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Havells: All fall down - Views on News from Equitymaster

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Havells: All fall down
Mar 6, 2009

Performance summary
  • Consolidated topline declines by 3% YoY mainly on account of slowdown in demand in the domestic as well as international markets.
  • Operating (EBITDA) margins contract by 5.1% during the quarter owing to a sharp increase in raw material costs (as percentage of sales)
  • Register a loss at the net level on account of pressure on operating profitability as also due to exceptional charges registered at the subsidiary level.
  • For the nine-month period, the company has recorded a 14% YoY growth in sales, while bottomline has registered a loss of Rs 616 m.


(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 13,436 13,088 -2.6% 36,334 41,511 14.2%
Expenditure 12,422 12,779 2.9% 33,704 39,593 17.5%
Operating profit (EBDITA) 1,013 309 -69.5% 2,630 1,919 -27.1%
EBDITA margin (%) 7.5% 2.4%   7.2% 4.6%  
Other income 17 2 -87.3% 49 41 -15.7%
Interest (net) 298 281 -5.8% 720 828 14.9%
Depreciation 190 212 11.5% 517 650 25.8%
Profit before tax 542 (182)   1,442 482 -66.6%
Extraordinary income/(expense) - (607)   - (779)  
Tax 97 73 -25.3% 301 319 6.0%
Profit after tax/(loss) 444 (862)   1,141 (616)  
Net profit margin (%) 3.3% -6.6%   3.1% -1.5%  
No. of shares (m)       57.9 57.9  
Diluted earnings/(loss) per share (Rs)*         (2.5)  
Price to earnings ratio (x)         NA  
* On trailing twelve months basis

What has driven performance in 3QFY09?
  • Havellsí consolidated and standalone sales declined by around 3% YoY and 9% YoY respectively during the quarter. Apart from slowdown in sales in the domestic market, the company also faced severe pressure in its international operations. Revenue at its European subsidiary Sylvania grew by just around 2% YoY in rupee terms, while in Euro terms they showed a decline of 10% YoY. Revenue from cables & wire division declined by around 12% YoY due to value reduction through price decrease in sales value. Also, inventory unlocking at the dealer level led to lower sales in all segments except for lighting & fixtures, which registered a nominal growth 0.4% during the quarter.

    Segmental break up
    (Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
    Switchgears            
    Revenues 1,405 1,367 -2.7% 4,120 4,473 8.6%
    PBIT margins 34.2% 31.8%   33.2% 35.0%  
    Cable & Wires            
    Revenues 2,414 2,133 -11.6% 6,699 7,362 9.9%
    PBIT margins 8.1% -3.6%   9.6% 5.4%  
    Lighting & Fixtures            
    Revenues 8,946 8,979 0.4% 23,287 27,328 17.4%
    PBIT margins 27.4% 19.9%   23.9% 22.6%  
    Electrical Consumer Durables            
    Revenues 499 496 -0.6% 1,661 1,950 17.4%
    PBIT margins 20.9% 21.9%   18.8% 21.1%  

  • On the operating performance front, operating profits declined by almost 70% YoY during the quarter on the back of increase in raw material costs (as percentage of sales). This caused operating margins to contract by 5.4%, to 2.4%. PBIT margins for the switchgear segment declined by 2% to 32%, while those for the electrical consumer durable segment improved by 1% to 22% during the quarter. Cables & wires division reported an operating loss on account of sharp fall in the value of inventory during the quarter. PBIT margins for the lighting and fixtures declined by 7% to 20% during the quarter.

    cost break up
    (Rs m) 3QFY08 3QFY09 Change
    Raw materials 7,086 7,531 6.3%
    % sales 52.7% 57.5%  
    Staff cost 2,025 2,060 1.8%
    % sales 15.1% 15.7%  
    Other Expenditure 3,311 3,188 -3.7%
    % sales 24.6% 24.4%  

  • The company registered a net loss of Rs 862 m at the consolidated level during 3QFY09. This was mainly on account of exceptional charges of Rs 607 m booked at the subsidiary level. These exceptional item included exchange losses, restructuring and severance and other costs. Moreover, decline in other income and increase in depreciation charges further hurt the bottomline performance.

What to expect?
The company continued to book losses on a consolidated level during the 3QFY09. Its standalone operation remained profitable but showed a declining trend mainly on account of slump in demand caused by the current crisis. However, the benefits of restructuring and integration of its European subsidiary Sylvania are likely to be seen in coming quarters.

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