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When Havells India Limited (NSEI:HAVELLS) released its most recent earnings update (31 March 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Havells India’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not HAVELLS actually performed well. Below is a quick commentary on how I see HAVELLS has performed. See our latest analysis for Havells India
Was HAVELLS’s recent earnings decline worse than the long-term trend and the industry?
I look at the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend allows me to examine various companies in a uniform manner using the latest information. For Havells India, its latest trailing-twelve-month earnings is ₹4.83B, which, relative to the previous year’s figure, has declined by a non-trivial -62.88%. Given that these values are relatively nearsighted, I have determined an annualized five-year value for HAVELLS’s net income, which stands at ₹4.95B This doesn’t seem to paint a better picture, as earnings seem to have consistently been falling over the longer term.
What could be happening here? Let’s examine what’s occurring with margins and if the entire industry is feeling the heat. Over the last couple of years, revenue growth has fallen behind which implies that Havells India’s bottom line has been driven by unmaintainable cost-reductions. Eyeballing growth from a sector-level, the IN electrical industry has been growing its average earnings by double-digit 30.66% over the past twelve months, and 10.59% over the past half a decade. This means that whatever tailwind the industry is benefiting from, Havells India has not been able to reap as much as its average peer.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Generally companies that face a prolonged period of diminishing earnings are going through some sort of reinvestment phase in order to keep up with the latest industry growth and disruption. I recommend you continue to research Havells India to get a better picture of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for HAVELLS’s future growth? Take a look at our free research report of analyst consensus for HAVELLS’s outlook.
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Financial Health: Is HAVELLS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
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Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.