- Q3 EBITDA rose 21% YoY but missed consensus, hinting at hidden cost pressures.
- Operating margin slipped 50 bps YoY and fell short of estimates, driven by cable & wire and lighting weakness.
- Adjusted PAT grew 20% YoY yet underperformed forecasts, raising questions on earnings quality.
- Current valuation sits at ~49x FY27E EPS, suggesting limited upside unless margins improve.
- Peers like Tata Power and Adani are benefitting from stronger renewable exposure, widening the competitive gap.
Most investors ignored Havells India's margin slip—big mistake.
Havells India's Q3 Earnings: What the Numbers Really Reveal
The third quarter of FY26 delivered an EBITDA of INR 5.2 billion, a respectable 21% year‑over‑year rise. However, that figure trailed the consensus by roughly 7%, exposing a gap between topline growth and profitability expectations. Operating profit margin (OPM) edged up 50 basis points to 9.2%, but the improvement was modest and still fell short by 1.1 percentage points versus analyst forecasts. Adjusted net profit, after stripping labor‑law related charges, climbed 20% YoY to INR 3.3 billion, yet it missed the street by 15%.
In plain terms, Havells is growing revenue but the earnings engine is being throttled by cost headwinds. The lagging margins are the real story, not the headline EBITDA growth.
Margin Pressure in Cable & Wire and Lighting: Sector‑Wide Trend
The cable & wire (C&W) and lighting divisions are core profit contributors for Havells. Both segments reported lower gross margins this quarter, a pattern echoed across the Indian electrical equipment industry. Raw material inflation—copper, aluminum, and polymer prices—has surged over the past six months, compressing input cost buffers. At the same time, intensified competition from low‑cost Chinese imports has forced price concessions, eroding profitability.
For investors, this signals a two‑fold risk: first, the company may need to absorb higher costs or pass them to customers, each with its own downside; second, margin recovery will likely require operational efficiencies or product mix shifts, both of which take time.
Peer Comparison: How Tata Power and Adani Edge Ahead
When benchmarking Havells against peers, Tata Power and Adani Energy stand out. Tata Power's renewable portfolio has delivered double‑digit margin expansion, buoyed by government incentives and stable PPAs. Adani, leveraging its vertically integrated supply chain, has kept C&W costs lower than the industry average.
Both competitors are trading at roughly 30‑35x FY28E earnings multiples, a stark contrast to Havells' 49x FY27E and 41x FY28E levels. The valuation premium for Havells is predicated on the assumption that its brand strength will translate into margin recovery—a bet that may be too optimistic without clear execution.
Historical Parallel: Past Earnings Misses and Stock Reaction
Looking back at Havells' FY22 Q3 results, the company posted a similar earnings miss driven by margin compression in its lighting business. The stock dropped 12% on the news, then recovered gradually over six months as the firm launched a premium LED line and trimmed SG&A expenses.
That episode teaches two lessons: (1) the market penalizes missed guidance aggressively, and (2) a credible turnaround narrative can restore confidence, but only if accompanied by tangible operational wins.
Technical Snapshot: Valuation Multiples and What They Imply
Current trading at 49x FY27E EPS implies a forward price‑to‑earnings (P/E) ratio that is well above the sector average of 33x. Even the revised target price of INR 1,590—based on a 45x FY28E EPS multiple—still suggests limited upside unless margins improve or earnings accelerate.
From a technical standpoint, the stock is testing a resistance level near INR 1,620, a zone that historically acted as a ceiling after each earnings season. A break above this level could trigger short‑term buying pressure, but a failure to sustain would likely see the price retreat to the 1,500‑1,520 range.
Investor Playbook: Bull vs. Bear Cases
Bull Case: If Havells successfully launches higher‑margin smart lighting solutions and negotiates better raw‑material contracts, OPM could rebound to 10%+ by FY28. Coupled with a modest revenue CAGR of 8‑10%, the valuation would compress to ~35x, unlocking 15‑20% upside to INR 1,850.
Bear Case: Continued margin erosion in C&W and lighting, compounded by rising labor costs, could push OPM below 8% and force the company to cut dividend payouts. In that scenario, the stock could slump to the INR 1,300‑1,350 corridor, delivering a 15%‑20% downside.
Given the mixed signals, a neutral stance with a focus on price action and quarterly updates is prudent. Investors should watch the upcoming Q4 guidance closely—especially any forward‑looking comments on margin recovery—and adjust exposure accordingly.