Havells India Limited (HAVELLS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Havells India Q1 FY '27 Earnings Call. [Operator Instructions] Please note that this call has been recorded. I now hand over the call to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and you to Mr. Aniruddha Joshi.

Yes. Thanks, Sumit. On behalf of ICICI Securities, we welcome you all to Q1 FY '27 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. Amit Kumar Gupta, Whole-Time Director; and Mr. Rajiv Goel, Executive Director. . Now I hand over the call to the management for initial comments on the quarterly performance. Then we will have the question and answer session. Thanks, and over to you, Anil Rai Gupta.

Good evening, everybody. Thank you for attending the call today. Hope you would have reviewed the results by now. We delivered strong revenue growth in the first quarter as the demand was resilient despite inflationary pressures and the uncertainties arising from the West Asia situation. During quarter 1, a decent summer supported cooling products demand although a delayed onset restricted the full benefit of the season. Given significant raw material inflation, we undertook calibrated and staggered price hikes across the categories to offset the impact. Encouraging to see that the consumer categories held well and absorbed price highs. Each category showed strength, and we are positive to build further from here. Renewables business continued to scale rapidly with robust growth in revenues, leveraging sector tailwinds. From this quarter, we have begun reporting renewables as a separate segment. During the quarter, as planned, we significantly stepped up brand building efforts, led by mass media with advertising spends more than doubling year-on-year. While this front-loading of investments impacted the quarter profitability, these will normalize during the rest of the year. We expect the demand environment to improve further and have a healthy outlook on the margins. We can now move to Q&A.

[Operator Instructions] The first question is from the line of Balama from Arian Capital.

Sir, on the lighting side, I think earlier you have confirmed about the ASP declines have stabilized? And how is that pricing and volumes for this quarter, sir?

As far as lighting is concerned, we have said that the pricing has stabilized. In fact, we may start seeing some price hikes in the coming times because of the electronics. But otherwise, generally speaking, it has stabilized and hence, we are seeing some volume growth now in the business.

Okay, sir. Sir, on the switchgear side, majorly impacted by Vestas export disruptions. So I'm trying to understand what is the mix of domestic and international for switchgears. And is there any margin difference profile compared to domestic at on the international side? We have seen around a 260 basis point margin erosion in that segment. .

Diwould you like to take this? .

Yes. The international business is normally 15%, but it varies from quarter-to-quarter. And that's why it has been impacted, but we are expecting this to rebound this quarter. It primarily happened because there are no vessels going to that, but things are considerably eased since then. So we are very confident that Q2 will see a good growth in the international the overall Sugar segment. The domestic demand has been fairly stable. .

Okay, sir. So my last question on the net side. I think we have seen impact on the margin side. whether it's if you could quantify in terms of products mix shift higher in terms of like a higher share of solar terms, maybe lower margin versus other products and competitive pricing pressure on solar model market and raw material side. If you could break down those impact on the margin side. And if you could also explain whether it's a timing of the project side? Or is there any other reasons?

I think you're asking about renewable, solar pump still is not very significant in this. I think that should come in the ensuing quarter. And largely, it has been because you see a lot of -- there has been a strong demand on the panel side. And as you know, panels have slightly lower margin than the inverters. But that also we expect to improve, you see in the coming quarters. think renewable, we believe is holding pretty well in the margins considering the industry scenario. And as we move more towards the consumer side of the business, we are expecting improvement in the margins.

We can expect in the H2, sir? .

Yes, that's right. .

The next question is from the line of Natasha Jin from Phillip Capital. .

My first question is, if I see across the major revenue contributor, which is lower CD and cables, our top line growth has slightly lagged the industry growth. So first off, I want to understand, is it because we took sharper price hikes and therefore, maybe lost in volumes. . And if that is the case, from a very medium- to long-term perspective, could you call out what is the right mix between volume and pricing, especially given that there is intense competition across these parties? That's the first one. .

See, I think especially as far as Lloyd and TCB is concerned, this particular quarter was the, quarter where there was maximum volatility and especially in the second and the third quarter -- sorry, third -- fourth and the first quarter. So there have been continuous price rises raw material price sizes, and we have taken staggered steps of price hikes. At this point of time, sometimes we are we looking at a handset calibrated price hikes. We do believe that we have taken the right steps towards price hikes, keeping an eye on market share. as well as the fact that we have been making some improvements in our distribution policy wherein a lot of focus has been ensuring that we do not unnecessarily load the channel and basically improving their return on capital. So a lot of things were happening in the first half of the year, first half of the calendar year. But I do believe that on a long-term basis, including if we take secondary sales from the channel, we do believe that we have done a very robust job of ensuring that we do not lose any market share or in fact, gain market share.

Okay. Sir, my second question is on the ad spend. While it's highly appreciated that Havells continues to be a consistent here, what's the ideal time frame where we can expect such aggressive assets to translate to revenue? And more importantly, volume growth. And on those lines, so if you could just call out the volume growth for layer and if we are seeing any brand full traction there?

