Havells India gains 3% on hopes of improvement in operational performance

Shares of Havells India rose as much as 3.4 per cent to Rs 710.50 on the BSE on Friday on an expectation of margin improvement in the July-September quarter (Q2FY21). The stock of the consumer durable company is trading close to its 52-week high level of Rs 717, touched on November 8, 2019.
In the past five days, the stock has rallied 7 per cent, after the company said it has decided to shift its switchgear production capacity from Guwahati location to its existing facilities at Baddi location to have benefits of synergy. Last month, on September 24, a leading fast‐moving electrical goods (FMEG) company — Lloyd — announced its entry into the refrigerator segment under its consumer durable brand. The refrigerators will be available in capacities ranging from 190 litres to 587 litres, and at an introductory offer price range from Rs 10,000 to Rs 84,990, it said.

For the July-September quarter (Q2FY21), Havells India’s electrical consumer durables (ECD) and Lloyd, which are largely B2Ccategories, should see 11.6 per cent and 20.2 per cent growth, respectively. Growth in ECD should be on the back of fans, water heaters and kitchen and appliances, while favourable base should elevate growth in Lloyd, Emkay Global Financial Services said in sector update.

Segments with elements of B2B such as switchgear, cables and wires and lighting and fixtures should see softness. Gross margin is expected to contract 211bps on a change in revenue mix, while a lower employee, A&P and other operating expenses are expected to improve EBITDA at 12.1 per cent in Q2FY21, against 8.8 per cent in Q1FY21 and 10.5 per cent in Q2FY20, it said.

The ECD segment is likely to turn in growth (5 per cent YoY estimate) as demand momentum of June is likely to have sustained. The superior performance of LED TVs (industry-wide) is likely to aid growth for Lloyd (5 per cent estimate). For other segments, demand is likely to remain tepid with an estimate of 3-15 per cent YoY drop. In margins, Lloyd is likely to turn positive (-2.3 per cent YoY), whereas other segments are expected to dip owing demand headwinds, Edelweiss Securities said in Q2FY21 preview.