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00:00Now, the other piece is Havels, because it's the second company we are focusing on.
00:04The second quarter earnings saw revenue move uptake of 16 odd percent and a net profit
00:10rise of 7.5 percent, margins, however, contracted by about 130 basis points.
00:16Now, we spoke to Anil Rai Gupta, the managing director and chairman of Havels, to understand
00:20why this happened.
00:21Listen.
00:22I think, generally speaking, we are quite satisfied with the overall growth performance
00:28in all these segments, including Lloyd, but also the positive aspect is the core business
00:33of Havels is also firing well in terms of growth.
00:38This is a particular quarter where, you know, the expenses for advertising especially have
00:42gone up.
00:43This is also because of the early Diwali season and, you know, pre-poning of the expenses
00:49on advertising.
00:50So we see a 50 percent jump in our overall ad spends in the quarter.
00:55Also the fact that, you know, there was a sharp fluctuation of commodity prices during
01:00this quarter, which affected the margins in the domestic buyer business.
01:04But that is a sort of a one-off and we should be expecting normalized margins.
01:08So I think we are not too concerned about the margins at this stage and we are seeing
01:13improvements in the Lloyd margins, which was always a concern.
01:18So overall, in fact, we are happy with the overall performance.
01:24So would it be fair for us to assume that you will continue to grow your top line at
01:28the current pace?
01:31I think we have grown at about overall 14, 14.5 percent core Havels and a good growth
01:41in the overall Havels and Lloyd put together.
01:44So we are expecting a decent growth.
01:46The markets are looking positive.
01:48Residential demand is coming in a little bit.
01:51The consumer demand, we are yet to see the festive season.
01:56It's started on a positive note.
01:58So let's see how it goes.
02:00But I think, you know, there are a lot of activities going on in terms of channel expansion,
02:04product additions.
02:05So we should be expecting good growth in the coming times.
02:07And what sort of growth?
02:08I mean, Lloyd's contributes about now 11 percent to your top line and it's grown at a significant
02:13pace of 18.5 percent YOY, very obviously driven by LED panel.
02:19Where do we see Lloyd's contribution to your top line at, say, one year down the line?
02:25I think overall with the growth expected in Lloyd, we are looking at about a 20 percent
02:31revenue contribution to Havels India Limited Revenue.
02:35So I think it's become a sizable part of Havels now.
02:38Mr. Gupta, how is, with so much of expectation running on the festive season this time and
02:45you also talked about how you've increased your ad spends ahead of the festivities.
02:50Are you seeing good traction on back of the festival season underway?
02:54Well, we have to hope for the best.
02:57You know, it's a it's a festive season.
02:59It's also the winter season for some of our winter products like water heaters.
03:04So we put in our best effort.
03:05It started on a positive note.
03:07Let's hope the November, December, Diwali time also continues to remain the same.
03:11So we are definitely entering the festive season with a positivity.
03:16So early channel checks are indicating or keeping in line with what the expectation
03:20was, right?
03:21Yes, that's true.
03:22Right.
03:23So, Gupta, we talked about, of course, how margins are impacted and raw material prices
03:27have been volatile.
03:29Of course, with everything happening on the LME and taking place in China, it does seem
03:32like raw material prices or commodity prices could be on the uptick going ahead.
03:37But you're still of the opinion that margins will normalize in the next few quarters.
03:41How do you plan for that to happen?
03:43Are you looking at hedging?
03:44Are you considering a hedging strategy, captive commodities?
03:48What really is the plan?
03:49What will help margins?
03:50So will you be in a position to pass it on to your customers?
03:54How are you going to make that work?
03:57Usually in cables and wires business, especially, you know, deep fluctuations sometimes affect
04:02the margins.
04:03There is a constant, you know, slow increase or reduction usually gets passed on to the
04:09market in the same manner.
04:11And that's what we would hope, you know, we would, if the commodities continue to rise,
04:17it will be passed on to the market.
04:19What it can affect is the overall demand.
04:21But I hope that it continues to remain.
04:23It's still, I would say, the copper, aluminum, it's still at a very high trend.
04:30So India is maintaining this growth despite this inflation.
