Havells India Ltd. share price target

25 October 2019 Havells (HAVL) disappointed on revenue growth for the third consecutive quarter in 2QFY20. Revenue growth was muted at 1.8% YoY (6% miss). While the gross margin expanded by 80bp YoY, the EBITDA margin shrank 150bp YoY to 10.5% on account of lower absorption of overheads. PBT was down 19% YoY to INR2.1b (22% miss). On account of a lower tax rate of 11.6%, PAT came in at INR1.8b (+1.5% YoY). Revenue grew 3.2% YoY, while EBITDA fell 11.3% YoY to INR5.1b.

Sluggish Demand and Competition Led to Underperformance Havells numbers were below our estimates with a meager growth of 1.8% YoY.

Crompton's performance has been luke-warm over the last 4 qtrs resulting in stock underperformance (de-rating). We believe both segments (ECD and lighting) need to fire together for the stock to re-rate. Market share gains in fans, success in appliances, GTM benefits, cost savings program and acceleration in B-B lighting will be the key medium term drivers. We expect 11/16/13% EBITDA growth in 2HFY20/FY21E/FY22E. Reasonable valuations along with structural long-term initiatives of company drives our BUY rating. Cromptons 2Q performance was weak. Dull show in lighting overshadows ECD performance. Crompton remains committed to improve their lighting biz via investments in B-B (inspired by Havells). We believe Cromptons 2HFY20 performance will be similar to 1H and hence dont expect a sharp recovery (unlike peers). We cut EPS by 3-5% over FY19-22E. We value the co at 35x on Sep-21 EPS, arriving at a TP of Rs 339. Maintain BUY.

Demand weakness continues for Lloyd and industrial products Havells witnessed sluggishness in demand of industrial products categories led by a slowdown in private capex and real estate sector. In addition to this, a sharp price erosion in the LED panel and lighting business also aided muted topline growth for the company in Q2FY20. However, the management expects a better demand scenario in H2FY20 over H1FY20 led by a revival in consumer sentiments with a recovery in demand of Lloyd's air conditioner business. Also, dealer addition in rural India coupled with...

We cut HAVL's FY20 and FY21 EPS by 16.5% and 13.5% respectively given 1) Change in Estimates | Target | Reco slowdown in core portfolio growth due to deteriorating demand scenario in real estate, industrial & infrastructure segments and 2) poor visibility on...

Havells India has reported a dismal performance in 2QFY20, with revenue growing by mere 2% YoY to Rs22.3bn led by muted growth across segments except ECD segment (+20% YoY) and Cable & wires segment (+7% YoY). Lloyd revenue declined by 30% YoY due to lower sales in LED panels. The industry experienced aggressive competitive landscape in LED Panels leading to substantial decline in prices, while AC sales were flat during the quarter. Switchgear sales declined by 6% YoY and impacted by slowdown in construction and new projects. Demand has further deteriorated from real estate to industrial and infrastructure segments. Cable & wire revenue has increased by 7%. ECD delivered a strong performance despite tepid market...

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sustained market share gains difficult. We believe increasing competitors focus on premium products in fans and lighting can drag sales growth. in Lloyd, benign input costs and peaked out expenses on distribution...

Incorporated in 1983, HAVL is one of the largest and fastest growing manufacturers of electrical components and systems in India.

Havells in Q4 had a lower growth of 4.5% YoY due to subdued growth across segments with negative growth in Lloyd business. ECD segment had a strong growth of 23.7% YoY due to higher contribution from fans and water heaters.