The September quarter results reveal a company grappling with seasonal headwinds and margin pressures despite maintaining revenue growth momentum. Whilst Havells continues to demonstrate its market leadership in the electrical equipment sector, the sequential decline in profitability and compressed margins raise questions about near-term operational challenges. The company's debt-free balance sheet and strong institutional backing provide cushion, but the stock's technical weakness and flat financial trend suggest investors are adopting a cautious stance.
Financial Performance: Sequential Softness Overshadows YoY Growth
Havells India's Q2 FY2026 financial performance presents a tale of two narratives. On a year-on-year basis, net sales grew a modest 5.29% to ₹4,779.33 crores, whilst net profit expanded at a healthier 17.13% to ₹314.18 crores. However, the quarter-on-quarter comparison reveals underlying weakness, with revenues declining 12.39% from Q1 FY2026's ₹5,455.35 crores, and profit falling 9.65% from ₹347.72 crores.
| Metric | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 4,779 | 5,455 | 6,544 | 4,889 | 4,539 |
| QoQ Change | -12.39% | -16.63% | +33.84% | +7.70% | — |
| YoY Change | +5.29% | -6.04% | +20.24% | +10.76% | — |
| Net Profit (₹ Cr) | 314.18 | 347.72 | 517.83 | 278.30 | 268.23 |
| QoQ Change | -9.65% | -32.85% | +86.07% | +3.75% | — |
| YoY Change | +17.13% | -14.75% | +15.92% | -3.34% | — |
| Operating Margin % | 9.17% | 9.45% | 11.57% | 8.72% | 8.26% |
| PAT Margin % | 6.56% | 6.37% | 7.90% | 5.69% | 5.90% |
The margin trajectory warrants particular attention. Operating profit margin (excluding other income) stood at 9.17% in Q2 FY2026, down 28 basis points from Q1 FY2026's 9.45%, though still an improvement from 8.26% in the year-ago quarter. The PAT margin expanded to 6.56% from 5.90% year-on-year, reflecting improved operational leverage despite top-line pressures.
Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) came in at ₹438.43 crores, representing a 16.89% year-on-year increase but a 14.98% sequential decline. Employee costs rose to ₹478.77 crores, up 3.05% year-on-year, indicating controlled wage inflation. The tax rate remained stable at 23.23%, slightly below the previous quarter's 26.02%, providing some relief to bottom-line performance.
⚠️ Margin Compression Alert
Operating margins have declined sequentially for the second consecutive quarter, falling from 11.57% in Q4 FY2025 to 9.45% in Q1 FY2026 and further to 9.17% in Q2 FY2026. This 240 basis point compression over two quarters suggests intensifying competitive pressures or input cost challenges that management must address to sustain profitability.
Balance Sheet Strength: Fortress-Like Financial Position
One of Havells India's most compelling attributes remains its pristine balance sheet. The company operates with zero long-term debt, maintaining a net cash position of ₹3,378 crores as of March 2025. This debt-free status, rare amongst manufacturing companies of comparable scale, provides significant strategic flexibility for capital allocation and insulates the business from interest rate volatility.
Shareholder funds stood at ₹8,323.79 crores at the end of FY2025, up from ₹7,446.76 crores in the previous year, reflecting consistent profit retention despite dividend payouts. The company's book value per share stands at ₹132.78, translating to a price-to-book ratio of 11.19x at the current market price. Whilst this appears elevated in absolute terms, it must be evaluated in the context of Havells' return on equity of 17.69%, which justifies a premium valuation.
Return on capital employed (ROCE) remains robust at 32.87%, demonstrating exceptional efficiency in deploying capital. The five-year average ROCE of 32.93% underscores the consistency of this performance. Fixed assets increased to ₹4,651.91 crores from ₹3,987.89 crores, indicating ongoing capacity expansion investments. Current assets grew to ₹8,870.51 crores, providing ample liquidity to fund working capital requirements and growth initiatives.
