In an interview to CNBC-TV18 Anil Rai Gupta, Joint MD, Havells India spoke about the financial performance of the company in the quarter gone by and the road ahead.
Electrical equipment manufacturer's standalone profit after tax declined 4.9 percent year-on-year to Rs 119.61 crore in Q2FY15 on lower growth in operational income and higher tax cost. Profit in the year-ago period was Rs 125.72 crore. Total income from operations grew by 16.3 percent, in-line, to Rs 1,365 crore in July-September quarter compared to Rs 1,174 crore in the same quarter last year.
Below is the verbatim transcript of Anil Rai Gupta’s interview with Ekta Batra and Reema Tendulkar on CNBC-TV18.
Ekta: First can you just detail to us what took place in the domestic business this time around in terms of segments and how exactly each of them did. There was a little bit of a disappointment in a couple of margins in your segmental performance as well.
A: All the segments have done well. We have experienced a very good growth in cables and wires. The margins are also increased almost one and a half percent in the cables and wire segment. We saw almost a 25 percent growth in the electrical consumer’s durable business. The margins have come down in this a little bit but that is also because of the fact that we introduced the lot of new product categories which included which also had more expenses.
Switchgears and lightings have also grown at about 8 percent, but we see an improvement both in the margins both for switchgears and lightings especially in lightings there is a tremendous improvement in margins that’s also because of the in house manufacturing plant that we have started at the Neemrana last year. The satisfaction is both on the growth side which blended give us a growth of about 16 percent and an increase of contribution margins or earnings before interest, taxes, depreciation, and amortization (ebitda) margin is almost about 2.19 percent.
Reema: Your advertising and sales promotion expense gone up to 3.5 percent versus about 1.2 percent on year-on-year basis which impacted your margins. What is your expectation on what the advertising and sales expense will be as a percentage of revenue and do you expect margins to bounce back?
A: Margins will be worked more from the cost side as well as the pricing side. We will continue to have advertising expense of similar nature. Last year we have also changed that advertising and sales promotion policy where we have many product categories we try and now have constant advertising plan for the entire year. And also we have gone from our traditional cricket strategy to lot of mass media activity both on print and television. So there is a far more enhancement of budget for advertising and sales promotion this year and next year. So we will maintain this 3.5 percent expense on the advertising and sales promotion.
Ekta: Just wanted to ask you about your growth guidance. You had managed to actually increase your growth guidance in the previous quarter and the quarter before that as well. Would you then stick with the 17-20 percent and if that’s the case what end of the range would you possibly assume your FY15 figures to be at?
A: I will remain a bit cautious on this one. We experienced a 21 percent growth in the first quarter obviously that was a quarter where the demand went up and especially the second quarter had been a bit low because of may be the elections coming in couple of states. I will maintain between 17-20 percent growths which we will be targeting this year.
Pragya: There is another separate question lot of media reporters talking about Havells being interested in the consumer business of Crompton Greaves are there any talks at this point of time. Could you clarify that for us?
A: I can’t really comment on such media speculations at this stage. So I won’t comment on this.
Reema: If you could walk us through on Sylvania. Sylvania is clocked in a very smart revenue growth of 5 percent. There has been a pick up over there can we expect this 5 percent momentum on quarterly revenues to sustain?
A: We are quite hopeful these first couple of quarters we have seen some good traction coming in Europe especially because that was the market which was sluggish for last three or four years. We have seen more than five or six percent growth in the first couple of quarters and if that is maintained we are definitely expecting good growth coming in the future as well as margin improvement as we have always said it is a more operational leverage kind of a business.
That’s why we see that we have increased our margins in this quarter which is seasonally a very low quarter because of August holidays in Europe from 2.9 percent to 4.1 percent. This also includes the new provisioning for pensions that we have started taking quarter-on-quarter this year. So otherwise the margins would have been five percent in a normally low quarter. So revenue growth is definitely helping the margins as well.
Reema: So by the end of FY15 what will be an exist rate for Sylvania margins, very roughly?
A: Well we have said that between 5.50-6 percent that’s what we are expecting to achieve.
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