In an interview to CNBC-TV18, Anil Rai Gupta, CMD of Havells India spoke about the goods and services tax (GST) and latest happenings in the company.
Below is the verbatim transcript of the interview:
Latha: Let us start with the GST- rates on cables etc, has been higher than what was expected, the have come in at 28 percent versus the current 18 percent. What is your reaction?
A: It doesn't change anything. The fact is that we were expecting a lower rate at 18 percent. We thought all building materials would come at the rate of 18 percent especially with the fact that earlier the value-added tax (VAT) plus the excise duty came to around that number but if it is 28 percent, we expect it to be 28 percent. It will definitely impact some of the consumers but on the other hand the builders and the contractors, they will be able to take credit of that, so that is something which is alright but for the consumers it may mean some higher prices.
Anuj: You mean the entire price hike will be passed on to consumers and do you think they will be able to take it?
A: We do not need to increase the prices. The base prices continue to remain the same.
Sonia: Will demand be impacted due to GST - Blue Star, Johnson Controls -Hitachi Air Conditioning India (Hitachi), Vijay Sales have all been suggesting that overall sales have been less in the month of May and June is also expected to be a washout. Is that your reading as well?
A: I do believe that there will be destocking in trade in the month of June and it makes sense because the credit which the dealers will be getting, will be lesser than what they have paid for and hence there will be a certain loss to the dealers if they retain the stocks at the end of June. So it makes sense to buy and sell material which they can sell in June. There will be an impact because of that but that will be taken care of in the month of July itself because ultimately the overall demand over a longer period of time should not be affected.
Latha: Now margins. Does all this mean that you will have more schemes for dealers? Now that will mean a headwind to your margin as well there is competition, commodity prices, the Lloyd's takeover and now GST. What does all this mean for margin in the near term?
A: I guess it is a continuation of demonetisation. The fact is because of this we may have not been able to improve the pricing in the market because of some uncertainty in the market but there is no point in giving schemes and encouraging dealers to stock material. On the other hand it makes sense to reduce the stock at the end of June. I think it will be counterproductive and counterintuitive to start giving schemes and push material in the market. In fact as a company we do not believe in doing anything which affects the trade in any way.
Anuj: Can you give us a range for margins. The key concern for investors has been that sales growth is coming at a cost of margins which have been stagnant for two years now?
A: At this moment we would not like to comment on the future. We would want to get through this transition of post demonetisation impact as well as the GST impact. There will be uncertainty for the next couple of months and things will settle down at that stage. So I am not too worried about the margins because in effect we are a strong franchise, we are a strong distribution, so overall margins should not be dilutive. It maybe a couple of months of margins here or there but should not affect the overall picture.
Sonia: Cash generation from operations was meaningfully lower last year. Is there anything to be concerned about here?
A: We have invested a lot in terms of capacity expansion for the coming years. We have taken a couple of pieces of land. So, keeping in mind that we will be expanding our manufacturing footprint both for electrical as well as consumer durables, it's not a matter of a big concern.
Latha: This one keeps coming in the stock market buzz - Kenstar is on the block. You have bandwidth for acquisitions. So give us your strategy?
A: There is no doubt that we would be open to look at acquisitions in the future as well but we have recently taken Lloyd and we would like to integrate for a few months and then continue to expand both Havells and Lloyd. So I would say that we would not be too aggressive for the next few months on any more acquisitions.
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