Whalesbook
Mixed Q4 Results: Profit Gains Mask Revenue Slowdown
Havells India reported a significant 40.6% year-on-year rise in net profit to ₹734 crore for its fourth quarter of FY26. This profit increase was largely due to a ₹283-crore gain from fair value of investments, rather than core operations. Revenue from operations grew by a more modest 2.4% to ₹6,688 crore, below analyst expectations. While the Wires and Cables (W&C) segment performed well, this was counteracted by weakness in the Electronic Consumer Durables (ECD) and Lloyd segments. The Lloyd division saw its revenue drop 19.0% year-on-year in Q4 and 22.9% for the full FY26. Profitability also faced pressure, with EBITDA margins decreasing by 90 basis points to 10.8% in Q4 FY26.
Future Investments and Cost Management
For FY27, Havells plans capital expenditures of about ₹8 billion, mainly to expand capacity in the strong W&C segment. Some of this will also fund research and development over the next two to two-and-a-half years. To combat rising raw material costs, especially for the Lloyd segment amidst global economic uncertainty, the company plans price increases of 8% to 15%. However, it's uncertain if these hikes will fully cover costs and boost demand in the struggling ECD and Lloyd businesses. Analysts expect EBITDA margins to settle around 10.3% by FY28. Havells also sees its solar portfolio as a key future growth area.
Valuation Compared to Peers and Industry Challenges
Havells India's current Price-to-Earnings (P/E) ratio is between 55x and 64x. This valuation is higher than competitors like Crompton Greaves Consumer Electricals (around 30-36x P/E) and Polycab India (45x to 55x P/E). The consumer durables sector is grappling with several issues: slowing demand, unusual weather affecting sales, and rising input costs, such as a 33% year-on-year jump in copper prices. A high comparison base from FY25, which saw strong growth due to extended heatwaves, also adds to the challenges.
Analyst Downgrades and Investor Concerns
Prabhudas Lilladher downgraded Havells India to 'Accumulate' and cut its price target to ₹1,505, showing investor caution. Morgan Stanley also downgraded the stock to 'Underweight' with a target of ₹1,171, citing concerns about unclear earnings outlook, economic pressures, and increasing competition. Relying on one-off gains for profit growth, like the fair value gains in Q4, makes sustainable earnings uncertain. The ongoing difficulties in the Lloyd and ECD segments, even after inventory adjustments and planned price increases, may indicate problems with product competitiveness or market strategy. Havells' stock has fallen about 19-21% in the past year, significantly underperforming the market and sector. This poor performance, along with a high valuation compared to its growth and peers, suggests a less attractive investment opportunity.
Analyst Ratings and Future Expectations
Although Prabhudas Lilladher and Morgan Stanley downgraded the stock, most analysts still recommend 'Buy'. The average 12-month price target suggests an 18-25% potential upside from current prices, ranging from ₹1,575 to ₹1,950. Goldman Sachs kept its 'Buy' rating but lowered its target to ₹1,640. Investors will be looking for management's FY27 guidance, focusing on plans to improve the Lloyd Consumer segment and capitalize on growth in the solar portfolio and W&C business.