retain the market shares are retained or improve in the current environment, even if it be slightly challenging. .

Yes. I mean, usually, we have tried to be more efficient during these times and more efficiency leads to market share as well. So our investments continue to be there, whether it is in innovation, it is in brand building, distribution reach also. So our teams and all these things or those investments don't slow down during a tough few years. .

Got it. So secondly, .

Rene, if you've seen in the past, it some pain in the short term also. But we are, again, we're wanting to play a long-term .

Absolutely. Sir, looking at the CapEx spend in the last couple of years, we clearly stepped up our investment plans across manufacturing facilities, particularly cables and wires and Lloyd. So how should we look at the investment plans for fiscal '27, '28? Any notable segment you would want to highlight apart from the annual spend budgeted for the next 2 years?

Yes. I think by '27, '28 major expenses would -- major CapEx would go into Cable & Vie, which is already panned out, and I think this is -- a lot of that is happening in this financial year also INR 80 crores -- the rest is a big investment is going to be a new R&D center. And that will happen over the next 2, 2.5 years. The rest -- there is no major new CapEx in the Lloyd segment.

Got it. And just lastly, linked to the cables and wires. We recently gathered that 1 of the large player with presence on the cement side was folding into cables and base prepone entry into the housing wire market by a quarter or 2. So do you think in the current environment where the market is struggling but on the volume side, a large entrant entering in the space could have put incremental pressure on the existing peers and the industry pricing trends? .

Yes. I mean, generally speaking, cases in Myer, especially by -- there has been a lot of consolidation in the past also from an organized or regional brand or small brands to organize that. More in more, this industry has absorbed newer players -- and I think going forward also, companies which should continue to invest in innovation, brand building and distribution reach. So will be the winners in this segment. So hopefully, new players have also come with the right investments. They'll definitely gain some market share because some readjustments may happen between the unorganized and organized sector. .

Sure. And last question, if I can ask, while you've always spent enough energies and money in terms of distribution reach. across regions, not south broadly taken care of, how do you look to tackle the Western region in terms of penetration for Havells products, ex of cable and wire on the B2C side? And any particular areas you would want to highlight to filter gap? .

I would say that ever continues to invest not only in the Western region, but also certain parts of the southern markets like Tamilnadu where our market shares are lower as compared to other markets. Those investments are going both in distribution but also localized brand building as well. So we are seeing good growth, if we actually break down this growth into those areas where we are investing everything towards, we are seeing good traction in these markets. So there is restore coming on. .

The next question comes from the line of Ravin Cha with PL Capital. .

I have 2 questions. The first is, as you had highlighted, next -- the investment focus area is towards the industrial whether it's a cable or renewable. So how we are going to see the B2B, B2C mix evolve for the company in the next few years? .

When cable is also underground cables is something where we are investing where we were, to some extent, under investors. But in the past, our B2C B2B has remained between 75 to -- hopefully, in the next couple of years, we should continue to grow even in the B2C segment, especially the growth opportunities . So definitely, there's -- I think there will not be a meaningful move from B2C to B2B .

Okay. And the next question, sir, related to the switch gear. So if you highlighted that the margin impacted because of lag in the pricing of the cost -- so do we believe that in the coming quarters, it is possible that we'll go back to our 38% of contribution margin? .

Yes, we are striving towards that. As I said, in certain cases, the cost increases are so high that we were there was a lag in passing on the entire price increase. We'll continue to strive towards moving there. But I also said that our eyes will also be on retaining market share. It's not only Neroli. -- this is something which we have to see how it stands at. .

Why I asked that because that the growth for the entire year for sugar is also quite low. So it's more focused on the growth the way forward or major target is to achieve our contribution margins. .

I think it will always remain a balance between growth and profitability. .

The next question comes from the line of Pulkit with GS. .

I have 2 questions for you. First is, in light of whatever is happening globally, can you just discuss any supply chain disruptions that you have faced or navigated? And secondly, is there a scenario right now likely wherein, again, stronger companies like you emerge stronger, given better supply chain controls, et cetera, in the current environment? That's my question number one. .

Right. On the supply side, there have been a couple of -- especially more on the production side. Those have been navigated as not to go to each detail. But those have been navigated on the raw material side as well as in the production side due to the gas supply. Going forward, we'll continue to navigate those things. I think your question about the stronger companies are in a better position to manage not necessarily also in the supply chain, but also continued investments. And that's what we'll continue to strive for, as we have already said, is innovation, brand distribution. We'll do that -- and have a long-term thinking rather than a short-term thinking. I would rather say quarter-to-quarter thinking would not be in our mind how do we continue to invest for the long term. .

Sure, sir. Sir, my second question is actually in relation to that only, which is we have about INR 4,000 crores of capital now deployed in Llyods, which at this stage is barely generating any profitability. If I was to look at this say, further next 2 to 3 years, what is going to be the strategy to get our returns higher in that particular segment? Is brand building going to be a continued focus, is utilizing our capacities, the 2 factories that we have going to be the focus. Just some thought process about how should we look at capital returns on what you've invested in Llyods .

