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00:00Now, the other piece is Havels, because it's the second company we are focusing on.

00:04The second quarter earnings saw revenue move uptake of 16 odd percent and a net profit

00:10rise of 7.5 percent, margins, however, contracted by about 130 basis points.

00:16Now, we spoke to Anil Rai Gupta, the managing director and chairman of Havels, to understand

00:20why this happened.

00:21Listen.

00:22I think, generally speaking, we are quite satisfied with the overall growth performance

00:28in all these segments, including Lloyd, but also the positive aspect is the core business

00:33of Havels is also firing well in terms of growth.

00:38This is a particular quarter where, you know, the expenses for advertising especially have

00:42gone up.

00:43This is also because of the early Diwali season and, you know, pre-poning of the expenses

00:49on advertising.

00:50So we see a 50 percent jump in our overall ad spends in the quarter.

00:55Also the fact that, you know, there was a sharp fluctuation of commodity prices during

01:00this quarter, which affected the margins in the domestic buyer business.

01:04But that is a sort of a one-off and we should be expecting normalized margins.

01:08So I think we are not too concerned about the margins at this stage and we are seeing

01:13improvements in the Lloyd margins, which was always a concern.

01:18So overall, in fact, we are happy with the overall performance.

01:24So would it be fair for us to assume that you will continue to grow your top line at

01:28the current pace?

01:31I think we have grown at about overall 14, 14.5 percent core Havels and a good growth

01:41in the overall Havels and Lloyd put together.

01:44So we are expecting a decent growth.

01:46The markets are looking positive.

01:48Residential demand is coming in a little bit.

01:51The consumer demand, we are yet to see the festive season.

01:56It's started on a positive note.

01:58So let's see how it goes.

02:00But I think, you know, there are a lot of activities going on in terms of channel expansion,

02:04product additions.

02:05So we should be expecting good growth in the coming times.

02:07And what sort of growth?

02:08I mean, Lloyd's contributes about now 11 percent to your top line and it's grown at a significant

02:13pace of 18.5 percent YOY, very obviously driven by LED panel.

02:19Where do we see Lloyd's contribution to your top line at, say, one year down the line?

02:25I think overall with the growth expected in Lloyd, we are looking at about a 20 percent

02:31revenue contribution to Havels India Limited Revenue.

02:35So I think it's become a sizable part of Havels now.

02:38Mr. Gupta, how is, with so much of expectation running on the festive season this time and

02:45you also talked about how you've increased your ad spends ahead of the festivities.

02:50Are you seeing good traction on back of the festival season underway?

02:54Well, we have to hope for the best.

02:57You know, it's a it's a festive season.

02:59It's also the winter season for some of our winter products like water heaters.

03:04So we put in our best effort.

03:05It started on a positive note.

03:07Let's hope the November, December, Diwali time also continues to remain the same.

03:11So we are definitely entering the festive season with a positivity.

03:16So early channel checks are indicating or keeping in line with what the expectation

03:20was, right?

03:21Yes, that's true.

03:22Right.

03:23So, Gupta, we talked about, of course, how margins are impacted and raw material prices

03:27have been volatile.

03:29Of course, with everything happening on the LME and taking place in China, it does seem

03:32like raw material prices or commodity prices could be on the uptick going ahead.

03:37But you're still of the opinion that margins will normalize in the next few quarters.

03:41How do you plan for that to happen?

03:43Are you looking at hedging?

03:44Are you considering a hedging strategy, captive commodities?

03:48What really is the plan?

03:49What will help margins?

03:50So will you be in a position to pass it on to your customers?

03:54How are you going to make that work?

03:57Usually in cables and wires business, especially, you know, deep fluctuations sometimes affect

04:02the margins.

04:03There is a constant, you know, slow increase or reduction usually gets passed on to the

04:09market in the same manner.

04:11And that's what we would hope, you know, we would, if the commodities continue to rise,

04:17it will be passed on to the market.

04:19What it can affect is the overall demand.

04:21But I hope that it continues to remain.

04:23It's still, I would say, the copper, aluminum, it's still at a very high trend.

04:30So India is maintaining this growth despite this inflation.

04:33I think this is a positive thing, you know, over a period of time, if these things normalize,

04:37I think we will expect better growth, you know, coming in from intra as well as residential

04:43segments.

