# 1. Financial Performance ## A. Key Figures * **Revenue:** **Decline** in summer products (ACs, fans, coolers) due to shorter summer and high inventory · **Stable** in switchgear and lighting * **Margins:** **Stable contribution and EBIT margins** despite competition · **Industry-leading** in lighting and fans * **Working Capital:** **Higher requirements** in cables and Lloyd drove cash balance decline ## B. Revenue & Profit * **Selective Top-Line Pressure:** Summer product revenues underperformed YoY due to **shorter seasonality** and **elevated channel inventories**, weighing on overall growth and working capital efficiency. * **Cost Discipline Intact:** Operating expenses well-controlled and aligned with revenue trends; sustained rightsizing over 6–7 quarters yields operational leverage in sales, R&D, and digital functions. ## C. Margin Trends * **Resilient Profitability:** Contribution and EBIT margins held firm in core segments like switchgear and lighting, showcasing pricing power and operational resilience amid competitive pressures. * **BLDC Leadership Driving Investment:** Nearly **40% of fan sales** are high-margin BLDC models, reinforcing technological differentiation and justifying continued segment investment. ## D. Cash Flow * **Working Capital Drag:** Increased inventory and receivables in cables and Lloyd businesses led to **reduced cash balances** and lower interest income, though aligned with seasonal and operational cycles. --- # 2. Product & Segment Performance ## A. Key Figures * ECD Segment Growth: ~2% degrowth YoY (fans: mid-single-digit decline) * **Cables & Wires Contribution Margin:** **15–16%** (sustainable range) * **Switchgears Contribution Margin:** **37–40%** (stable forward expectation) ## B. ECD Segment * **Demand Recovery in Sight:** ECD decline milder than feared, with fans showing only mid-single-digit degrowth; weak summer weighed on first-half performance but **H2 recovery anticipated**. * **Coolers Drag from Inventory:** Significant degrowth in coolers due to **high channel inventory**, offsetting strong growth in water heaters and small appliances. * **Margin Pressure Seasonal:** ECD margins softened in Q2 due to **under-absorption of fixed costs** during fan off-season, despite improvements in other categories. * **Portfolio Expansion Continues:** Ongoing diversification with recent launches in chimneys and hobs, reinforcing long-term category expansion. ## C. Cables & Wires * **Profitability Rebound:** Cables segment delivered significantly improved profitability year-on-year, recovering from prior raw material volatility. * **Growth on Sustainable Margins:** Steady demand in power cables driving growth, with margins now stabilized in the **15–16%** range. * **Capacity Buildout Underway:** Expansion progressing with acquisition of **39-acre land parcel** adjacent to existing facility, enabling future scale. * **Channel Clearance Non-Dilutive:** Lloyd-related inventory liquidation sales were executed **above contribution margin**, preserving core profitability. ## D. Switchgears * **Margin Stability Confirmed:** Switchgears to maintain **37–40%** contribution margin range, with minor fluctuations tied to product mix. ## E. Solar & Renewables * **Strategic Expansion into EV Charging:** New renewable energy segment to integrate **EV chargers** with existing solar offerings, signaling growth diversification. * **Goldi Solar Payoff Expected:** Strategic supply benefits from Havells’ investment in Goldi Solar now beginning to materialize, supporting **multi-year growth runway**. * **Investor Scrutiny on Rooftop Solar:** Management queried on 3-year revenue, profitability, and capex outlook for rooftop solar, indicating rising stakeholder focus. --- # 3. Volume & Pricing Trends ## A. Premiumization Mix * **Headline:** Premium product mix rising across core categories—fans, ACs, heaters, and appliances—with strategic focus on high-end segments including 5-star inverter ACs. * **Headline:** Company continues to prioritize premiumization, though exact mix percentages remain undisclosed. ## B. Price Hike Impact * **Headline:** Price increases anticipated as necessary and largely absorbable, contingent on competitive responses. * **Headline:** GST reduction benefits partially retained; prices expected to revert to pre-reduction levels post-January due to regulatory changes. * **Headline:** Wires value growth outpaced volume growth due to **higher YoY copper prices**, while cables showed aligned value and volume trends. ## C. LED Pricing * **Headline:** LED pricing stabilization observed alongside initial recovery in residential demand, signaling improved business momentum. ## D. BEE Norm Effects * **Headline:** Inventory drawdown of legacy star-rated ACs expected in **Q3** ahead of BEE norm implementation. * **Headline:** New BEE standards for fans and ACs effective **January** will drive price increases, though magnitude not specified. --- # 4. Supply Chain & Inventory ## A. Channel Inventory * **Normalization Timeline:** Channel inventories expected to normalize by end of **Q3 FY'26**, supported by increased consumer offtake initiatives. * **Inventory Pressure:** Elevated stock levels persist, particularly in air conditioning, though management asserts levels are broadly in line with industry norms. * **Sales Cadence Impact:** Q1 push sales and delayed Q2 seasonality contributed to current inventory