Havells India: Hike in ad spend, staff cost offset gains, says Credit Suisse

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Published: October 20, 2016 6:06:00 AM

Havells’ revenue growth slowed down to 9% in 2Q compared to 25% in 1Q.

Havells’ revenue growth slowed down to 9% in 2Q compared to 25% in 1Q. While management had stated that 1Q growth will not sustain, the extent of slowdown is more than expected. However PAT grew 22% (in-line) aided by sharp jump in other income due to interest on cash from Sylvania stake sale.

Durables remain the main driver growing 22% in 2Q. Overall growth was pulled down by cables (40% of sales) which did not grow y-o-y due to the impact from lower commodity prices. Industrial cables volume growth sharply slowed down to 8% versus 15-30% growth in the past 4 quarters.

Havells has seen a mix improvement with the low margin cable and wires business growing the slowest. Margins improved across all segments and especially sharply in durables and lighting. Discontinuation of brand royalty added 70bps to margins. Gross margin was up 130bps y-o-y and other expenses were down 80bps. However, sharp increase in ad spends and employee costs offset the gains. Havells has hired senior management resources in the recent past.

Lighting division grew sales at 9% which was lower than the 20%+ growth seen in the past 2 quarters. CFL lamps is now only 16% of the business and declined 33% y-o-y, while non-CFL grew 22%. The LED growth seems to be now stabilising as the base has become higher.

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