Amidst headwinds of rising commodity prices, rupee depreciation, intensifying competition and challenges of integrating relatively lowermargin Lloyd business, HAVL has been able to sustain margin in FY18 (30 bps improvement in contribution margin. We believe individual SBU efforts & focus on cost management & profitability are playing out.
Q4 sales at Rs 2,530 crore was up 38% YoY, but below est of R2,620 crore. Core business grew 18% YoY on strong traction in lighting & consumer durables. Lloyd growth was flat on pre-buying in Q3. Core business EBITDA margin improved 120 bps YoY at 14.6%; Lloyd’s EBITDA margin surprised positively at 12% on strong operating leverage. Excl exceptional items, PAT came at Rs 230 crore, above est. Fine tune estimates; Maintain ‘SELL’ on rich valuations. TP unchanged.
Lloyd posted an 11% YoY growth (like-to-like) in FY18; For FY19, management guided for low double-digit revenue growth and steady improvement in margin. Except switch gears where growth is subdued given slow construction activity, business is seeing traction across verticals. Management has indicated intense cost pressure from escalating commodity prices. Summer in the north has been less harsh vs. forecast; Management indicated that Q1FY19 sales have been slower than normal.
Sales (adjusted for excise) grew 12% YoY driven by growth in EWA. Residential demand/construction activity continues to be sluggish. Contribution margin was up marginal 10 bps YoY at 38.6%. Sales (adjusted for excise) grew 13% YoY driven by 6%/7% YoY growth in volume and realizations respectively. Contribution margin improved 420 bps YoY at 17.1%.
Product mix shift towards domestic cables contributed to better margin. Going forward, HAVL expects cables and wires demand to improve and margin to sustain at current levels.