The turnaround of Lloyd Consumer under consumer electricals firm Havells may take another 12-15 months as the distribution rejig is still a work-in-progress.
In Q2FY20, Lloyd Consumer saw a 30 percent dip in its revenue to Rs 180 crore. In the June quarter, the company's revenue dipped by 8 percent YoY to Rs 652 crore. Lloyd Consumer was acquired by Havells in February 2017 for Rs 1600 crore as a strategy by the latter to enter the mainstream white goods space.
Havells said that the revenue in Lloyd Consumer in Q2 was impacted due to an industry-wide disruption in LED panels. It added that Q2 and Q3 are lean season for air-conditioners (ACs), thus accentuating the impact of the LED decline on composite Lloyd sales.
Analysts said that the turnaround has been taking time due to the fact that Lloyd Consumer has been unable to bring down the AC revenue and has relied heavily on one major segment. Havells has maintained that they will take five years to get a 50-50 AC and non-AC revenue mix in Lloyd Consumer.
Havells did not respond to a query sent by Moneycontrol.
Anil Rai Gupta, chairman and managing director, Havells said in the post-earnings analyst call that AC remains 70 percent of the Lloyd business.
“H2 should be better than H1. The long term prospects for Lloyd Consumer seem fine,” Gupta said.
Distribution strategy led delays?
Havells is undertaking a distribution realignment for Lloyd Consumer. Gupta said in the analyst call that their idea is to have distributors who can be associated with the company for a longer duration rather than having partners who dictate terms.
“We are doing a distribution realignment, enhancing our product range and setting up a supply chain for AC business. The arrangement of large distributors had to be changed to multiple distributors and they take time to settle,” Gupta explained.
Analysts are of the view that revival is still a few quarters away. Yes Securities in a report said that a revival in Lloyd’s earnings would take some time and would be drag on near term earnings.
However, the report also added that Lloyd Consumer is on track to launch products in various price segments and efforts are made to rationalise distribution, the effect of which will be seen in medium to long term.
“Smaller distributors’ reach is limited and hence, introducing this channel’s customers to Lloyd Consumer products will take time,” said an industry analyst.
New plant may fuel growth
Havells has commissioned a new AC plant for Lloyd Consumer. Gupta told analysts that they are quite optimistic on the growth trajectory, since the new plant gives the company more control on costs and inventory.
However, analysts said that the integration of the plant will take time. Reliance Securities in a report said that the backward integration will take some more time, but the season for AC demand would be over by then.
It added that the real benefit of the plant would start accruing from Q1FY21 onwards.
Product expansion
The company said that AC and other products like washing machines and refrigerators will remain the main-stay business for Lloyd Consumer. Havells is looking to launch refrigerators under Lloyd brand by Q1FY21.
Analysts are of the view that an expansion in the white goods product mix for Lloyd Consumer could help make the real difference as far as revenue is concerned. While Havells clarified that is not exiting the LED business, it will not be a major focus area.
“For the Lloyd business, although the near term appears challenging, we believe the next summer season could be a real test as current market share loss is also a function of conscious decision by management to let go big dealers and foray into multi-brand outlets. With the new plant being operational, the benefits on margins and working capital would be key to watch out for,” said a Motilal Oswal research report.
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