The strong show put up by Havells India Ltd in the third quarter was driven by secular growth across segments and divisions. Sales have recovered since the lockdown curbs were relaxed, driven by a steady improvement in consumer sentiments. The Q3 performance was also helped by the festive season, as well as the work-from-home culture driving sales of consumer durables.
As expected, the strong show was led by a 46% year-on-year (y-o-y) jump in sales of consumer durables. Even products classified under ‘Others’ (motor, pump, solar, personal grooming and water purifier businesses) grew 53%. Segments like switches, lighting and fixtures and cables, with some dependence on institutional sales, too clocked 27-32% higher sales.
Havells said its consumer and residential portfolio sales grew 40% while industrial and infra grew in the mid-teens. Increased penetration in smaller towns and rural areas has kept up the sales momentum. Organized companies like Havells have gained market share as others heavily dependent on imports faced supply chain disruptions. However, smaller players may see supplies stabilizing in the coming quarters.
Sales at Lloyd have also rebounded, after lagging earlier. Growth in sales of air-conditioners has been supported by restrictions on Chinese imports. Havells, which has set up its own manufacturing facility, is also benefitting from the same. Select pre-buying and wider network coverage through regional retailers have also helped sales.
The rising sales of the Lloyd range bode well and will help improve margins with economies of scale. The contribution margins of 13.7% though significantly better than 7.8% a year ago, are still lower than contribution margins in other segments. The contribution margins of 13.7% improved significantly over 7.8% seen in the year-ago quarter, however, are still lower than contribution margins in other segments.
Havells clocked Ebitda growth of 89% y-o-y, aiding net profit growth of 75%, while revenues grew 39% y-o-y. Ebitda stands for earnings before interest, tax depreciation and amortization. Havells is firing on all cylinders, but maintaining this growth trend will be key. The stock is trading at 71 times FY22 consensus earnings estimates prior to results as surveyed by Bloomberg.