Sylvania margins to go up from current level of 8%: Havells

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Sylvania margins to go up from current level of 8%: Havells

Havells posted a good set of second quarter FY12 numbers. Joint managing director Anil Gupta informed that the sales growth was driven by volume growth. He committed to deliver 8% margins for Sylvania. He stated that the company will focus on profitability in Europe and growth in Latin America and India.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Havells India See previous management interviews See what other Experts & Brokerages are saying about Havells India Havells India BSE | NSE 31/05/12 Are Mutual Funds betting on Havells India?

Havells India reported a standalone profit after tax (PAT) of Rs 70 crore in the second quarter of FY12, a growth of 21% as compared to Rs 58 crore in the corresponding quarter of last fiscal.

Despite various apprehensions on Havells' global operations, the company posted a good set of second quarter FY12 numbers. Joint managing director Anil Gupta informed that the sales growth was driven by volume growth. He committed to deliver 8% margins for Sylvania.

Gupta further stated that the company will focus on profitability in Europe and growth in Latin America and India. The inventory will be brought down in the next few quarters, he pointed out.

Here is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.

Q: Your numbers have been inline with the street expectations. Could you take us through the domestic operations and explain the 28% sales growth, breaking it up into any sort of price or realisation change versus volume growth?

A: Most of it is volume growth, except in cables and wires division where we saw 25% growth. Out of the 25% growth, almost 12% is volume growth and 12% is value growth due to the raw material price increases. Out of this 25% sales growth, about 20-22% is volume growth.

Q: You have fairly strong margins at over 12% in the domestic business, but in the global operations at Sylvania, your profitability seems wafer thin. What is the reason for that?

A: The year 2008-2009 was a bad period. We recovered to almost 5% profitability levels in 2010. This year, we had committed that we look at 7.5-8% and we are achieving that. The whole restructuring of Sylvania is taking place in the right direction. This could improve further, but during this current year, we are looking at 7.5-8%. It is not very far from what we have in India at about 12.5%. In the next year or so, we should be looking at higher levels of profitability in Sylvania.

Q: On volume growth going into second half of the year, what could be a sustainable play? Is 15-20% doable for Havells?

A: As a standalone entity yes, we are looking at those figures. We have spent a lot in making the brand stronger as well as going deeper into the distribution. We are getting the benefits. The entire industry might not be growing at this level, but we are growing at this level. We will continue to grow at 15-20% level in the coming quarters as well.

Q: The only point of criticism amongst your analyst is that you are not up to potential in terms of market share in the industrial fixtures and the lighting segment. What is it that Havells hopes to up it to in terms of market shares along with volume growth?

A: As far as the domestic sector is concerned, our market share is reasonably good now. We are fairly a new entrant in the lighting industry. We entered this industry only six years ago and are number two player in the CLF industry and number four player in the industry fixture. We are gaining grounds very quickly. Industrial fixtures industry takes a little longer to break through into the specification segment. With the launch of Sylvania high end fixtures last year, we have been seeing a lot of traction in major industrial projects and architectural projects. We see a very good future for the lighting fixture segment in the next coming years.

Q: Growth has been modest in Europe. Will it pick up now going forward in the subsequent quarters on the volume perspective? Do you expect growth to be lead overall for the group by the Indian segment?

A: We have three major areas of sales - Indian market or sub-continent, Europe and Latin America. We will focus on profitability in Europe and growth in Latin America and India. Europe has been a complete turn around story for us, where we made huge losses last year. Now, we are almost at the same levels of profitability as that in Latin America. We have about 7.5% operational profits in Europe. We will try to maintain similar sales if not grow the sales in 2011-2012. We will further be looking for growth. We still see a lot of weakening in markets, especially in Spain and Italy. We see a flattish growth in Europe, but tremendous rise in profitability there. We see a 10-15% growth levels in Latin America and 15-20% in India.

Q: One of the global brokerages has highlighted your rise in domestic inventories and higher interest cost as some of the niggling concerns that you will have to address as a management. What is your game plan there?

A: We have launched a couple of new ranges this year. We have entered into domestic appliance segment. We are also looking at a 20-25% growth this year in the Indian market. We have to give a little push on the inventory side so that we do not stock out, especially in the seasons. This is not a case of worry here. The number of days' inventories is up almost seven-eight days only. It will be brought down to normal levels in the next two-three quarters.

Q: Do you have any change in the hedging strategy for the second half because you reported a forex loss this quarter?

A: We have natural hedging, so we will not be looking at any hedging. We already see a reverse trend happening in the global markets. Most of this came from the Brazilian currency loss, which has already moved back 50% of the loss. The Indian foreign exchange variation is also due to the fact that the dollar moved from Rs 45 to Rs 50. We will not be looking at any different strategies what we had in the past. Things will even out on their own in the future.