Anil Gupta, joint MD, Havells India explains to CNBC-TV18 the extraordinary item of a favourable ruling in the Osram judgment and the 33-percent growth posted by the consumer-durable division has helped the company post positive results.
Below is an edited transcript of the interview on CNBC-TV18.
Q: What is the reason for the weakness in the top-line, your consumer-durable division has not performed well where your peers have also underperformed?
A: Revenue has grown by 13 percent. If we take away the negative effect of our commoditised industrial cable business, all our consumer products have grown by about 24 percent.
Our industrial-cables division posted weak performance on low capex demand which has actually helped improve the margins in the cables and wires segment.
Otherwise, the consumer segment has done extremely well. We are growing at a pace of more than 24 percent and the consumer-durable division has actually grown by 33 percent in this quarter and on a like-to-like comparison within that segment will show that our fans segment has grown by 21 percent, while the rest of the growth has been contributed by the appliances and geyser divisions that were started a year ago.
So that has added to the high growth and that’s why our overall consumer-durables segment has grown by 33 percent this quarter.
Q: How much has the cables-business contributed to the share of total revenues?
A: The cables business has contributed close to about 20 percent of overall revenues and that shows a decline in sales in this particular quarter.
Q: How did your European business perform?
A: Our European business, despite very tough market conditions, has been holding afloat though growth this quarter has not been really comparable against the same quarter last year when there were certain benefits such as the increase in rare-earth prices which caused a boost in sales. Seasonally, this particular quarter is a period of low growth because of the holiday season in Europe. But we are expecting a good turn-around in the last quarter of the calendar year.
Q: What kind of revenues or growth in bottom-line do you expect the turn-around to post?
A: We expect a growth of at least 7-10 percent in revenues in the fourth quarter of the calendar year and healthy operating margins of about 5 percent. Overall, Sylvania will contribute an EBITDA margin of 6.5-7 percent in this year.
Q: What about deleveraging? At what net debt-to-equity ration will Sylvania end FY13 with?
A: The one-time settlement fee from Osram in this particular quarter has added about 24-25 million euros which that has significantly brought down the debt levels. Overall. the debt-to-EBITDA levels would be as low as 1:1 by the end of the financial year.
Q: Your profit-and-loss statement has two extraordinary items- an inflow of Rs 10 crore from forex gains and an inflow of 24-25 million euros because of the Osram judgment going in your favour...
A: That is right. Yes, it is a gain. At consolidated levels, the profits for the quarter are about Rs 242 crore in PAT which comprises an inflow of 23 million euros thanks to the Osram judgment while the standalone entity has contributed a PAT of around Rs 87 crore.
Q: Where did Sylvania's margins stabilise after you recently cut guidance to 7.5 percent?
A: The margins, because of the holiday season in this particular quarter, are about 4 percent. But overall, it will be 6.5-7 percent for the financial year.
Q: So you have further reduced your estimates on margins. Now you expect them to be at 6.5 percent?
A: Yes, we forecast that the European business will to continue to remain sluggish during the entire year. So we are just taking a conservative view that the margins should be at 6.5-7 percent.
Q: How do you expect to end the year for the Indian unit in terms of margins and growth in revenue?
A: We expect a growth of 15-20 percent. But if you look at the half-year performance, the growth has been close to about 20 percent. We hope to maintain a similar pace of growth in the second half of the year. We estimate margins to remain at 12.5-13 percent.
Q: The widening of your distribution region has helped maintain domestic revenues. How much do you think it can be further improved?
A: Due to increased reach in distribution, our growth in the B- and C-class towns has been faster than growth in the A-class towns. The growth B- and C-class towns could help us stave off recession if there any slackness in the real estate in A-class towns.
Around 25 percent of our revenues now come from C-class towns with a population of below 5 lakh. C-class towns are big contributors and are growing at a pace of about 35 percent. So going forward, we will ensure that the pace of growth is maintained and I think in the next three-to-four years, their contribution will be 30-35 percent of total revenues.
Q: How much do switchgears contribute?
A: Overall, switchgears contribute 20 percent to overall revenue.
Q: Is the switchgear business performing better than the rest of your divisions?
A: The switchgear business is growing at a pace of 15 percent which in a mature market is quite good. However we are adding product categories in this business. It is also the highest margin business for the company.