No. I think, first of all, as far as advertising spends are concerned, basically, this is just a readjustment of our strategy between above the line and below the line over and between categories. So as you -- 1 question is whether this will get normalized, yes, it will get normalized. How how much it translates into volumes and values usually advertising is a long-term investment. And over a period of time, it relates to volume growth, value growth, premiumization. So it's not something like a an impulse buy. So advertising has always been looked at as an investment for a long period of time. And hence, even during the year, it will get normalized, but there was more front ending in the first quarter because of the seasonal products. And what was the second question, sorry?

Sir, on Lloyd, the volume growth .

Yes. The volume growth in air conditioners would be single digits, but the value growth has been higher because of the calibrated price hikes during the first half of the year. .

The next question comes from the line of Umang Mehta from Kotak Securities.

First question is on A&P. So for the full year, I mean last year, you spent something around INR 600 crores. Possible to share any kind of budget which you would have for the full year this year? And how should we think about this now going ahead? Do you think this is a new base on which we keep on growing every year? Or do you see this as a lumpy episodic kind of investment you're making as now? That's the first question.

No. As I said, lumpy could be during quarters and all that. But overall, longer period of time is just a readjustment between the media that we've looked at. And maybe there is a slight impact during the entire year and maybe there's a readjustment. But as a percentage of revenue of consumer products, I think over a longer period of time, 4 to 5 years, we will be remaining consistent. .

Got it, sir. Sir, any budget you can share for the full year? Should we take north of INR 700 crores, INR 800 crores?

Yes, somewhere around that number. Yes. And look, our long-term average has been around close to 2.7% as a company as a whole. I'm not getting into consumer otherwise. We expect that to remain the same even for the current year.

Sure. Second question was on renewables, given that you've called that out as a separate segment, any aspirations or targets you would like to share from -- so can we annualize the current run rate? Or do you think there are certain tailwinds specific to 1Q, how should we think about this?

I think if you look at renewables a bit more strategically, we -- our focus will be looking into various categories of renewables, which are adjusting to our brand and distribution. So we are looking at installations and not utility scale of installations, but more residential homes, commercial and industrial establishments. . Also looking at more strategic inputs for the future, battery energy store solutions, EV chargers. So these are the kind of categories that we are getting into where we can utilize and leverage our brand and channel.

The next question comes from the line of Rehan from Trinetra Asset Managers.

I have 2 questions. First on the management has given the guidance on the last call, in the last management declined to do specific FY '27 growth ride due to market volatility -- so given this quarter, can you now provide a clearer view on through your revenue and margin expectations. It is my first question. .

I think if you attended calls for a longer period of time for Havells, we do not give guidance for the year. But yes, the quarter start has been very positive, and we are hopeful that a good resilient growth momentum will maintain during the year.

Okay. And my second question is around your price hikes across multiple categories. So the company implemented calibrated prices across multiple categories to offset raw material also. Our contribution margin remained broadly stable, around 18.3%. So going forward, from already prices remain alive. So do you believe there is still pricing at rem available? Or is the future margin improvement depend more on operating leverage and product mix then for the...

I think that will be part of the initiative definitely because it will be led by the growth -- and look, these prices have been increased to compensate, but there are usual price increase which happens also to once in a year. So those will always be undertaken. And then the contusion margin, you're looking at is also a product mix. We do expect -- and we are seeing certain growth momentum in our other categories as well as growth. We are expecting growth contribution and overall profitability much higher than the value growth in sales itself. So it will be leveraging, but would also we see growing the high-growth categories as well.

Okay. Okay, for clarification, and we untaintequeue. .

The next question comes from the line of Indrajit Agarwal from CLSA.

A couple of questions from my side. For the cable segment, can you split out between the value and volume growth in this quarter? And how has it deferred in wires and cables?

So volume has been largely flat, very, very low single digit, but I will term it more or less flat. And this is across wires as well as cables. .

Sure. And in renewables, would it be more like volatile or the quarters under is something that we can maintain. And at what top line level we can see more insourcing than outsourced model?

Look, as you are aware, I'm coming to in-sourcing, outsourcing for us, the strategic investment in gold, which we made was the part of a very planned execution, but this will be told, I don't know if you put in outsourcing or in-sourcing because this was a strategic decision taken on that. I think which has held well because now as there is so much clamor I think we are able to sort of have a very significant and sure supply chain there. So I would tell you this is a strategic in-sourcing rather than outsourcing to that extent. -- and inverters, we have been doing ourselves in-house. And the other categories you are talking about, there will be a very strong strategic tilt towards that -- and a lot of them will be done in-house, either to the assembly or to the technical technical collaboration. And as far as the -- I think the sectoral tailwinds are strong and the way we are looking at the adjacencies as well. We are hoping internally that we should continue to grow well in this category because this is a strong economic impact for renewables in India, which is also reflected in how the government is supporting this initiative. So we are very positive on this, and we expect it to become a larger segment, and that's the reason why we have also carved out universe that can be tracked both by the company as well as our investors on how we are doing the same. So I think it just demonstrates our faith and belief in this category and the growth.

The next question comes from the line of Siddarth Bera from Nomura.

