Havells India Ltd. share price target

HAVL remains focused on a) non-residential/B2B market and projects, b) mass premium market in electricals, c) increasing channel reach / width and d)expanding share in west and south India, where it has historically had a weak presence. Distribution channel: For HAVL, dealers form a key part of the distribution network. The company intends to continue expanding the width/depth of its distribution channel and also its omni-channel presence. The company targets to establish a meaningful presence across categories (to be among top 5, preferably top 3) to ensure industry leading growth and market share expansion across segments. Focus on organic growth: It does not plan any big-bang acquisitions, but will focus on India and bridging product gaps.

Continuously entering new categories to drive growth: Havells India (HAVL) has consistently identified and entered new product categories over the years (see Exhibit 1). Some of the key categories where it has made a successful entry include lighting in 2003, premium fans in 2005, water heaters in 2010, REO Switches in 2012, air coolers in 2014, re-launch of the Standard brand in 2016 (target of INR10b by FY20) and EHV cables. The recent acquisition of Lloyd gives HAVL a strong foothold in the fast growing durables segment the aim is to double revenue in the next three years through new product launches, expansion of...

We maintain a BUY on Crompton and V-Guard, while upgrading Havells' rating from NEUTRAL to BUY. GST rates were revised in the 23rd GST council meeting for a host of consumer products from 28% to 18%. The new invoicing would start from 15-Nov-2017. In our coverage universe, key categories that benefited are Detergents, Shampoos, Beauty care, Fans, Cables & Wires, and Restaurants. We interacted with the mgt of various companies to understand the benefits of the revision in rates. The key benefits of this move would be (1) Affordability for consumers, as a large portion of the reduction in rates would be passed on to them, (2) Lower rates will incentivise players to shift from the unorganised to organised biz, (3) A push for premiumisation, since consumers can upgrade to premium segment, and (4) Pricing power for companies (lower tax impact on price hikes).

Havells (HAVL) reported Q2FY18 net sales growth of 22% YoY at Rs 17.7 bn reflecting Lloyds consolidation (Rs 2.6 bn). Adjusted for excise impact, core business (ex-Lloyd) grew 6.7% YoY, while Lloyd grew 11% YoY.

Good bottom line as an impact of inventory gains and lower Advertisement expense: Revenue of Havells for H1FY18 has grown by 20.0% YoY, but the revenue numbers are not comparable as there is additional revenue of Lloyd consumer which was not there in H1FY17.

We value Havells on 35x P/E on Sep-19EPS, hence our TP is Rs 558. The stock has run- up by ~18% in the last three months, after we upgraded it to BUY. With limited upside, we downgrade our rating to NEUTRAL. Havells 2QFY18 revenue grew by 4% (ex-Lloyd Consumer) to Rs 15.1bn. Like-to-like growth was at 6.7%, adjusted for the impact of higher excise duty. Hence, core business growth was slower vs. expectation of 11% and 9% clocked in 1QFY18. EBITDA and APAT (ex-Lloyd Consumer) was up by 17% and 9% YoY respectively.

ICICI Securities Ltd | Retail Equity Research Havells' record sales growth of 4% YoY (22% YoY growth including Lloyd) in Q2FY18 was led by strong 21% revenue growth in the lighting & fixture segment. However, transition to GST regime that led to a decline in primary offtake starting May 2017, continued its impact on electrical consumer durable (ECD) (mainly due to higher GST rate). However, despite weak season Lloyd's business grew ~11% YoY in Q2. On the other hand, sluggishness in construction...

Core business (ex-Lloyd) growth muted on weak demand and low level of restocking: Core business revenue grew at a muted 4% YoY to INR15.1b (+6.7% YoY, adj. for excise impact on exempted zones), below our estimate of INR15.8b, due to weak demand in construction and industrial segments and lower-than-expected restocking by retailers. Despite muted revenue growth, operating profit increased 17% YoY to INR2.4b and adjusted EBIDTA margin improved 180bp YoY to 15.8%, driven by price hikes taken in the cables & wires segment, low advertising spend and withdrawal of dealer...

A Mixed Bag of Results: Revenue of Havells has grown by 8.2% QoQ and 26.0% YoY respectively, but therewas a disappointment on the margins front which were down by 384bps QoQ and 409bps YoY. EBITDA degrew by 24.9% QoQ and 14.3% YoY. The EBITDA margins at 8.7% were impacted by destocking at dealer level due to GST implementation and reduction in sales of high margin non-cable business.