Consumer-facing companies like Havells, Polycab, and KEI Industries have planned capex to the tune of over Rs 2,000 crore to expand capacities to cater to increasing demand.
Havells set foot in the consumer appliances market with the Rs 1,600 crore acquisition of Lloyd Electric and Engineering in 2017. After some initial losses, Lloyd has now become an integral part of the Havells portfolio, contributing 16 percent to the overall topline in FY22. Washing machines form a very small part of the Lloyd business for Havells, and the company has decided to double down on the same.
Last week, Havells announced that it would expand capacity for the production of washing machines at its facility in Ghiloth, Rajasthan. Here are some more details about the capex plan:
Havells' Ghiloth unit is a washing machine manufacturing plant. The greenfield plant increases the company's production capacity and helps towards its vision to bring 20 new models of washing machines and 50 new AC models in 2022. The unit went on stream in December 2021 with an initial capex of Rs 500 crore.
Along with washing machines, the firm is also setting up a cable manufacturing unit in Tumakuru in Karnataka with an estimated investment of Rs 300 crore, excluding the value of the existing land. The unit will have a proposed annual capacity of 3.48 lakh kilometers and production is likely to commence by March 2024. Havells has an existing manufacturing facility for cables at Alwar in Rajasthan.
The company has outlined a capital expenditure plan of Rs 700-800 crore for FY23, including the greenfield expansion of the RAC units in Sri City.
For the first quarter of FY23, Havells' switchgear business grew 39 percent from last year, while the cables business witnessed 49 percent growth from last year. Revenue from the Lloyd business, which houses washing machines, increased 119 percent year-on-year.
In November last year, 42 companies, including Havells, were provisionally selected as beneficiaries under the Production Linked Incentive (PLI) scheme for the white goods sector. The scheme entailed committed investments worth Rs 4,614 crore.
No guilt about spending more
Havells' immediate peers, Polycab and KEI Industries, are also shelling out the cash to cater to any potential rise in demand. Polycab has mentioned that it would not shy away from spending more than its estimated capex of Rs 300-400 crore for FY23.
Polycab's management also mentioned that it is looking for potential profitable merger and acquisition deals. The company is targeting sales worth Rs 20,000 crore by FY26. Polycab's wires and cables business increased 49 percent in the June quarter of FY23.
"If we decide to get into adjacent product categories, that number of Rs 300 crore-Rs 400 crore will probably change," CFO Gandharv Tongia mentioned during Polycab's earnings call.
Betting on power generation, infrastructure
KEI Industries is also leaving no stone unturned to cater to its target audience and is doubling down on the infrastructure segment, particularly in power generation. It intends to spend Rs 200-250 crore annually over the next three years to maintain a Compounded Annual Growth Rate of 17-18 percent against the historical rate of 15 percent.
"We see a strong growth in the infrastructure segment, especially from power generation, through solar and wind and other energy sources, transmission and distribution and industrial sector like steel, aluminium, cement, fertiliser and refinery expansions, which are underway at the moment," Chairman and MD Anil Gupta said on the earnings call.
Aim to lead the space
Bajaj Electricals aspires to be India's leading fast-moving electrical goods (FMEG) player with a revenue target of Rs 7,500 crore by 2025. It is already demerging its power transmission and distribution business (T&D) into a separate entity.
The company has already renewed its long-standing license agreement with UK-based Morphy Richards for 15 years starting July 2022. It spent close to Rs 34 crore in capital expenditure in FY22, while there is no clarity on how much the firm plans on spending in the current financial year.
Analysts take
Analysts believe that while the overall consumer electricals market remains stable, the sentiment is positive ahead of the upcoming festive season. "Channel expects consumer demand to be robust during the festive months of September and October," IIFL Securities wrote in a note on August 24.
While demand from rural or smaller towns has been soft, brands like Havells are expanding aggressively to reach a wider market segment. The company has not witnessed significant changes in consumer behaviour due to higher inflation. "With a correction in commodity prices, demand should bounce back," the note said.
Shares of these consumer electrical companies have remained flat this year, with Havells down 1.5 percent, and Bajaj Electricals down 5.7 percent. Polycab, meanwhile, has gained 2.2 percent.
First Published: Sept 2, 2022 1:38 PM IST
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