Havells can cook it up in the kitchen, slowly
Havells India Ltd is spreading its wings a little bit more. Currently, it is present in categories such as switchgears, cables, lighting and air conditioners. It now plans to introduce kitchen appliances such as cooktops, hobs, chimneys and other built-in equipment in its portfolio. These products are expected to be launched in May.
Havells expects this move to bring synergies with its line-up of small domestic appliances like hair dryers, toasters and hand-blenders. The complete range will be outsourced to cater to the domestic market. Over time, this should fetch additional revenue, though it would be a gradual process.
The market size of kitchen appliances is about ₹20,000-25,000 crore, with organized players typically accounting for 60-65% of the market, said Achal Lohade, JM Financial Institutional Securities analyst. Considering potential market share of 7-8% in the organized space, a new product would add ₹1,000 crore revenue over the next 3-4 years, Lohade said. For FY23, Havells clocked consolidated revenue of ₹16,910 crore.
Havells aims to be among the top three players in three years from the start of operations.
CLSA notes that if Havells has a 10% market share in kitchen appliances, it could result in a value increase of ₹45-70 per share. But the kitchen appliances segment is competitive, with the presence of companies such as TTK Prestige Ltd and Butterfly Gandhimathi Appliances
Ltd. Moreover, Havells’ entry into new product segments like mixers in 2014 has faced scaling challenges, says Lohade. This is despite Havells’ strong brand name. Expanding the distribution network could aid in scaling existing and new products.
Meanwhile, consumer demand remains subdued and that’s a concern for Havells since business-to-consumer
(B2C) forms the larger portion of its overall sales mix.
Dolat Capital Market’s analysts recently met the management of Havells where it said that the business-to-consumer demand was moderate in January and February. It did not resort to price increases as commodity costs were stable. Further, no price revision is expected during the summer season.
The cables business, which formed
over 34% of Havells’ consolidated revenue in the 9-months ending December, saw relatively better demand versus others. This was led by a healthy housing and infra demand. But here capacity is a challenge for Havells and its new cables and wires facility in Karnataka could bring some comfort. This facility is expected to start operations in early FY25 and will expand capacity by 25%.
The lighting and switchgear segments are likely to see a dull March quarter (Q4FY24). Havells noted that price deflation would impact lighting while the switchgear segment would be hurt due to slow real estate demand and a high base. Moreover, the Lloyd consumer segment continues to make losses. With summer near, the volume trajectory of air conditioners remains to be seen amid competition. Air conditioners form the largest part of Lloyd’s revenue, but it also includes other appliances like washing machines and refrigerators.
Overall, Dolat expects Havells to clock low doubledigit revenue growth led by volume in Q4. March is a key monitorable for summer sales. Improving profitability in the Lloyd segment could provide further boost to the stock, which has risen about 26% in the past one year.
Investors should keep an eye on demand recovery, and a flow-through of deferred purchases in B2C categories. Valuations are pricey. Havells’ shares trade at 59 times FY25 estimated earnings, showed Bloomberg data.