Detailed Narrative
Q2 Performance Overview and Summer Product Weakness
Havells India delivered a decent overall performance in Q2 FY26. However, the summer products segment, including air conditioners, fans, and coolers, experienced weakness, leading to a year-on-year revenue decline. This was attributed to a shorter summer season and higher channel inventories, which not only impacted growth and margins but also led to elevated working capital levels. The company expects channel inventories to normalize by the end of Q3.
Cables Segment Maintains Strong Growth
The cables segment maintained its steady growth momentum during the quarter, primarily driven by strong performance in power cables. The company's execution towards capacity expansion in cables remains on track, including the acquisition of a 39-acre land parcel adjacent to its existing manufacturing facility in Alwar, Rajasthan. The contribution margin for cables and wires is expected to remain in the 15% to 16% range.
ECD Segment Challenges and Recovery Outlook
The Electrical Consumer Durables (ECD) segment experienced an overall degrowth of approximately 2% in Q2. This was primarily due to mid-single digit degrowth in fans and a high level of degrowth in coolers, both impacted by high channel inventories. However, the water heater channel and consumer small appliances showed good growth. Management anticipates positive momentum in Q3, driven by pent-up demand and positive consumer sentiment following recent GST changes, expecting a better second half for the ECD portfolio.
Working Capital and Liquidity Concerns
Elevated working capital levels, particularly for cables and Lloyd, resulted in a reduction in cash and bank balances, which consequently impacted the interest income earned during the quarter. The company expects working capital to normalize by Q4. Despite this, planned capital expenditure for FY26 is projected at INR 1,450 crores, with an estimated INR 1,000 crores for FY27.
Margin Stability and Improvement Initiatives
Havells stand-alone (excluding Lloyd) EBITDA margins were reported at 12-13% and are expected to improve further. While Lloyd's contribution margins were impacted by customer support schemes in Q2, normalcy and improvement are anticipated from Q3, with the real effect seen in Q4. The company maintains that its contribution margins for cables and wires (15-16%) and switchgears (37-40%) are within the right range, reflecting stable profitability despite competitive intensity.
Strategic Investments and Future Growth Drivers
Havells continues to invest in strengthening its brand presence, sales infrastructure, R&D, and digitization. The solar business, benefiting from recent investments in Goldi, is expected to show very good growth over the next 2-3 years, particularly in Q3 and Q4. The company is also continuously evaluating new product categories, such as EV chargers and automation, to drive incremental growth and fill portfolio gaps. Premiumization efforts are expected to improve margins in the long term, despite initial investments in R&D and marketing.