Demand to pick up only in second half of FY16: Havells

Below is the edited transcript of Anil Rai Gupta’s interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy.Sonia: Can you just give us an expectation of what FY16 will look like and what could the revenue growth for the company be and what kind of operational improvement would you expect?A: Taking advantages of our brand and distribution, our first half growth was around 19 percent for the year. The second half saw quite a steep fall in demand uptick and that was one of the reasons why the second half grew only about four percent which actually blended into 11 percent growth overall.

We were quite satisfied with the fact that our margins were intact, we continued to invest in our brand building and didn’t succumb to the pressure of discounting the product at any point of time.

Going into this year we do see that the soft demand is continuing in the fourth quarter and probably in the first and second quarter as well. But as we all believe, there are positives which are happening which should increase the uptick, if not in the first half at least in the second half. Hence they are quite positive that this year with the investments it will continue to grow.

Last year advertising expense for the coompany were higher in percent as compared to the previous year which does indicate that we will be one of the first companies to take the advantage of an economy uptick.

Latha: Your revenue growth has been tepid in two of your biggest segments, cables & wires and switchgears. That is about together 60-70 percent of your revenues. What would you blame it on, is it largely on economy related issue because the other 20 percent of your revenues, the electrical consumer durables has done very well. So, would you blame it on the economy, what went wrong for this big 70 percent of your segments?A: From among cables, wires and switchgears, cables and wires saw volatility in the raw material prices. There was steep reduction in copper and aluminium prices in the second half of the year.

That had two effects, where one was that sales value got down, though the volume growth was still okay but also it created a little bit of uncertainty in the trade channel and hence the stock levels came down in the overall supply chain. Hence, the demand uptick was lower.Similar effect is also in switchgear where people wait for any prices to come down and if possible they keep their stock levels low.

So, both these factors were reflecting but there was definitely demand slow down as well in both the segments. In other segments, the growth has been primarily good because of the fact that we had launched new product categories within those segments, we had launched new brand Standard in the fans segment.

So the growth has been better in those segments.

 Latha: Would you say it will continue in the first half, can electrical consumer durables division given you a similar run rate in the current quarter in fact in the current year?

A: Definitely, we have better hopes for the current year. We still see softness in demand in the economy and given the fact that the year started off well last year, there could be a base effect in the first and the second quarter.  

So, we will continue to see how it goes in the first and second quarter, but we are quite hopeful overall the year should be good if you take both the first half and second half.

Sonia: What kind of growth are you expecting to see in Sylvania in the first half of FY16 because FY15 has been a weak year for the Sylvania business as a whole? What can we expect in FY16?

A: The major expectations again in Sylvania would be that Europe would continue to remain flat or grow a little bit. We expect better growth from Latin America this year especially because we have been hit last 12-15 months more by foreign exchange volatility which we hope should settle down in the first and second quarter.

So, there is expectation that Sylvania would grow marginally but we would see better profitability both in Europe and Latin America. So we are certainly expecting the five to five and half percent EBITDA margins this year which we missed a little bit in the last year.

Though Sylvania’s Profit after Tax (PAT) was more affected by one offs which are non cash items like pension but this year we should expect operational performance to be better.

Latha: Leave us with a guidance, not just to corner you, but simply because we can assess what demand to expect in the industry as a whole. Would you be able to keep 13-14 percent this year? You have a little bit of an advantage of a low base as well.A: I would not say anything at this moment. We would see for another couple of quarters. The low base, overall yes, we grew 11 percent but the first half was 19-20 percent growth and so we are seeing how the growth comes in the first half. So we will be in a better position to comment specially after one or two quarters have gone.Latha: Can you give us some colour if rural demand is picking up or at least urban demand is picking up?A: At this moment the third and the fourth quarter were soft in demand both in the metro towns as well the B and C class towns and it is too early to say when going into this year how things will pan out.

So we are quite hopeful, all of us are quite hopeful for interest rates to come down, inflation to remain low and which would increase the demand both in the residential, commercial as well as the industrial sector.