So the biggest thing about any consumer-oriented brand builders, brand-oriented businesses, something where it's an easier answer that you can't really say, okay, if I have to fully utilizing the capacity have you down by price and start selling more. It doesn't really happen as you can very well understand. It requires long-term investment in bambilding. So we -- our focus in Lloyd will continue to be towards bringing out better products through innovation, which means improving image through brand building and innovation for a better margin and utilize the capacities that have been created for better operating levels. So that's where the profits will come from on higher sales due to capacity utilization, brand building as well as improved margins. So again, as I said, it -- is everything put together, but everything has to come together in a certain period of time. It can't come in very quickly, and that's what we'll continue to invest for .

The next question comes from the line of Mr. Achal Lohade with Nama Institutional Equities. .

Two questions, sir. First -- if you could give us some sense, if possible, on the full year growth in terms of cans wired water, et cetera. Just trying to understand if we have gained market share, we have seen some asset share loss in any of the categories, if you could highlight that? .

Can -- I mean, generally, we don't give product price growth rates, but fans, we have degrown in the entire year. So -- and that fan waters -- sorry, bans, basis and water cooler, where we have done. So that's what I can say. But talking about market share, we do believe that we've been able to at least retain if not gain. .

Any of the category where you think you could have lost market share? .

I don't believe so. .

Understood. -- second question I had, just a top-down thoughts from a positioning of our products, would it be possible to get a sense in terms of the economy and mass premium and premium mix and like are we under indexed in the volume segment where probably the growth risk could be better and premium is facing a challenge in terms of growth? Any color on the segmentation at a broad level?

Achal, the strategy of the company, I think the Chairman just talked about how the long-term settings have gone up. So I think looking at a very short-term land, I think we can't decide about the brand positioning. You are aware we have Rio, we have have. So I think really low segmentation will play. But just because there could be volumes in the lower end of the market. . And we even don't know. The data is not really supporting that. So I think it's a brand position, which has been painstakingly built over decades, something you can't really incur which you see based on particular quarter or seasonality . I think we'll continue to sort of support. Yes, there will be strategies how we play in every segment, but not necessarily it could be played with the single brand architecture. And that's something in the market, you are also aware of how we are doing the same. They've been more in the future will also be coming through. We are also observing market very closely. And -- but clearly, there is into brand stands for. And I don't think that should be altered purely on some quarter reconciliation. .

So understood. Just to clarify, Ajith question was more from an annual sort of medium-term perspective, not really quarter at all. Because I yes. I just wanted to clarify, is there a -- given the positioning that we have, given the category, the subsegment growth within the segment within the category, is there a constraint in terms of growing at a higher pace and there is a price difference gap between cars and other brands have widened. Is there a case for that? That was more coming from that perspective .

No, maybe you would be right, but I hope you appreciate we something what we do every day. And based on, as I said, brand, it has built over decades, even here actually is nothing in the overall history of a business and the brand. Yes, I think your point understood, but I think this is something we value very closely. That's what we can assure you .

Air. And just a clarification, Anil, sir, in the past calls, you did highlight there is a possibility of over 2 percentage point improvement in margins over medium term given what you have kind of highlighted in the call about renewed investments in the R&D and the A&P, is there a change in that particular thought or that remains as is. .

No, that remains as is because we are continuing to wanting to be more efficient to get operating leverage out of better volumes. See, the whole investment behind innovation and brand building would be to put in more innovative products at a premium to the consumer and hence get better margins for the company. So again, as I said, short term, there may be some things. But long term, the whole idea is to have better growth and profitability. Through growth also operating leverage will become .

The next question comes from the line of Prateek Singh with Helios. As there is no response, we'll move on to the next question. It's from the line of Natasha Jain with Phillip Capital. .

Just wanted to share you had said in terms of sales, the volume -- and pricing, is that -- I mean the value growth is at 14%. So just trying to do the math here. Is it just 8% price hike that you've taken, I think relatively copper has substantially increased and even aluminum, if I see even on a Y-o-Y basis. .

No, this is what we are saying over the quarter-on-quarter. And if you recall, there was actually a dip in copper in the month of February. The entire increase that we're seeing is cost toward. So that has actually started increasing. So overall cables and volumes came the Myer 6% volume growth and 14% .

So 6% volume growth is year-on-year, correct? .

Yes, that's right. .

And that would give us with 8% .

Ended for cable .

The next question comes from the line of Ashish Kanodia with Citi.

. The first question is, again, on the cost side and investment in talent and capacity building. When we look at the fixed cost and this is across segments, while FY '25, there was an increase in fixed cost as you were investing. In FY '20, barring cables and wires, we have seen the fixed cost being broadly flat across all other segments. . When we -- and cable and will partly is maybe because of the capacity rice. -- when you look at FY '27, while, as you said, revenue is really difficult to forecast revenue here. But from a cost point of view, do you see that FY '27 is also going to be very similar to what we have seen in FY '26, whereby fixed costs may be increase in cable and buyers because of capacity addition, but other segments remains broadly where they are or maybe that's in line with inflation? Or do you think that because of '26 have not seen major investments, so '27 could see a bump up in investment across segments? .

Yes, there will be some investment across segments. So this would be especially where a cable email the others are not. There will be a balanced approach across all segments. However, last year also, we said this year also, we'll try and get more operating leverage, which means revenue growth should outpace the excess growth, except in advertising and promotions where we are taking cautious decision to up our spend. .

Ladies and gentlemen, that was the last question for today. I now hand the conference call over to the management for closing comments. .

Thank you very much, everyone, for joining in the investor call for Havells Limited, and thank you, Aman, for organizing this. Thank you. .

Thank you. On behalf of Havells India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you. .