Higher sales, price hikes help Havells outperform Polycab

Demand recovery may help both companies improve performance in coming quarters

Two of the largest listed consumer electric companies — Havells India and Polycab India — posted contrasting results for the June quarter. While the former put up an improved operating performance led by a revival in business-to-business sales and price hikes, weaker business mix and muted hikes dented the latter’s profitability.

Havells’ revenue beat was led by stronger business-to-business performance and price hikes. Barring lighting and Lloyds business, all other segments (cable and wires, switchgears) put up a strong showing. Analysts led by Nilesh Bhaiya of Motilal Oswal Research said the 75 per cent year-on-year (YOY) uptick in revenues beat estimates by 27 per cent. “The two-year compound annual growth rate (CAGR) at -2 per cent — with core Havells performance showing 1 per cent growth and Lloyds being 13 per cent down — is remarkable, given the second Covid wave disruption,” they added.

Though Polycab delivered revenue growth of over 92 per cent YOY on a weak base with institutional business witnessing a pick up, it was lower than analyst estimates. The lacklustre performance in the south and west, due to extended lockdowns and restrictions, pulled down the overall performance.

With sales picking up in July and consumer sentiment remaining positive, the firm is expected to benefit from pent-up demand.

The management believes the second half will be better, as the business-to-consumer segment and projects/industrial business pick up. Havells also expects demand to improve across segments and hit pre-covid levels, which, coupled with increased penetration, may drive growth.

The underperformance of Polycab vis-à-vis Havells was more pronounced on the margin front.

Sequential margins for Polycab have halved, while they are down 180 basis points for Havells. In addition to operating leverage, Havells has been able to take timely pricing action, which helped it perform better than peers.

It has raised prices by 10-15 per cent on an average over the last few months, with sharper hikes to the tune of 35 per cent in the wires and cables segment.

Polycab, on the other hand, has taken only high single-digit price hikes, with raw material inflation being in the early teens that has led to pressure on the wires and cable business.

Losses in the fast-moving electric goods segment increased owing to negative operating leverage, employee increments, and higher advertising spends.

Analysts led by Amit Mahavir of Edelweiss Research said: “Polycab’s divergence in results vis-à-vis peers is led by revenue mix (higher B2B, cables) and cost-pricing gap — the latter should normalise soon.”

While the electric business should register strong growth thanks to strong demand and penetration, analysts say growth in the Lloyd business will be a key trigger for Havells.

For Polycab, though, the higher business-to-consumer mix, gains from the unorganised space are positive, the ability to scale up the fast moving electric goods segment are key to further gains.