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Maintain ‘buy’ on Havells India with TP of Rs 1,320

Switchgears segment which has highest EBIT margin reported 98.4% revenue growth leading to overall margin improvement.

Havells reported stronger Q1FY22 than consensus estimates. In-spite of steep inflationary pressures, the company was able to improve gross margin by 90bps

YoY due to (1) better revenue mix, (2) selective price hikes across segments and (3) cost saving initiatives. The firm has gained market shares in most segments (our view) as its price hikes were relatively lower than unorganised/smaller players. Ahead, we model recovery in revenues/ profitability of Lloyd which was impacted due to lockdown in key summer season. We model Havells to report PAT CAGR of 19.3% over FY21-FY23E with: (1) strong volume growth, (2) price hikes in high single digits and (3) benefits of cost saving initiatives and recovery in Lloyd. We remain structurally positive on the firm due to its competitive advantages and growth opportunity in consumer durables. Maintain BUY with a DCF-based target price of Rs 1,320 (56x FY23E; Earlier TP-Rs 1,198).

Q1FY22 performance: Havells reported revenue, EBITDA and PAT growth of 75.9%, 170.0% and 268.5%, respectively, YoY. Two-year revenue and PAT CAGR were -2% and 15.3%, respectively. We believe (1) strong consumer off-take, (2) market share gains from smaller/ unorganized players, (3) mid-high single digit price hikes across products and (4) favorable base helped to report strong revenue growth. Gross and EBITDA margins expanded 90bps and 470bps, respectively due to timely price hikes and cost saving initiatives.

Strong growth across segments: Segment-wise revenue growth rates were as follows: Switchgears 98.4%, Cables 75.0%, Lighting & fixtures 50.7%, Electrical consumer durables 91% and Lloyd Consumer 62.5%. While there is strong consumer off-take, revival in Government and private capex is also leading to strong growth of Industrial and Infrastructure portfolio.

Better revenue mix and acceptance of price hikes by consumers: Switchgears segment which has highest EBIT margin reported 98.4% revenue growth leading to overall margin improvement. We also believe the price hikes by Havells are largely accepted by the trade/consumers with negligible impact on off-take.

 

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