Havells India, one of the country’s largest electrical equipment makers, said it expects organized players such as itself to benefit as raw material price increases put pressure on unorganized players.
The company, a prominent player in the switchgear, wire and lighting segments in India, also said that demand for electrical goods in India is on a strong footing despite sharp increases in both raw material as well as finished-product prices.
Prices of copper and steel have gone up by 100% over the last one year, pushing up the prices of copper wires, cables, and other items such as switches, fans and motors that contain a lot of these materials.
Still, said Anil Rai Gupta, Chairman and Managing Director of Havells India, demand for electrical supplies continues to be strong in the country, and is different in nature, compared to the demand spurt seen in the second half of FY21.
“Last year, it was pure pent up demand coming from the consumer [segment] and B&C class towns, whereas this year the growth or the demand that we are seeing is across segments and across regions,” he said, commenting on the company’s second quarter results.
“Last year, the real estate was still under stress. I think real estate has started doing well in the last six to eight months. The industrial and infrastructure demand is also picking up. So, I think, that actually gives us confidence that the next six months for us could also be a decent growth.”
The company’s second-quarter results showed a sharp 32% year-on-year jump in revenue.
However, much of this was owing to increases in the prices of the goods, rather than a jump in volumes. As such, net profit fell 7% on year during the July-September quarter.
The company said 80% of the increase in revenue from its wires and cable business was due to the increase in the price of the item. Similarly, price increases accounted for most the incremental revenue seen in the lighting business as well.
In the other segments, such as ACs and switchgears, about half of the incremental revenue was on account of higher prices, while the other half was due to higher volumes, the company said.
PRICE INFLATION
Given the steady and relentless increase in the price of commodities, Havells India has not been able to pass on the full impact of raw material prices to the end consumer, resulting in a hit to the margins and the bottom line.
It said if the raw material prices correct going forward, it would not need to carry out more price increases. However, if they don’t show any sign of easing, it would be forced to increase its prices again.
Despite higher prices, said the company, there has been no slackening of demand for electrical goods.
“What is healthy is that we are seeing good demand coming from the residential sector as well as industrial and infrastructure,” Gupta said.
Gupta also said the disruption in the market is putting more pressure on unorganized and single-factory manufacturers, resulting in a comparative advantage for large manufacturers like Havells.
“When there is high inflation times, there is a shift from the unorganised sector to the organized sector. When people are spending more on electrical installation in the house, because of the raw material increases, they would both want to even go stretch a bit beyond and go for trusted brands and high quality products.
“In an inflationary environment, the relative gap between the unorganized and organized sector reduces. We have actually seen that there is improvement in the kind of purchasing which happens,” he added.
He also pointed out that when the supply chain is disrupted, smaller players are the first to get impacted.
“There has been supply chain disruptions, and for the organized sector, it is easier to manage as compared to the unorganized sector.”