See no note ban pain in Q4, margins to improve: Havells CMD

Havells India CMD, Anil Rai Gupta, says the impact of demonetisation may not be seen in the fourth quarter. The electrical equipment manufacturer reported increased profit at 27.5 percent year-on-year in the quarter ended 2016. Speaking to CNBCTV-18, he said the company is seeing a strong demand in cables and wires segment and it is also seeing market share gains in most of the categories. The note ban impact was seen in many businesses and the electrical trade too got caught in the net. According to Rai, some impact was seen in the market place due to demonetisation, but it is a one-time impact. The trade schemes introduced in November and December impacted the margins by 1.5-2 percent, said Gupta. He said the impact seen on margin in the third quarter is a one-off and going forward he expects the margin to return to normal. The company is also looking at expansion of its product portfolio and will continue to look at acquisition opportunities. Below is the verbatim transcript of Anil Rail Gupta’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: People were surprised to see growth in sales this quarter but again the devil’s advocate argument is that the real impact of demonetisation will be seen in Q4. What is your sense? A: I think the effect of demonetisation was supposed to come but I think earlier effect would have been seen more. So we were expecting a higher effect especially in the month of November and December. I doubt very much that there will be a much impact in the fourth quarter because the businesses are coming back to normal, cash availability is getting better in the system, so I am not subscribing to the fact that there will be a big effect in Q4. Sonia: Where do you see sales growth coming in from in this particular quarter? A: I think definitely there was some impact in the marketplace due to cash drying up in the system. So, there was sales reduction -- structurally there was some reduction in the sales in the November and December months. Probably what we feel is that there has been some market share gain primarily from the unorganised sector which is definitely going to impact even in Q4 and the coming quarter. So, definitely we do see some market share gains in many of our product categories. Anuj: Can you share the breakup of sales growth in various segments? A: The switch gear growth has been tepid, just about 2 percent growth and that is primarily because the new build construction has been weak over last couple of quarters. However, overall if you see cables and wires, strong industrial demand we could see, infrastructure demand we could see. So, cables and wires could grow double digit. Even consumer durables grew at about 18 percent. Even if you take lighting, though it is showing a growth for 2 percent but it also is impacted by the de-growth of 40 percent in the CFL category. So, if we take CFLs out of the counting which is almost 13 percent of our sales, the overall lighting growth is also about 22 percent, excluding CFL. So, basically there is a general uptake in all the segments. Sonia: Margins remain higher due to higher copper prices and extra cost to push sales. What is the expectation on margins as we go ahead? A: I think demonetisation was a major decision which was taken by surprise in the month of November. So, we did take certain actions for the trade so that certain confusions go out of the mind and they also start seeing the market very positively. So, I think what we passed on to the trade was not so much to pass it on to the consumer but to alleviate the kind of losses of the concerns which electrical trade had. So, we believe a sort of a one-time impact, not a price reduction in sales to increase market share, it is sort of a one-time impact for the electrical trade. I think going forward we will see margins coming back to normal levels. Anuj: How much did the trade schemes introduced during November and December impact your margins? A: We could say that it is close to almost about 1.5-2 percent. Sonia: There is a lot of talk in the market that you would be looking for some acquisitions. Asking you straight up, are you looking to buy either Ken Star or Lloyd at any point in time? A: Only thing I can say is that I would like to comment on market speculation. The company is constantly reviewing its M&A strategy given the fact that we are right now in the growth phase, we have cash on the balance sheet and we are always looking at opportunities which could strategically fit into our system for M&A. As we have always said that we are a brand distribution oriented company, we would like to increase our portfolio of product categories or brands or geographical reach through an acquisition. So, we are constantly reviewing opportunities which come through to us.