Capital Efficiency Excellence
Havells' return on equity of 17.69% places it in the upper quartile of Indian manufacturing companies. Higher ROE indicates superior capital efficiency, meaning the company generates more profit per rupee of shareholder equity. Combined with zero debt and a ROCE exceeding 32%, Havells demonstrates textbook financial management that creates sustainable shareholder value.
Industry Context: Navigating Seasonal Volatility
The electrical equipment and consumer durables sector in India exhibits pronounced seasonal patterns, with the September quarter typically representing a softer period due to monsoon-related demand slowdown. Havells' 12.39% sequential revenue decline must be viewed through this lens, as the June and March quarters historically capture peak demand during summer months when cooling products and electrical installations surge.
The company's diversified product portfolio spanning cables, wires, switchgears, lighting, and consumer durables provides some insulation against category-specific headwinds. However, the broader slowdown in urban consumption and real estate activity has impacted demand across segments. The 5.29% year-on-year revenue growth in Q2 FY2026 significantly trails the company's five-year sales CAGR of 21.16%, highlighting the current demand environment's challenges.
Input cost dynamics remain a critical factor. Copper, a key raw material for cables and wires, has experienced price volatility, whilst polymer prices for switchgear and lighting products have fluctuated. The sequential margin compression suggests that Havells has struggled to fully pass through cost increases to customers, possibly due to competitive intensity or demand elasticity concerns.
Peer Comparison: Valuation Premium Justified by Quality
| Company | P/E (TTM) | P/BV | ROE % | Div Yield % |
|---|---|---|---|---|
| Havells India | 65.35 | 11.09 | 17.69% | 0.68% |
| Dixon Technologies | 123.97 | 33.84 | 24.26% | 0.05% |
| Voltas | 72.28 | 7.19 | 12.92% | 0.49% |
| LG Electronics | 51.48 | 19.00 | 36.91% | 0.00% |
| Blue Star | 75.30 | 13.12 | 18.99% | 0.46% |
Havells trades at a P/E multiple of 65.35x, below the peer average of approximately 81x, despite commanding a premium to Voltas and LG Electronics. The company's P/BV ratio of 11.09x appears reasonable when benchmarked against its ROE of 17.69%. Dixon Technologies trades at a significantly higher P/BV of 33.84x, justified by its superior ROE of 24.26%, whilst Voltas' lower P/BV of 7.19x reflects its weaker ROE of 12.92%.
Havells offers the highest dividend yield amongst peers at 0.68%, indicating a more shareholder-friendly capital allocation policy. The company's debt-free status further differentiates it from peers, several of whom carry leverage on their balance sheets. This financial conservatism, combined with consistent profitability and strong cash generation, justifies Havells' valuation premium despite current growth challenges.
"Havells' fortress balance sheet and market-leading position provide a solid foundation, but near-term margin pressures and demand headwinds necessitate a cautious approach until operational momentum improves."
Valuation Analysis: Fair Pricing Amidst Growth Concerns
At the current price of ₹1,486.20, Havells India trades at a P/E (TTM) of 65.99x and an EV/EBITDA multiple of 43.44x. The stock's valuation grade stands at "Fair," having been downgraded from "Expensive" on 1st October 2025 when it traded at ₹1,485.35. This suggests the recent price correction has brought valuations closer to intrinsic value, though not yet into attractive territory.
The company's enterprise value to sales ratio of 4.21x reflects the market's recognition of Havells' brand strength and distribution network. However, the PEG ratio of 46.13x appears elevated, indicating that current growth rates do not justify the valuation premium. This metric has become particularly relevant given the slowdown in revenue growth to single digits in recent quarters, compared to the historical 21.16% five-year CAGR.
Historical context provides perspective on valuation cycles. The stock has corrected 24.41% from its 52-week high of ₹1,966.25, reached during a period of stronger growth momentum. The current price sits just 9.28% above the 52-week low of ₹1,360.05, suggesting limited downside cushion if operational challenges persist. The dividend yield of 0.67%, based on the latest annual dividend of ₹10 per share, offers modest income support but insufficient compensation for growth investors.
