Havells India Ltd. share price target

Havells' muted topline growth at 4% YoY in Q1FY20 was below our estimate mainly due to Lloyd division, which surprised us with revenue de-growth of 8% YoY in the strong season for air conditioners. In addition, the poor demand for switchgear and cable business is largely due to prevailing weakness in the real estate industry and delay in government projects post elections. On the margin front, decline in EBITDA margin by ~200 bps YoY was largely on account of higher employee cost and advertisement expenditure incurred in the Lloyd business. Though the management...

Havells has gained significant market share in switches (+150bps YoY), lighting (+200bps YoY), fans (+300bps YoY), water heater (+400bps YoY) and other appliances (+250bps YoY) in FY19. Havells' success in ECD (drove re-rating) is expected to sustain despite the scale becoming large. With focus on new launches and market share gains, co has taken a significant leap in FY19 on (1) R&D (New design studio in Noida), (2) Employee strength (expense up 28% YoY) and (3) A&P spend (up +25% YoY). We believe these costs are peaking (% of sales) and hence expect margin expansion. Additionally, benign commodity inflation and price hikes will further support margins. We maintain NEUTRAL (downgraded in Jan-19) and may upgrade at a better price, risk/reward is unfavorable. Havells 1Q was weak led by slowdown impact on core business while Lloyd shocked us on all fronts. Lloyds brand re-positioning initiatives are hurting Havells as the brand lost market share and margins (1% EBITDAM in a harsh summer). We are optimistic on core business to bounce back in 2HFY20 but remain cautious on Lloyds recovery in FY20 (non-seasonal). We cut our EPS by 10% for FY20-21E. We value Havells at 36x on Jun-21 EPS, arriving at a TP of Rs 694. Maintain NEUTRAL.

Another quarter of revenue pressure: Revenues continued disappointing for the second consecutive quarter, with growth of meager 4.5% YoY to INR27.1b (10% miss). EBITDA too declined 11.7% YoY to INR2.8b (24% miss), with the margin contracting 180bp YoY to 10.2%. Other income came in higher than our estimate at INR397m. However, the tax rate stood at 34%...

Background: HIL is one of India's largest & fastest growing electrical and power distribution equipment manufacturers with products ranging from industrial & domestic circuit protection switchgear, cables & wires, motors, fans, power capacitors, CFL lamps, luminaries for domestic, commercial & industrial applications, modular switches, water heaters and domestic appliances covering the entire gamut of household electrical needs along with industry lights and cables. Havells owns some of the prestigious...

Havells India Ltd (HAVL) is a leading player in electrical consumer goods in India. Its key verticals include switchgears, cables & wires, lighting fixtures and consumer appliances....

Growth Across Segments Offset by Lower Margins: Havells Q4 had a lower growth of 8.6% YoY due to decline in Lloyd revenues and subordinate growth in ECD business. Both the businesses were impacted by lower consumer demand intensified by liquidity crunch, general elections and delayedsummer.

In FY19, Havells attained great success in its ECD segment (up 30% despite a base of 21% in FY18) which consistently led to revenue beat. However, EBITDA growth was challenged (14%). In FY20, we expect the co. to continue to scale its new launches, improve Lloyd's performance and benefit from higher B2B spend. We also expect segment margins to revive (FY17-FY18 band) resulting in robust EBITDA growth. We don't expect a re-rating in the stock (high implied valuation for ECD) and believe most near term positives are factored in the stock Havells 4Q performance was weak owing to extended winter and liquidity crunch in the trade. We believe the slowdown is short-lived (led by stable government, hot summer 2019 and recovery in trade liquidity) and Havells will resume its outperformance. We maintain our NEUTRAL stance as we believe most of the near-term positives are priced-in. We value at 36x on Mar-21 EPS, arriving at a TP of Rs 743.

Havells' Q4FY19 topline growth at ~9% YoY (I-direct estimate: 15%) was largely impacted by liquidity crunch, extended winters and impending general elections. Lloyd business revenue declined ~9% YoY to | 532 crore while lighting and ECD business growth were subdued at 7% and 9%, respectively. Lower demand coupled with intense competition has restricted the company from passing on inflationary pressure, resulting in a slight contraction in gross margin. Also, higher fixed cost dented EBITDA margin (down ~240 bps) higher than our estimate. Though the management guided...

We lower our earning estimates by 11% & 8% for FY20E & FY21E to factor in near impact on earnings. Despite this, we expect earnings to grow by 23% CAGR over FY19-21E. We roll forward to FY21E and value HAVL at 36x (historical average) given its high brand recall, strong retail presence and strong balance...

consumption and liquidity crunch impacted business with the situation continuing into April-May. Overhang of the recently concluded elections also impacted revenue. 4QFY19 revenue growth stood at 9%, while EBITDA margin was down 240bp to 11.7%. Adj. PAT declined 12% YoY to INR2.1b. FY19 marked by strong revenue growth, but challenges on margin front: Overall, FY19 was marked by robust revenue growth; overall revenues grew 23.6%, with Havells (ex-Lloyd) at 22% (4QFY19: 14%). The company surpassed INR100b revenue this year. Segment wise cables grew 24%,...