Brokerage firm Prabhudas Lilladher has lowered its rating on Havells India to 'Accumulate,' citing profit margin pressures linked to high raw material costs. Despite impressive double-digit revenue growth in key segments like cables, investors are watching whether planned price hikes can improve profitability in the coming quarters.
Brokerage firm Prabhudas Lilladher has shifted its stance on Havells India, moving the stock rating from 'Buy' to 'Accumulate' and setting a price target of 1,212 rupees. This adjustment follows a detailed review of the company's financial performance, where strong revenue growth is currently being challenged by rising raw material costs.
Segment Performance vs. Margin Pressure
The company’s operational results show a sharp contrast between revenue growth and profit margins. Havells reported a 34.6% increase in revenue year-on-year, driven significantly by its cables division, which saw 47.9% growth, and its renewables segment, which surged by 147.8%. These divisions have benefited from robust demand and a strong distribution network.
However, the company’s operating profit margin, known as the EBIT margin, has contracted to 10.2%. This decline is largely attributed to the volatility in aluminum prices, a key raw material for the electrical goods industry. Additionally, the company's consumer durables division, Lloyd, is experiencing ongoing profitability challenges due to a combination of rising input costs and seasonal factors that have limited its ability to maintain healthy margins.
Strategic Pricing and Capital Spending
To counter the impact of inflation, Havells has already implemented price increases ranging from 10% to 25% over the past year. Looking ahead, management has indicated plans for further calibrated price hikes of 5% to 7% in the upcoming quarter. Investors will likely watch whether these increases can successfully pass the added costs to consumers without slowing down demand for the company's products.
Despite the current margin compression, the company remains committed to its long-term growth plans. Havells has maintained its capital spending guidance of 14 billion rupees for the 2027 fiscal year. These funds are designated for expanding cable manufacturing capacity and investing in new research and development centers to support innovation.
Looking at the broader financial picture, analysts project a revenue compound annual growth rate of 15.7% through fiscal 2029. While the long-term outlook for volume remains positive, the brokerage has adjusted its earnings estimates for fiscal 2028 and 2029 downward, reflecting a cautious view on how quickly profit margins will normalize. The stock currently trades at a valuation of approximately 38 times the projected earnings for September 2028. The key monitorable for investors in the coming months will be the success of the planned price hikes and the company's ability to stabilize margins amidst fluctuating commodity costs.