Because of delayed summer, could there be price cuts going forward or distressed selling by the channel for RACs?
It's still to be seen. There has been some issues in the southern markets because of really delayed summer. There is anticipation of increased summer or a decent summer in the north. Summer has recently in the last few days started setting in. So there is no panic right now in the market, but definitely it is different than last year.
On Lloyd - happy to see INR100 crores EBIT for the full year. Press release talked about cost savings and scale benefits as the two reasons for turnaround. You mentioned consistent revenue growth and improving profitability going forward - does that mean cost savings are stable and incrementally we'll only see margin increases from here?
There has always been a balance between revenue growth and margin improvement. Lloyd is a long-term journey - we are not as set in Lloyd as in Havells. We'll continue to invest in growth of Lloyd because we see a very large opportunity. New plant is coming up for refrigerators. Within ACs (75-80% of Lloyd portfolio), we are more stabilized in market shares but ample opportunity exists to grow there as well. It's not just price vs revenue, it's also brand upliftment in the minds of the consumer and trade. Lloyd spends a lot of money on R&D and developing products technically/aesthetically better than competition - takes time for consumers to buy in and pay a premium. Investments will continue and ensure market share growth.
On demand side - much spoken about muted consumer sentiment. How long do you expect this spell to last? It's been over a year now. When should the market bottom out on B2C side?
Difficult to say because we are experiencing growth - unlike FMCG where there isn't growth. It's just that growth has slowed down. With recent budget changes, hopefully consumer demand should start picking up. Because of inflationary pressures, whether real estate demand continues at same pace remains to be seen. For Q4, we see slow growth in summer products at start of April. As I said, delayed summer. Hopefully it should pan out well in the next 75 days of the quarter.
On Lloyd - portfolio strategically aligned, market GTM, advertisement, product investment. Can we expect mid-single-digit EBITDA on a sustainable basis or mid- to high single digit? Any compressor shortage risk to volume growth if summer picks up?
Fear of shortage of supplies is no more there especially with delayed summer and muted demand last 1 month. Lloyd is a growth engine for Havells. Entire focus is on maintaining decent growth and profitability, coming back to normalized profitability margin levels in Havells. Major headwinds in Lloyd are not there. Cost structures are right, except we'll continue investments - capex, brand, distribution, right promoters at right channels. Investments will continue until they reach a certain scale, when more operating leverage kicks in. We have gone through pain of low profitability/losses because of all this transition. As long as no major headwinds, not a concern. But not in a position to give numbers on profitability because we will continue investment in Lloyd.
On Lloyd - what kind of margin level for next 2-3 years? Longer-term trajectory?
Lloyd continues to remain as an investment strategy for Havells for high growth. I don't want to say any numbers for the next two to three years.
On Switchgear - three pillars: domestic switchgear, industrial switchgear, switches. Demand trends in each? Areas of market share gain or loss?
We are a very strong player in residential switchgear, which continues to be about 75% of overall switchgear business. Over last couple of years, we have seen market share gains - that is the higher growing sector. Where market shares are smaller (industrial switchgear), there has been some reduction - slower growth this year especially after elections. When I say residential switchgear, I'm including switches in this.
Solar business is INR400-INR450 crores - what operating margin and what plan over 3-4 years down the line?
Focus first is to be a meaningful player in this industry. It is a lower-margin business because we have been completely depending upon outsourcing, but over a period of time with strategic partnerships, we will be able to improve margins as well, but the main focus is to increase the business at a much faster pace.
Broader company level capex and segment level details for Cable & Wires?
Next couple of years we have estimated total of about INR2,000 crores capex over 2 years. This also includes the new R&D center. Nothing in particular for Cable & Wires - this is the total investment.
On cables - there is a decline in contribution margin, both Y-o-Y and Q-o-Q. Given copper prices rose in Q4 and pricing typically gets passed on within 15-20 days for a wire-heavy company, why this decline?
As the new capacities for cables are coming up at Tumkur, the cable growth as well as the volatility in the wire prices led to a muted growth in the overall domestic wire business. So the product mix change leads to some variations in the contribution margin, but I don't think that should be taken as a normal level. It always depends upon the product mix in both wire and cable.
ECD growth was moderate due to mild summer start, but ACs did phenomenally well. Does this mean structural low demand for fans plus high competition, or high inventory stocking for Lloyd not translating to consumer demand?
There is no doubt there has been a delayed summer this time, reflective in the growth in the southern markets where summers come early. Even in the northern parts, summer has been delayed. Last year was a very terrific year for AC growth, hence positive momentum in building up stocks in the channel. But because summer was delayed, other cooling products like fans, which are more structural in nature rather than highly stocking kind of product, saw muted growth in Q4. Also, last year, Lloyd was coming up, so there is a base effect for Lloyd in Q4.
On Goldi Solar - over 3 to 5 years, how should we look at return on investment on the INR600 crores? What is the plan in solar rooftop? Is this a INR1,000 crores business on run rate basis?