dynamics, with liquidation expected to spill into early Q4. ## B. Working Capital * **Other Income Suppression:** Lower other income in H2 FY'26 reflects planned capex deployment, with working capital anticipated to stabilize by **Q4 FY'26**. ## C. Normalization Timeline * **Phased Recovery:** Over **50% of sales** expected to recover by end of Q3, while modern retail and e-commerce channels projected to accelerate in Q4. --- # 5. Manufacturing & Capacity ## A. Key Figures * **Capex Guidance:** **₹1,450 Cr** FY2025–26 · **₹1,000 Cr** (est.) FY2026–27 ## B. Tumkur Operations * **Production Adjustments:** Scaled-down output in Q1 due to elevated inventory levels, weighing on manufacturing overhead absorption. * **Capacity Ramp-Up:** Tumkur expansion operational as of September, enabling incremental capacity, though full utilization delayed by market and stocking dynamics; growth contribution below potential. ## C. Capex Plan * **Capital Allocation:** Capex set at ₹1,450 Cr for FY2025–26, with estimated **₹1,000 Cr** for FY2026–27 pending final board approval by March. ## D. Utilization Rates * **Operational Efficiency:** Productivity enhancement remains a strategic priority, particularly across the large workforce, to be advanced alongside ongoing investments. --- # 6. Demand & Growth Drivers ## A. Key Figures * **Solar Growth Timing:** **H2 FY26** expected to see scaled-up growth · **Q3 and Q4** anticipated as strongest periods * **Export Horizon:** **2–3 years** identified as key window for international expansion ## B. Rural Recovery * **Cautious Rebound:** Rural demand shows signs of recovery with positive festive sentiment, aided by indirect effects of recent policy changes, though temporary softness post-September 22 warrants watch. * **Near-Term Uncertainty:** Recent slowdown in trade uptake is not yet indicative of a trend, with management reserving judgment until after one full quarter of data. ## C. Festive Demand * **Pent-Up Momentum:** Early festive demand improved following a pre-September lull, supported by channel restocking and resilient consumer sentiment. * **Limited Policy Impact:** Despite GST-related inventory buildup in FMEG and consumer electricals, a broad-based consumption rebound remains uncertain, suggesting need for additional stimulus. ## D. Export Potential * **Strategic International Push:** Management views exports as a major growth lever over the medium term, though segment-specific plans remain undisclosed. ## E. Solar Growth * **Policy Tailwinds:** Lower GST has boosted consumer sentiment, particularly benefiting air conditioners, TVs, and **solar** products. * **H2 Scaling Expected:** Solar growth is poised to accelerate in the second half, driven by investments in **Goldi** and supply chain enhancements from recent acquisitions. --- # 7. Risks & Competitive Pressures ## A. Inventory & Channel Dynamics * **Elevated Inventory Pressures:** Multiple channel checks indicate **relatively higher inventories** of room air conditioners, contributing to constrained distributor cash flow and limiting restocking appetite in Q3. * **Seasonal Volatility Impact:** Low-season productivity adjustments are more pronounced due to inventory overhang, affecting contractual workforce utilization. ## B. Competitive Landscape * **Resilient Positioning Amid Pricing Aggression:** Despite **LG's post-listing aggressive pricing** in mass and mass-premium segments, Havells sees limited threat in REF and washer markets and expects broader market penetration in tier-2/3 towns. * **Intensified Competition in Core Categories:** Competitive intensity has risen over the past 3–4 years in **fans, lighting, small appliances, and water heaters**, with multiple players vying for leadership. ## C. Capex & Strategic Outlook * **B2B Traction with Fiscal Caution:** The B2B segment shows continued positive momentum, though near-term risks stem from potential **slowdown in government capex**. * **M&A Clarity on Legrand:** Havells does not foresee increased competition in switchgear even if **Legrand is acquired**, given distinct market positioning. --- # 8. Guidance & Outlook ## A. Margin Expansion * **Margin Improvement Ahead:** Contribution margins expected to rise from Q3, with stronger expansion in Q4, though under-absorption remains a near-term headwind. * **Segment Recovery:** Margins in the 'others' segment on path to recovery in coming quarters. * **Stand-Alone Target:** Management targets **150–200 bps** stand-alone margin expansion via productivity gains, cost rationalization, and premiumization. * **Long-Term Premiumization Lever:** Medium- to long-term margin upside of **150–200 bps** anticipated despite elevated **R&D and marketing investments**. ## B. H2 Recovery * **Pricing Power Intact:** Leadership confident in passing through cost increases despite high channel inventories and competition. * **Lloyd Profitability Relief:** Easing pressure from Lloyd operations expected going forward. * **Q2 Growth Inflection:** Business growth reaccelerated in Q2—seasonally weak period—supported by improving supply chain dynamics with further benefits expected in H2. * **Strategic Pillars:** Focus on **premiumization, innovation, distribution, and brand equity** to navigate competitive intensity. * **Cautious Demand Optimism:** Management maintains cautiously optimistic view on demand recovery, anticipating gradual improvement ahead.