04:44So, Gupta, your inventory levels have shot up quite significantly, about 60 odd percent.

04:49You want to tell me why?

04:53I'm not sure about the number.

04:54I don't think it's 60 percent.

04:55But anyway, inventories, we do increase inventories pre-season, because there are, you know, capacities

05:04which need to be, the products have to be manufactured just for the season.

05:08For example, lighting, water heaters, so I think this is quite normal entering into the

05:15third quarter.

05:16Also, there was a big increase in Aadhar income, 77 percent rise.

05:22Do you want to tell me what was that made up of this quarter?

05:24Well, nothing in particular, but, you know, because the company has enough cash resources

05:31and the interest rates are also high.

05:34So that could have led to the increase in the Aadhar income.

05:38Going into the next couple of months, and I'm looking a few years out, are you making

05:42any investments in any of your verticals?

05:45And if yes, where is it?

05:46Is it sitting on product innovation, building on your distribution channels?

05:50Where really will the next kicker of growth come from for the next two to three years out?

05:55In fact, all of it, you know, product innovation, we are increasing expenses on our R&D, because,

06:01you know, it's not just to increase sales, but the customer expectations are also rising

06:07more and more towards premium products.

06:09So there's a lot of investment going in towards R&D.

06:12On the other side, CapEx investments are going on to take care of the future growth.

06:16And thirdly, you know, with the rural areas now coming up with electrification, there

06:21is a huge level of investment going towards rural build-up and channel build-up in semi-urban areas.

06:27So, yeah, investments are going, I would say, in all these three areas.

06:32Also in terms of, you know, funding all these aggressive plans, because that's the only

06:38way to grow is to keep, of course, being greedy when things are slightly slosh or uncertain.

06:44How would you look to fund all of these very ambitious expansion plans that you're already investing in?

06:50I think we have quite aggressive CapEx plans for the next couple of years, but from our

06:57internal approvals and cash reserves, we should be able to manage without any external fundraising.

07:03So, no external fundraising on the map, as you said.

07:07Say, Gupta, also while we talk about expansion, would you look at inorganic expansion at this stage?

07:13Well, this is a constant process, you know, we have done in the past, but, you know, we

07:18do look at things very prudently.

07:23And I think, you know, nothing is closed, but, you know, we are always open to look

07:28at inorganic expansion.

07:29But I think there is enough juice for growth in our organic businesses as well.

07:35You know, the last few months ago when we spoke, you talked about how you had very big

07:38plans for the international markets as well.

07:42Do you want to walk me through where things stand?

07:43Where do you see that go in the next couple of quarters?

07:47And how would that contribute to your geographical mix as well, one year down?

07:51I think we are making strides in terms of creating structures and infrastructures for,

07:57you know, having a long-term sustained international business.

08:01We've set up a couple of joint ventures in the US.

08:04We're looking at distribution enhancement in Middle Eastern Africa.

08:09So there is structural work which is happening.

08:12The results will take time.

08:13There's a lot of product development, product certifications, which are required to get

08:16into these developed markets.

08:18So I think going forward, next one or two years will be more of like an investment phase.

08:25And we should be getting good sales from international business in the next couple of years.

08:30Right.

08:31And that, of course, will also, I'm assuming, be better margins.

08:33So all of that will contribute to a further uptick.

08:36You know, Mr. Kapoor, yes, please continue.

08:40It would also mean operating leverage for the existing businesses.

08:42So, yes, it will enhance margins.

08:44Right.

08:45Also, you did indicate to me just at the start of this conversation that you see margins

08:49normalize.

08:50Is it a fair assumption for me that once these ad spends, which is a one-off in this quarter,

08:55and we go into the next quarter where you have a heavy festive demand, you know, reflecting

09:00on earnings, we should be back up at 9.5, 9.6?

09:03Yeah.

09:05Yeah, overall, you know, the way we look at it is Lloyd separately and Havel's core separately.

09:10Havel's core, we are always targeting between 13 and 14 percent.

09:15So I think we should be coming back to at least, if not in the third quarter, at least

09:18in the fourth quarter.

09:19So overall, we are looking at those kind of margins.

Havells India: Outlook On Festive Season | NDTV Profit

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