Over last 2-3 years, we have built this business to about INR400-450 crores, primarily based on inverters, solar modules and DC switchgears. Renewables is an emerging market and Havells has a role to play. We saw an opportunity to grow this business multifold. One question was whether to enter manufacturing - this industry is based on scale and continuous technology changes, also a lot of global players. We wanted to cut out the noise and focus on selling - residential consumer and commercial/industrial segment - rather than focus too much on technology and manufacturing. Hence the investment. Our focus is to expand the business from a consumer side using this manufacturing base.
Is solar part of ECD or 'others'? Going forward, will incremental sales from this category come more from 'others' or DC switchgears or solar cables?
Right now it's a part of 'others'. Cables and switchgear actually are not really a part of the solar business - that's an advantage we are getting out of that. But solar itself is INR400 crores business right now, which has potential to grow many folds with the changes happening and this investment.
On cable and wire - two large groups have announced plans to enter cable and wire business. Like in paints, brand will eventually prevail. Will we see more investment in branding before the two large groups enter? On material benefits in budget - any incremental change in strategy to grab additional consumer money? And was there any price hike during the quarter?
There are announcements by a couple of majors. Cables and wires have more potential for organized competition than regional/local competition. Going forward, this industry can go through further consolidation towards branded high-quality products. We see this as a positive movement. On the front end, it takes time to establish brand and distribution channel. Our investments will continue toward enhancing reach, brand building, technological advancements. Organized competition will be better for the industry. On budget/RBI measures - should augur well for consumption in the coming year. On price hikes - lot of volatility in raw materials especially copper. We adjust prices up or down. Cables and wires sometimes get adjusted down. Focus is more on margins rather than improving margins through price hikes.
On cables and wires - very strong quarter. Volume vs value mix? And color between cables and wires - you mentioned industrial segment not being very strong.
Cables and wires with a ~20% growth, almost half of that is value growth in this quarter. Usually, our business holds around 65% wires, and that's continuing. Though there is more value growth in case of wires as against volume growth, which actually means that there is more volume growth for underground cables as compared to wires.
On switchgear - decent growth, margins reviving back to historical levels in both contribution and EBIT. Is this sustainable going ahead? How is B2B segment performing within this?
There are certain quarters where there could be aberrations upward or downwards. Neither 18%-18.5% segmental margins or 36% contribution margin was normal, nor was around 28% segmental margin normal. We estimate and have always maintained 38% to 40% contribution margins in the switchgear business - that's what we strive for. Industrial demand was muted in the entire year since the elections. We have gained more in the residential segment.
Are higher costs related to consolidation of the two switchgear factories now done with, and would it normalize going forward?
That's right.
On the recent solar panel manufacturer investment of INR600 crores - what background diligence did you do? Background of management/promoters? How essential was this investment - would rooftop solar growth plans be at risk without it? What's the stickiness of this kind of capex requirement to a third-party vendor?
Our growth plans would have been under serious challenge had we not made the investment - either through own manufacturing or with an existing manufacturer. We chose to make investment with an existing supplier of more than 15 years experience producing solar panels growing at fast pace. Made more sense than investing in own technology, because going forward there is government impetus and push towards Indian own manufacturing for both panels and cells. Imperative for Havells to start manufacturing - this is the route we have taken. The company has done careful diligence in all aspects.
On operating leverage - significant investment in human resources, employee cost run rate stable last 4 quarters. With 10-11% growth in Havells ex-Lloyd, do you see operating leverage kicking in or stable margins ex-Lloyd?
We will see some operating leverage coming back in Havells, and that's why there is more confidence on Havells to come back to its normalized margin levels of 13% to 14%-14.5%. That's what the expectation is. So yes, we will be seeing operating leverage in Havells as well.
On cables - given capacity addition by us and peers, demand/inquiries, are things improving or stagnant or slowing? On pricing - any stress in cable pricing?
Cable demand continues to remain strong. It's just that there is far more fluctuation in last 3-4 months in raw material prices, which is affecting pricing as well as margins. But demand continues to remain strong.
On export strategy - we have done many tie-ups in other markets. How will export strategy play out next year? Any percentage for this year and next few years?
International business - apart from usual markets like Middle East, SAARC, Africa, we pivoted couple of years back towards developed markets like US, Europe, Australia. They are now beginning to bear fruits with good traction. US is in throes of some chaos. We believe India should be a beneficiary of bilateral trade agreements with US and other countries. Currently still 3%-3.5% of overall business is international. The opportunity in international and growth in next 2-3 years could be pretty sizable. First consignment to US - India made ACs reaching there. This should encourage us in global market, particularly developed market, something we started just a couple of years back.
On Lloyd and RAC industry - delayed summer impacted April volume. Is it also because of strong buying in Q4 impacting the summer season? Hearing 20-30% de-growth in April in South India. How to look at way forward for RAC industry?
