Anil Rai Gupta, Joint Managing Director, Havells India , believes the Indian economy is bottoming out and a turnaround in sentiment should increase demand for its products.
About 25 percent of the company's business comes from the industrial segment, which tends to be an early indicator of the economy, he told CNBC-TV18 in an interview. "That segment had started de-growing at the start of the year and has now inched up to 10 percent growth. We believe this will be followed by a revival in the consumer business, which is 75 percent of our business."
"Our company-level net profit margins had slowed down to 10 odd percent. We expect them to increase to 13-13.5 percent by next year," he said.
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When asked about analysts' concerns over sluggish growth at its 2007 acquisition, Sylvania, Rai said the company had turned profitable and even as the economic situation in Europe remained challenging, he expected 5-6 percent profits at the operating level going forward.
Below is the transcript of the interview.
Q: The last number that you delivered were upbeat on almost all parameters but how is the festive demand shaping up because most corporates that we speak to indicate that this festive season was not as good as what we saw last year. Are you getting a sense of that as well?
A: I would say it is true. But this is not related to the festive season but it is more related with the bottoming out of the economy. In our company, we have two divisions; the industrial segment which is 25 percent of the business and the rest being consumer.
Generally we see that the industrial segment brings in the trends early on and we saw slowdown in the industrial part of the demand sometime starting last year and it was followed by a slowdown in the consumer demand in the last couple of quarters.
Last quarter, things started looking good. We believe that the industrial demand has started coming back a bit, which gives a clear indication that in the next one-two quarters the consumer demand will also come up in a significant way.
Growth had slowed down to about 10 percent, which in a company like ours -- you would expect 15-20 percent. We are expecting in 2014, in next couple of quarters, we should be looking at growth coming back in the consumer segment as well.
Q: You are speaking about 15-20 percent growth in the overall industrial plus consumer [segments]?
A: Yes. As I said the industrial segment has started shaping up well in the last couple of quarters, it has come to 10 percent growth after starting this year in degrowth.
Once that starts coming in, we see confidence come in the economy, with elections coming in April-May. I think overall sentiment will improve in the next financial year.
Q: The other wing, which has not been adding to your gains, Sylvania. What is the update from Sylvania? Is it profitable now?
A: It is profitable now. In fact, we have not seen any quarter in the last two-three years where Sylvania was operationally negative. In 2009-10, we faced some difficult times.
There is no doubt that Europe continues to be a challenging situation where growth is limited. But as we have always maintained our focus has been on profitability, we would expect a company like that should be turning out 7-8 percent operational profit.
We are at about 5-6 percent operational profit. I believe that with all the hard work that has been put in, this target is not very far off; we should be seeing those numbers coming back in the next couple of quarters.
Q: Since we are trying to analyse the growth path ahead for Havells, can you give us a slightly longer-term view? You have started to venture into domestic appliances business, which is very different from what your current product profile is and there are a whole host of challenges as you have told us in the past. How is this business shaping up and what could the contribution be of the domestic appliances business or new product categories to the overall standalone business in FY15 and FY16?
A: We have been adding new product categories into the portfolio over a period of time, and they have started contributing significantly. The way we started lighting ten years ago, five years ago we started with fans.
They are now a sizeable part of the businesses. We launched domestic appliances a couple of years ago. It is a different product category; however the distribution channel is quite similar; there is attraction for demand and for the brand as well because Havells is now considered more of a consumer brand so we did not find much problem in acceptance from the consumer for the brand for domestic appliances.
The distribution channel was already in pace so what was required was a right product strategy, which we have been able to position as a good value-for-money kind of energy-efficient product range and that has done tremendously well in the first couple of years.
We will be looking at about Rs 300 crore in the current financial years from domestic appliances and in the next four-five years it should turnout to be 15 percent of the overall business.
Q: Did you give us an idea of the margins. I got your revenue guidance. Was your margin guidance likely to be around 14-15 percent in the next four quarters for the overall company?
A: We are looking at 13-13.5 percent for the standalone business for Havells in the next year.
Q: Sylvania would be little lower, is it?
A: As I said this year will be 5-6 percent but we are looking at 7-8 percent numbers in near future.
Q: What will be the free cash situation? Will you be nosing around for any more acquisitions, after all at this moment they will still be coming cheap?
A: We are opportunistic in this nature. We are looking for such opportunities where we can add new markets or new product categories but we are not overtly ambitious about this thing and we are becoming very sensible about new acquisitions. We are cautiously optimistic about new acquisitions.
