Havells India Ltd. share price target

Havells India Ltd (HAVELLS) reported muted growth of ~2% YoY and declined ~18% QoQ to `22,327mn due to sluggishness in demand primarily from Real estate, Industrial and Infra segment. ECD segment grew ~15% YoY with gain in market share. Lloyds and LED performance were the...

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. Revenue grew by modest 2% YoY, which was below expectation. EBITDA margins declined by 150bps on account of weak product mix, margin erosion in Lloyd business and higher cost. But supported by tax cut PAT growth was flat YoY. Demand situation continues to be weak on account of tight liquidity scenario and slowdown in real estate business....

Havells has gained market share in most of its categories even during a challenging environment. We believe co's performance will bounce back with a recovery in macros. Lloyd will remain a WIP in FY20 with a recovery expected from summer-20. Amidst slowdown, management plans to tighten the belt on non-essential costs. We expect EBITDA margins to recover faster than volume growth. We see enough levers for margins to mean revert in the coming quarters. We recently upgraded (in 2Q preview) Havells to BUY (at CMP Rs 656) as risk/reward was favorable. Stock is down by 16% in the last 6-months, we believe weak performance is largely priced-in. Havells reported another let down. Co has been challenged by slowdown (real estate, industrial and govt projects) and impact from rejigging Lloyds strategy. We believe earnings growth trajectory has bottomed out and expect partial recovery in 2HFY20 and full recovery from 1QFY21 onwards. We cut our EPS by 9/4/4% in FY20/21/22 and value Havells at 36x on Sep-21E EPS, with of TP of Rs 739. Maintain BUY.

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

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.

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.

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...

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...

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