35% Growth Masks Margin Reversal — Market Doubts the Fix

Havells delivered on the growth headline — ₹6432 crore revenue, +35% year-on-year — validating management's prior call on resilient momentum. But the print masks a sharp reversal: operating margins compressed to 8.9%, dragged down 380 basis points in the cable segment where management had promised stabilization. On Q1's call, the company laid out a path to margin recovery. Q2 went the other way. That gap is the quarter's real story.

The cable segment — a commodity business sensitive to aluminium and copper input costs — saw contribution margins tumble 380 bps year-on-year. Management attributes this to deflation in aluminium prices during the quarter, which lagged prior-year base comparisons and offset volume gains. In H1 overall, cable achieved its normalized 15% contribution margin level. But in Q2 specifically, that pressure persisted. Switchgear (mostly residential, margin-friendly) normalizing toward 38–40% long-term range. Lloyd added 28.5% top-line growth but remains unprofitable due to under-absorption in off-season manufacturing overhead — a cost not yet passed on to the channel.

Cable margin recovery timeline pushed back: Q1 promised stabilization; Q2 pushes normalization to Q3+ via pricing actions (5–7% hikes planned). Unproven that the market will absorb price increases without demand erosion, especially in a commodity segment competing on cost. Lloyd profitability deferred: Prior language implied near-term path to breakeven. Q2 call retreated to 'medium-term annual profitability' with a 6–9 month distribution reset still required. Refrigerator factory commissioned March 2026 is not yet fully ramped — manufacturing overhead under-absorption persists. Renewables segment upgraded: Management emphasized margin profile improving and scaling 'healthily.' Treating as brand and distribution play, not commodity. ₹300 crore quarterly revenue pace mentioned but early-stage; margin visibility improving.

The market has rendered its verdict on Havells long before this call closed. The stock trades at ₹1031 as of 23 Oct 2026 — a 51% drawdown from its all-time high of ₹2106. It sits below all three key moving averages: 20-day (₹1068), 50-day (₹1144), and 200-day (₹1242). RSI at 37.3 signals oversold territory. Trend is bearish. Institutional flows tell the story even more clearly. Foreign institutional investors (FII) have been systematic sellers. From a peak of 22.31% holding in Q4 FY25, they've trimmed to 15.91% as of Q1 FY27 — a cumulative exit of 6.4 percentage points over six quarters. Q2 FY26 marked the low at 15.52%; FII have not yet stabilized above that level. Domestic institutional investors (DII) have added marginally (18.26% in Q1 FY27 vs 15.52% in Q2 FY26), but not enough to offset foreign selling. Promoters remain locked at 59.35% (unchanged). Volume trend is increasing — institutional liquidation, not retail accumulation. The 51% drawdown from ATH is not a bottom-fishers' opportunity signal; it's an indictment of unmet margin recovery promises and a vague turnaround (Lloyd, cable stabilization) that management keeps deferring. The market does not believe the fixes are coming in the timeframe implied.