Maintain ADD on Havells India – Beat on the sidelines; ECD steals the show – HDFC Securities


Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Havells posted strong revenue / EBITDA growth of 50/106% year-over-year (HSIE 50/94%), exceeding ours as well as street expectations. Such performance in an adverse environment reiterates Havells’ superior performance and strong business model. Revenue was clocked at 10% CAGR over 2 years while ECD remained the showstopper, registering 71% year-on-year growth in 4Q (16% CAGR over 2 years) and 19% in FY21. Growth was driven by improved consumer confidence (ease of foreclosure), pre-purchases, market share gains and better distribution for the business in small towns and rural areas. Lloyd’s recovery in FY21 was also healthy despite a difficult year for the RAC industry (which was down 29% in FY21). Lloyd recorded revenue growth of 29/6% with an EBIT margin of 5.4 / 4.4% in 4Q / FY21. Despite strong RM inflation, the gross margin increased by +127 basis points year on year (exceeded in margin) and the EBITDA margin increased by +400 basis points year on year to 15.2% (HSIE 14.3%). EBITDA increased 107% year-on-year (HSIE 94%), registering a robust 2-year CAGR of 27%. The COVID lockdown impacted FY22 performance (mostly seasonal products); therefore, we have reduced EPS by 5/2% for fiscal year 22/23. We are pricing Havells at 50x P / E on June 23 to get a target price of INR 1,150. Maintain ADD.

Robust growth across all segments: revenue increased 50% year-on-year (HSIE 50%). Switches / cables / lighting / ECD / other increased 53/51/40/71/40% year-on-year. Lloyd maintained momentum and achieved 29% year-on-year growth despite robust 70% growth in 3Q (45% year-on-year growth in 2HFY21). It recorded a 2-year CAGR of 11% in 2HFY21. This encouraging growth has been driven by better distribution and penetration in small towns and rural areas, as well as improved consumer sentiment due to the decline in COVID-19 cases. Havells gained market share, due to supply chain disruptions with heavy dependence on imports as well as unorganized sector gains.

Beat in margin: GM rose 127 bps yoy (-71 bps in 4QFY20 and -145 bps in 3QFY21), better than expecting a 67 bps year-on-year decline. Employees / A & P / Other expenses increased 30/72/32% year-over-year. A&P for FY21 was down 59% YoY. EBIT margin for Switchgear / Cables / Lighting / ECD / Lloyd increased from 450/502/660/189/342 bps year on year to 27/15/21/15/5%. The EBITDA margin was robust and expanded by 411 basis points year on year to 15.2% (-37 basis points in 4QFY20 and + 420 basis points in 3QFY21). EBITDA increased 106% year-on-year (HSIE + 94%).

Takeaways from ConCall and BS / CF: (1) The supply chain and demand situation is currently better than last year; (2) MGT expects rapid recovery (especially in Tier 1 towns) after the lockdown is released; (3) a sharp rise in prices would have no impact on demand because the categories have low price elasticity; (4) BB experienced strong growth in 4Q (down in 1HFY21); (5) consumers increasingly prefer trusted brands; (6) RAC stock is high at both channel and company level; (7) rural incomes grew> 100% year-on-year; (8) fans saw a price increase of 10% (until April), while the sons saw a price increase> 20%; (9) Cable gross margin increased due to low cost inventory; (10) The FCF was at Rs 4.3 billion against Rs 4.6 billion in FY20.

Shares of HAVELLS INDIA LTD. was the last BSE trade at Rs 1,015.75 from the previous close of Rs. 1027.85. The total number of shares traded during the day was 75,438 in more than 3,900 transactions.

The stock hit an intraday high of Rs. 1036.75 and an intraday low of 1014. The net turnover during the day was Rs. 77,117,850.

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