Havells Confident In Value Proposition, Not Price War, Amid Stiff Competition

AC sales have nearly quadrupled since 2010 to nearly 1 crore units in 2023 and is projected to double by 2028, according to data by Statista. Revenue-wise, the $6-billion market, dominated by Voltas and closely followed by Blue Star, is forecasted to grow annually by 17%.

In a post-earnings call in January, the Havells management said the company was able to pass on the cost increase due to the energy rating changes for Lloyds and does not anticipate any further price increase. Nearly two-thirds of Lloyd's business is generated from air-conditioners, while the rest comes from televisions, washing machines and refrigerators.

Havells is currently exporting room air-conditioners to 30 countries, including Saarc, Middle East, U.S. and African nations. It expects to cater to overseas demand from its new plant in Sri City, Andhra Pradesh. This facility boasts an annual production capacity of 1 million air conditioners, doubling the company's total annual production capacity.

The company's financial performance in India in the last two years was negatively impacted by consistent weak performance of Lloyd, which contributes a fifth to its revenue. Factors like sluggish demand, volatility due to changing energy-rating norms and high inflation dragged profitability.

But the management guided for improved margin in the current quarter and the first quarter of the next financial year, driven by premiumisation-led change in the product mix, higher scale, cost initiatives and a potential pickup in demand, according to its post-earnings call. Lloyd is a long-term play, and the management is confident of retaining its third position in the pecking order of AC manufacturers. Yet, no timeline was given for a turnaround.

Havells acquired Lloyd Electrical and Engineering Ltd. from BR Punj Group for Rs 1,600 crore in 2017. The brand, however, is yet to turn profitable. In the nine months of the current fiscal, Llyod saw a 16% growth in revenue, but it had reported a loss of Rs 652 crore as of December.

Competition in the room AC segment is likely to remain elevated in the near term, according to Nirransh Jain, analyst at BNP Paribas Securities India Pvt. "But a recovery in consumption, especially in summer, and pickup in real-estate activities should drive a healthy offtake for the sector, along with some margin normalisation," he said, highlighting that the top five–six players in the crowded market will eventually benefit.

The Havells management also said that the AC industry had seen consolidation of volume market shares towards four or five large players as against having a long tail of small players with low-market shares. Some of the competitors are also reporting weak performance in this segment.

Johnson Controls-Hitachi Air Conditioning, for instance, reported a revenue decline of 42% in the December quarter. Its revenue fell for six straight quarters. Voltas has lost close to 200 basis points of its share in the last five years. Blue Star is looking to expand its market share to 15% from 13.7%.