Havells Q2FY18 Concall Summary

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

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

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

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

Q2FY18 Concall Transcript

Q2FY18 Investor update

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