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

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  •  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

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 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

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