Shareholding Pattern: Institutional Confidence Wanes
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 59.38% | 59.38% | 59.41% | 0.00% |
| FII | 19.28% | 21.59% | 22.31% | -2.31% |
| Mutual Funds | 6.42% | 5.55% | 5.44% | +0.87% |
| Insurance | 7.63% | 6.38% | 5.47% | +1.25% |
| Other DII | 1.48% | 1.43% | 1.85% | +0.05% |
| Non-Institutional | 5.81% | 5.67% | 5.52% | +0.14% |
The shareholding pattern reveals a concerning trend of foreign institutional investor (FII) exit. FII holdings declined sharply by 2.31 percentage points quarter-on-quarter to 19.28% in September 2025, continuing a multi-quarter downtrend from 24.76% in September 2024. This 5.48 percentage point reduction over four quarters signals waning confidence amongst global investors, likely reflecting concerns about growth deceleration and valuation sustainability.
Conversely, domestic institutional investors have increased their stake, with mutual fund holdings rising to 6.42% from 5.55%, and insurance company holdings jumping to 7.63% from 6.38%. This divergence suggests domestic institutions view the correction as an accumulation opportunity, banking on Havells' long-term market position and brand strength. The number of mutual funds holding the stock increased to 32 from 31, whilst insurance companies rose to 28 from 23, indicating broader institutional participation.
Promoter holding remains stable at 59.38% with zero pledging, demonstrating management confidence and alignment with minority shareholders. The Qrg Investments and Holdings Limited, along with the Arg Family Trust, control the majority stake, ensuring continuity in strategic direction. Total institutional holdings stand at 34.99%, down from higher levels but still representing substantial professional investor interest.
Stock Performance: Significant Underperformance Across Timeframes
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.66% | +1.76% | -2.42% |
| 1 Month | -6.80% | +1.52% | -8.32% |
| 3 Months | -2.95% | +2.06% | -5.01% |
| 6 Months | -9.32% | +6.87% | -16.19% |
| YTD | -11.27% | +7.44% | -18.71% |
| 1 Year | -18.62% | +3.64% | -22.26% |
| 2 Years | +7.38% | +26.38% | -19.00% |
| 3 Years | +20.55% | +43.73% | -23.18% |
Havells India's stock performance has been decidedly disappointing across most relevant timeframes. The one-year return of -18.62% compares unfavourably to the Sensex's +3.64% gain, resulting in a negative alpha of 22.26 percentage points. This underperformance has intensified in recent months, with the stock declining 6.80% over the past month whilst the Sensex gained 1.52%, and falling 9.32% over six months against the Sensex's 6.87% rise.
The technical picture reinforces the bearish sentiment. The stock trades below all key moving averages—5-day (₹1,470.81), 20-day (₹1,512.18), 50-day (₹1,532.14), 100-day (₹1,535.28), and 200-day (₹1,544.32)—indicating persistent selling pressure and lack of buying support. The overall technical trend classification stands at "Bearish," having deteriorated from "Mildly Bearish" on 13th October 2025.
Longer-term returns paint a more favourable picture. The five-year return of 113.01% slightly outperforms the Sensex's 109.97%, whilst the 10-year return of 472.17% significantly exceeds the Sensex's 208.48%, demonstrating Havells' wealth-creation capability over extended periods. However, recent performance suggests the growth trajectory has stalled, requiring operational improvements to reignite investor interest.
Investment Thesis: Quality Company in Temporary Downturn
Havells India's investment case rests on several enduring strengths that transcend current cyclical challenges. The company maintains an "Excellent" quality grade, reflecting its debt-free balance sheet, consistent profitability spanning over a decade, robust cash generation, and zero promoter pledging. The five-year sales CAGR of 21.16% and EBIT growth of 20.64% demonstrate the company's ability to scale operations whilst maintaining profitability.
The company's return on equity of 17.69% places it amongst the better-performing manufacturing companies in India. Higher ROE indicates superior capital efficiency, meaning Havells generates more profit per rupee of shareholder equity compared to peers. This metric, combined with a return on capital employed exceeding 32%, validates management's capital allocation decisions and operational execution.