First question is on the cable and Wires. If you look at the gap between the contribution margin and EBIT margin, it seems to have gone up a bit in the current quarter. Is it because of the ad spend or if you can highlight what has led to this? And second question is, sir, on the price side from costs. I mean if you look at say, ECD or Lloyd, how much have we taken in terms of price is in the current quarter? And how much more do we need to take to pass on the current cost?

I think as far as your first question is concerned, yes, it is due to higher A&P spend during the quarter. It has -- it's across the businesses, not just cables and wires. And as I have said already during the year, it will get normalized. So we do not expect any major changes in the overall profitability for various divisions. And as far as price hikes are concerned, look, different product categories require different price hikes depending upon the kind of raw materials used in that category. But generally speaking, 7% to 8% would be the right price hike -- average if you take it. And whether everything has been passed on, we were actually disciplined enough to say that we have been able to pass on the entire cost. But some of the remnants of some averages might be coming in the second quarter. But I would say most of the price hikes have already been taken now in a staggered manner.

So at current commodity costs, we should idly see margins improving from the coming quarters if it stays at that level?

I think raw material prices have also moved up in a staggered way and price hikes have also moved up. So I would say we will now see the normalized margin levels, contribution.

Okay. And second question is, sir, on the load. I mean, oil, we used to do a double-digit contribution margin, which has now been in high single digits for quite some time, given the competitive dynamics and your focus, do we -- anytime you soon see that going to the double-digit levels? Or do you think that may take longer now given by industry?

No, no. I think except the nonseasonal quarters or second and third quarter, but we should be seeing double digit sooner than later. With all this has happened also due to the volatility and timing differences between passing price hikes and all that. But otherwise, in full quarters, we will definitely see it coming back to double digits. .

The next question is from the line of Pravin from PL Capital. .

My first question is related to the pricing. So last quarter, Q4, you indicated 5% to 20% of the price hike implementations. So is there some challenges? Have you faced an absorption of those price hikes in this last quarter Q1 as well?

I would not say challenges have been faced. I think the challenge was to pass on the price hike and which we've been able to do it successfully. -- as always remain skeptical about what it means for the volumes. Thankfully, the demand remained relinked in the first quarter. And hopefully, in the coming times also, it should remain resilient. Any improvement there on in terms of raw materials or the world situation? Definitely, it will be a further passed on or reduced. But as of now, we believe that we have been successfully able to pass on the price side. .

Okay. Second question, sir, is related to the CapEx, nearly around INR 1,400-odd crores of CapEx, 27, what you had given in the press release. Can you give us some color on the bifurcation on the segment twice where it is going for a full year in this number?

Look, the bigger part of that is going into the table and vial business, almost about INR 800 crores. About INR 200 crores is going into the new R&D center. The rest is all driving to other business.

And last question, sir, related to your collaboration on the best. If you can give some more color on this on the revenue and the margin visibility and when that's going to contribute to the numbers this Pix collaboration? And how is going to work, whether you are going for a manufacturing of those assembly of those or just a distinction you are planning for?

I think these are early stages to discuss this on the call right now, one. And two, is anyway part of the overall renewable strategy. So as things pan out, we will be coming back with more information, but it is too early to comment on it.

The next question is from the line of Sonali from Jeffries.

My first question is if you could shed some more light on the weaker performance in switchgear both in terms of demand and margins, especially because this is your highest margin segment. How should we look at this segment going forward in the coming quarters? I do understand you have mentioned in your press release that given the demand has been impacted because of the [indiscernible] But since we are amongst the key market leaders, a 4% decline in sales year-on-year and with a margin seems a bit concerning to me, which is why I'm asking this question.

No, I think 1 is not only the West Asia crisis, but it's also switchgear is one of those businesses where, again, volatility of raw materials was higher and it impacted the entire passing on of -- and I would say because of this volatility in raw material, there was also contribution amongst the trade also on buying products. I think it has fairly stabilized -- and which should mean that the demand should be coming back from the second quarter. Hopefully, the international situation may also improve, but at least the domestic demand will remain stable from here. It seems so.

How much is your sales as which rates from international adjusting of net.

15%.

Understood. Got it. Very helpful. So my second question is you did mention about the caboose on an average about 8%. Would you be able to help us understand which category on an orders how much price, and I understand you don't give outlook guidance, but how should we look at the margins in the coming quarters as in a broader range, should we expect to revert back to our normal and talking about the EBITDA margin?

No, I think, again, as far as prices are concerned, we range between let's say, 5% to 20%. Fabian has seen a larger price increase because of direct relation with copper and aluminum, but otherwise, as I said, most of it is average about 7% to 8%. As far as margins are concerned, going forward, I think we are looking at stabilizing contribution margin. I would not so much comment on EBITDA margin because there's a lot of associated with that volume growth and all that. At least contribution margins, we believe we will very work in terms of managing the volatility in the oral part. And hopefully, these things should remain still in the coming quarters.

Understood. And just one last question, sort of a confirmation. So the CapEx for FY '27, we should expect at about INR 14 billion, right? .

INR 1,300 crores yes.