When I say slower growth in March and April, this is more from secondary sales, tertiary sales to consumer. Yes, there has been higher primary sales in Q4, which obviously, if secondary sales are slow, then Q1 primary sales will get impacted - which is getting impacted. But it's too early to say - still half of the month. Let's see how summer pans out in north India.
On Lloyd - press release mentioned cost saving initiative and operating leverage led to margin improvement. Will this continue with volume going forward?
Yes.
On Goldi Solar - Havells has historically been focused on B2C businesses. With this investment, are we changing stance and looking at B2B businesses meaningfully?
The business in 'others' segment, which is solar, is more focused on consumer - residential and commercial & industrial. We are not in the utility business, that's why we have not gone into making huge investments into utility scale of manufacturing for solar panels. So strategy continues to remain more consumer-based.
Is this investment a financial investment or would you look to increase stake in this company in the foreseeable future?
It's not a financial investment - it's a very strategic investment. The way we are looking at it is to have meaningful presence in solar renewable business and have supply surety. As I said, it is more as a decision for make versus buy. To have surety on supplies, this is why the investment has been made.
On lighting business - have we delivered volume growth in Q4 and full year?
Yes, it's high single digit. Yes, it is for Q4.
On new Lloyd products - refrigerator and premium AC. Without giving Lloyd margin, what is your ad spend percentage of revenue? Will advertisement increase with new products or is brand presence enough?
We believe it is enough because we are anyway investing over a longer period of time and it is more on the brand rather than just about the product. Within whole advertising budget as percentage to revenue, it can vary between product to product over a period of time depending on what is needed at that particular time. But otherwise we believe this should remain where it is.
On AC industry - facing compressor shortage. How concerning is this and how is Havells placed?
For Havells, I would say it is not that much of a concern at the moment.
Opportunity to increase export revenue on cables and wires when facing domestic competition? How does it pan out in US, China, emerging markets when margins might be a stretch?
Cables and wires export is pretty much already part of strategy in international markets, irrespective of intensifying competition. As Anil explained, entry of new players will only broaden and deepen formalization of the sector. These are independent and contiguous strategies. International strategy is already running in parallel with domestic strategy. Focus on domestic continues to be relentless. We will do whatever it takes to gain market share. International business will grow on cable and wire and domestic business will also grow.
On-ground feedback from larger wholesale distributors - how do they look at competition? Margins, brand loyalty, distribution margins to retain distribution force?
It's everything. Not just one thing. Built over years. People look at quality, brand, consumer pull. Even pricing could be part of that. The moat is not built on a single thing - there are multiple moats which play out. Competition was not absent in this industry. (Anil added) In industrial cables, it's a very long-term thing built on getting approvals from various consultants, government bodies, corporate sectors. Takes years to build.
On switchgears - INR1,800 crores residential, INR600-700 crores industrial. Segment dominated by MNCs. Havells improving hiring from MNCs and launching industrial switchgear range. What is the strategy? This business is not growing the way industry has been growing.
On industrial switchgear - Havells market share has been low. Has taken a backseat in last decade or two on product development because focus was more on residential and consumer side. But last few years we have invested heavily in building product portfolio matching any competition. Like industrial cables, this is a very long haul kind of market share improvement business. Has lots of barriers - product approvals from consultants, government bodies. Not something with immediate results. It's a long haul, but Havells has decided to be in this industry meaningfully over years. Complements very well with residential switchgear, both in manufacturing and R&D.
On Lloyd - have to invest in refrigerators. Without numbers, can I say in '26 and '27 profitability ramp-up will be irrespective of refrigerator investments?
Refrigerators right now are being sourced, hence there is anyway lack of contribution in refrigerators business. Going from here, there should be an improvement. Initially could be some teething issues, but improvement once manufacturing comes.
On Lloyd channel mix currently and expected change next few years? On capex - what to expect over next 1 year or 2-3 years and segment-level color? On solar - was this investment because you were not getting volumes or not getting quality volumes?
On Lloyd channel - over last few years movement from traditional distribution channel toward more organized retail, modern format retail, regional retailers. This trend happened more in South, catching up in North and East. Today more than 50% of sales is from modern channel. On Lloyd capex - post refrigerator investment, no huge capex anticipated for next couple of years. On solar - both lack of supplies (not only quality but supplies itself) because of quality control restrictions and import restrictions. Both availability is lacking and quality, reflective of brand of Havells, is also a question mark.
On demand for cables, real estate-related products (wires, switchgears) momentum? On Lloyd construct of growth - driven by non-AC or also AC market share gains? Deconstruct the growth.
Demand for cables has been robust last year. Real estate demand in large metros has been slow, but we are also increasing market shares in Tier 2, Tier 3 towns. That has helped domestic wire business and switchgear business. On Lloyd - while ACs comprise large part of overall sales, endeavor will be to increase non-AC sales. We also see market share growth potential for ACs - we are still in low to mid-teens, more potential to grow market share. Heightened focus on all 4 product categories to increase sales in coming time.