However, near-term headwinds cannot be ignored. The financial trend classification has deteriorated to "Flat" from "Positive," with key metrics including net sales, profit before tax (less other income), and profit after tax all declining compared to the previous four-quarter average. The technical trend remains "Bearish," with multiple indicators—MACD, Bollinger Bands, and Dow Theory—signalling weakness. This combination of flat fundamentals and negative technicals justifies the current "Sell" rating with a score of 48 out of 100.
Key Strengths
- Zero Debt Balance Sheet: Net cash position of ₹3,378 crores provides strategic flexibility and eliminates financial risk
- Strong ROE of 17.69%: Demonstrates superior capital efficiency and consistent value creation for shareholders
- Market Leadership: Dominant position in cables, switchgear, and lighting segments with strong brand equity
- Diversified Portfolio: Presence across multiple electrical and consumer durable categories reduces concentration risk
- Consistent Profitability: Uninterrupted profit generation for over 10 years demonstrates business resilience
- No Promoter Pledging: Stable 59.38% promoter holding with zero pledged shares indicates management confidence
- Excellent Quality Grade: Sustained "Excellent" rating reflects robust fundamentals and governance standards
Key Concerns
- Growth Deceleration: Q2 FY26 revenue growth of 5.29% YoY significantly trails historical 21.16% CAGR
- Margin Compression: Operating margins declined from 11.57% to 9.17% over two quarters, indicating pricing or cost pressures
- Sequential Weakness: QoQ declines in both revenue (-12.39%) and profit (-9.65%) raise concerns about momentum
- FII Exodus: Foreign institutional holdings dropped 5.48 percentage points over four quarters, signalling waning global confidence
- Bearish Technicals: Stock trades below all moving averages with negative technical indicators across timeframes
- Significant Underperformance: One-year return of -18.62% vs Sensex +3.64% represents 22.26% negative alpha
- Elevated Valuations: P/E of 65.99x and PEG of 46.13x appear stretched given current growth rates
Outlook: Monitoring Points for Recovery
Positive Catalysts
- Seasonal Recovery: Q3 and Q4 historically stronger due to festive demand and pre-summer stocking
- Infrastructure Push: Government's infrastructure spending could boost cable and switchgear demand
- Margin Stabilisation: Raw material prices cooling could enable margin recovery in coming quarters
- Market Share Gains: Unorganised sector consolidation provides opportunity for organised players like Havells
Red Flags to Watch
- Further Margin Erosion: Operating margins falling below 9% would signal deeper structural issues
- Continued FII Selling: Additional foreign investor exits could pressure valuations further
- Revenue Stagnation: Flat or negative YoY growth in upcoming quarters would confirm demand weakness
- Technical Breakdown: Breach of 52-week low at ₹1,360 could trigger accelerated selling
The Verdict: Quality Company, Wrong Time
Score: 48/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst Havells possesses strong long-term fundamentals, near-term headwinds including margin pressures, growth deceleration, and negative technical momentum suggest better entry opportunities may emerge at lower levels. Consider the stock if it corrects to ₹1,300-1,350 range, closer to the 52-week low.
For Existing Holders: Consider reducing exposure, particularly if holding at cost basis above ₹1,600. The combination of flat financial trends, bearish technicals, and FII selling suggests the path of least resistance remains downward. Long-term investors with high conviction may hold through the cycle but should brace for continued volatility and potential further downside.
Fair Value Estimate: ₹1,350 (9.16% downside from current levels), based on 55x P/E applied to normalised earnings and adjusted for current growth trajectory.
Havells India exemplifies the challenge of timing quality investments. The company's fortress balance sheet, market leadership, and track record of value creation remain intact. However, cyclical headwinds, margin pressures, and technical weakness create an unfavourable risk-reward equation at current levels. Investors would be better served waiting for clearer signs of operational recovery and technical stabilisation before committing capital to this otherwise excellent franchise.
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