04:33I think this is a positive thing, you know, over a period of time, if these things normalize,
04:37I think we will expect better growth, you know, coming in from intra as well as residential
04:43segments.
04:44So, Gupta, your inventory levels have shot up quite significantly, about 60 odd percent.
04:49You want to tell me why?
04:53I'm not sure about the number.
04:54I don't think it's 60 percent.
04:55But anyway, inventories, we do increase inventories pre-season, because there are, you know, capacities
05:04which need to be, the products have to be manufactured just for the season.
05:08For example, lighting, water heaters, so I think this is quite normal entering into the
05:15third quarter.
05:16Also, there was a big increase in Aadhar income, 77 percent rise.
05:22Do you want to tell me what was that made up of this quarter?
05:24Well, nothing in particular, but, you know, because the company has enough cash resources
05:31and the interest rates are also high.
05:34So that could have led to the increase in the Aadhar income.
05:38Going into the next couple of months, and I'm looking a few years out, are you making
05:42any investments in any of your verticals?
05:45And if yes, where is it?
05:46Is it sitting on product innovation, building on your distribution channels?
05:50Where really will the next kicker of growth come from for the next two to three years out?
05:55In fact, all of it, you know, product innovation, we are increasing expenses on our R&D, because,
06:01you know, it's not just to increase sales, but the customer expectations are also rising
06:07more and more towards premium products.
06:09So there's a lot of investment going in towards R&D.
06:12On the other side, CapEx investments are going on to take care of the future growth.
06:16And thirdly, you know, with the rural areas now coming up with electrification, there
06:21is a huge level of investment going towards rural build-up and channel build-up in semi-urban areas.
06:27So, yeah, investments are going, I would say, in all these three areas.
06:32Also in terms of, you know, funding all these aggressive plans, because that's the only
06:38way to grow is to keep, of course, being greedy when things are slightly slosh or uncertain.
06:44How would you look to fund all of these very ambitious expansion plans that you're already investing in?
06:50I think we have quite aggressive CapEx plans for the next couple of years, but from our
06:57internal approvals and cash reserves, we should be able to manage without any external fundraising.
07:03So, no external fundraising on the map, as you said.
07:07Say, Gupta, also while we talk about expansion, would you look at inorganic expansion at this stage?
07:13Well, this is a constant process, you know, we have done in the past, but, you know, we
07:18do look at things very prudently.
07:23And I think, you know, nothing is closed, but, you know, we are always open to look
07:28at inorganic expansion.
07:29But I think there is enough juice for growth in our organic businesses as well.
07:35You know, the last few months ago when we spoke, you talked about how you had very big
07:38plans for the international markets as well.
07:42Do you want to walk me through where things stand?
07:43Where do you see that go in the next couple of quarters?
07:47And how would that contribute to your geographical mix as well, one year down?
07:51I think we are making strides in terms of creating structures and infrastructures for,
07:57you know, having a long-term sustained international business.
08:01We've set up a couple of joint ventures in the US.
08:04We're looking at distribution enhancement in Middle Eastern Africa.
08:09So there is structural work which is happening.
08:12The results will take time.
08:13There's a lot of product development, product certifications, which are required to get
08:16into these developed markets.
08:18So I think going forward, next one or two years will be more of like an investment phase.
08:25And we should be getting good sales from international business in the next couple of years.
08:30Right.
08:31And that, of course, will also, I'm assuming, be better margins.
08:33So all of that will contribute to a further uptick.
08:36You know, Mr. Kapoor, yes, please continue.
08:40It would also mean operating leverage for the existing businesses.
08:42So, yes, it will enhance margins.
08:44Right.
08:45Also, you did indicate to me just at the start of this conversation that you see margins
08:49normalize.
08:50Is it a fair assumption for me that once these ad spends, which is a one-off in this quarter,
08:55and we go into the next quarter where you have a heavy festive demand, you know, reflecting
09:00on earnings, we should be back up at 9.5, 9.6?
09:03Yeah.
09:05Yeah, overall, you know, the way we look at it is Lloyd separately and Havel's core separately.
09:10Havel's core, we are always targeting between 13 and 14 percent.
09:15So I think we should be coming back to at least, if not in the third quarter, at least
09:18in the fourth quarter.
09:19So overall, we are looking at those kind of margins.