Despite a healthy revenue and profit growth in the January-March quarter, analysts remained cautious on the outlook for consumer durables major Havells India due to soft demand for air conditioners and high competition in the cables & wires segment.
During the January-March quarter, the company reported a 16% jump in net profit at Rs 518 crore as compared to Rs 446 crore a year ago. The revenue rose around 20% to Rs 6,543 crore against Rs 5,442 crore reported in the same quarter of FY24.
While the growth was led by its consumer business brand Lloyd, which saw a 39.5% jump in revenue, the management highlighted that the demand for residential ACs fell in March and April after witnessing a surge in January and February.
They added that the overall consumer sentiment has remained subdued due to inflation.
Analysts suggested that the healthy growth in Lloyd was mainly due to a lower base in the previous year.
Kotak Institutional Equities cut the margin expectations of the company by 20-30 basis points suggesting that a slower demand for ACs in South may weigh on the primary sales during Q1FY26.
HSBC added that a weak macroeconomic environment and continued subdued consumer confidence is also impacting the topline growth of the company, excluding Lloyd.
Havells said it has plans to invest around Rs 2,600 crore into the business over the next two years. Analysts, however, point out that there has been no major capex allocation towards Lloyd for the past couple of years.
The company’s cables and wires business also reported a healthy growth 21.2% during the quarter. Nomura highlighted the rising competition in the sector as one of the risks.
The C&W industry has seen the entry of two major conglomerates Adani and Aditya Birla in recent months. According to Jefferies, the size of the industry is currently around Rs 80,000 crore (Rs 56,000 crore cables and Rs 24,000 crore wires).
In the management commentary, Havells stated that the industry has potential to absorb new organised competition and likely to lead to faster consolidation towards branded companies. They added that it takes time to build the brand and distribution of the business.
Analysts, however, suggested that a slowdown in housing sales may also lead to additional stress in C&W segment in near term.
Motilal Oswal Financial Services in its note said, “Wires demand has been hit by slow real estate demand. This has also hurt the margin wires, and recovery needs to be monitored.”
Some of Havells’ other businesses like ECD, lightning and industrial switchgears also witnessed a slower-than-expected revenue growth during the quarter.
In long-run, however, analysts said that the company is likely to report healthy numbers as it has enough headroom to grow Lloyd in ACs as well as refrigerators. The domestic manufacturing facility may provide it with an upper-hand.
The cables & wires, and the switchgear businesses are also likely to remain high-growing amid infrastructure growth in the country.