Havells Q2FY18 Concall Summary
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Impact of GST
- Total tax on electrical products has increased from 18% (total excise plus VAT) to 28% after GST leading to reduction in demand
- The trade channel has delayed restocking due to low demand, and it will not go back to normal
- The company has transitioned to GST and credited entire sales infrastructure and reconciled with vendor
- The company has realigned its discount structure and reduced MRP in most of the product category
- Unorganized sector find loopholes from GST and organized sector has disadvantage due to high rates
- The GST rate should come down to reasonable level to improve market share of organized trade
- Overall efficiency of the supply chain system is building at lower level of inventory
Financial Highlights

- Margins for quarter have increased due to favorablecommodity prices in cables and wires and decline in investment cost and gained on sale of bonds
- Havells ex-Lloyd growth has been 4% on net sales and 6.7% adjusted for excise exemptions
- Sales growth is predicted to be double-digit
- No negative surprises regarding working capital and no changes in capital deployed
- Significant increase in creditor days for H1 leading to working capital increase
- Margins to go back to normalized 13%, 13.5% levels
- No significant difference in growth patterns in metros, mini metros, and tier 2 towns
- Contribution margin has improved due to incentives and discount schemes
- Increase in margin is not due to change in distribution integration
- Reduced MRP to provide distributor and trader margin in normal range
- Reduced MRP but not changed net pricing as some product keys have been taken away
- Cost cutting for the quarter
- The construction and other market is on freeze for some time
- A&P will go back to 3-3.5% for the total term in future
- CAPEX plan of almost Rs. 200 crores annually in 2018 and 2019
- Booked refund of 58%, however, it would probably be 100%
Segment wise Revenue and Margin Contribution

Lloyd Acquisition
- The growth is 11% like-to-like adjusting for all schemes and excise duties and CVDs over the past
- 2nd and 3rd quarter have lower sales resulting in lower margins
- The major sales were LED panels as against air conditioners
- No price increase or product expansion
- Warehouses, supply chain, and the back-end functions are getting integrated to increase margin
- Targeting Rs.2500 Crores to Rs.3000 Crores of gross revenue from Lloyds by FY2019
- TV segment would grow, but AC would remain 70% of sales
- Prepared for transition to invertor AC segment
Business Segments
- The building segment has subdued due to construction slow down
- Lighting segment benefitted due to shift to LED
- Increase in cable and wires margin due to inventory gain of the lower cost inventory is not sustainable
- Underground cables have low margins traditionally, and it is half of overall cables and wires segment, so margins are not reduced due to decrease in sales
- Wires and cables division saw 20% decline in revenues despite 10% to 15% price increase as compared to Q2'17
- Domestic cable segment demand comes from the new construction
- 5% volume de-growth in wires and 12-14% in cables
- Wait and watch policy for commodity prices for cables and reviewing for any price hikes required
- Contribution margin of switch gear business has remained at 41% on Q-o-Q basis
- Consumer Durables has grown by 11%
- Clubbed ELSS and lighting business
- Margins of 19-20% in ELSS with a value of Rs. 45 crores
- Margins improved sustainably in consumer electrical segment
- Revenue of Rs. 300 crore every quarter in consumerdurable segment will be bullish