PremiumHavells India Ltd has seen its stock prices correct by more than 15% since the highs in February. While concerns remained high on sales disruption caused by covid-led lockdown, rising commodity prices are adding to the woes. The concerns on margin pressure remain elevated, keeping the street cautious.
The impact of lockdowns may be visible on June quarter performance, even as sales growth may be much better compared with Q1FY21 that had seen a more profound impact of the pandemic-led lockdowns. On a sequential basis, the company’s sales are likely to decline by about 22.2% suggests the results preview by Emkay Global Financial Services Ltd. The Ebitda (earnings before interest, tax, depreciation, and amortization) margins are pegged to decline 223%, sequentially.
Not surprisingly, net profits are declining about 65% sequentially, even though they may be expected to rise 62.8% on a year-on-year basis.
A large part of the same remains factored in the stock prices, say analysts, and all eyes are on the recovery of sales. The company had done well in FY21 despite it being a covid-impacted year. Factors that helped in FY21 included a focus on expanding distribution reach in the semi-urban and rural markets and the company’s dependence on manufacturing at its own facilities. This, coupled with price hikes and cost rationalization, helped the company see margin expansions.
For the acquired Lloyds brand, too, the company’s new manufacturing facility is now running at optimum capacity and the company plans another plant, too. The regular launch of new products in the consumer durables and other categories can lead to a fast rebound in sales post easing of lockdowns. Analysts remain optimistic about the company’s performance, moving forward.
While the company may see a rebound in growth, the margins need to be watched for. Analysts at Motilal Oswal Financial Services Ltd said Havells has rightly utilized all its cost levers (ad spends, employee costs, travel costs, etc.) in FY21, resulting in an expansion in Ebitda margin to 15% (up 410bps y-o-y) and earnings per share growth of over 40%.
The ad spends in the near term may also remain low due to the second covid wave, other levers (such as employee costs) may be difficult to utilize going forward, they added.
Not surprisingly, the street is watchful. The stock trading at about 55 times FY22 earnings is not cheap either.
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