PremiumThe company said that market share gains in favour of the organized sector helped growth post-covid and that the trend continues. Investments in e-commerce and the rural markets are paying off, with high growth, visibility and distribution expansion
Havells India Ltd’s shares fell by over 4% despite reporting strong March quarter results. Its revenue surged 50% year-on-year (y-o-y) in Q4, and was the highest ever by the company, as it recorded highest quarterly sales.
The company said post-covid market share gains in favour of the organized sector helped growth and the trend continues. Investments in e-commerce and rural markets are paying off, with high growth, visibility and distribution expansion. However, the onset and ferocity of the second wave of infections is impacting growth, it added.
From the second week of April, growth slowed with a further deceleration in May. Thus, the concerns on near-term growth more than offset the excitement about the strong Q4 show.
The company’s cables and switchgear segments posted revenue growth of more than 50% y-o-y. Revival in government and private capex resulted in good performance for the industrial and infra portfolio. Electrical consumer durables continued to show robust growth momentum, posting 71% y-o-y growth. Even products classified under ‘others’, such as pumps and water purifiers, grew 71% y-o-y. The lighting and fixtures segment grew a robust 40%, and the acquired Llyods business picked up pace to report 29% y-o-y growth.
The company managed to post improvement in Ebitda (earnings before interest, taxes, depreciation and amortization) margins despite rising input costs of key raw materials. However, the contribution margins of cables, switchgear, lighting and fixtures expanded more than 500 basis points (bps). Even consumer durables saw more than 300bps improvement in margins. Lloyds, which saw revenue grow 29% y-o-y, reported margin expansion of 350bps to 5.4%.
Overall, the company’s net profit grew 42% y-o-y despite higher taxes. Analysts at Motilal Oswal Financial Services said the higher tax rate (33.5% in Q4FY21 versus 10.4% in Q4FY20) meant that the company’s net profit missed estimates by 10%.
Nevertheless, while overall performance remains impressive, it is the near-term uncertainties related to the second wave that is adding to the concerns. Also, the stock is trading at more than 50 times FY22 earnings estimates. To sustain such premium valuations, the growth momentum needs to be maintained.
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