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Maintain ADD on Havells India - Robust performance despite the odds - HDFC Securities

Posted On: 2021-07-25 07:24:04 (Time Zone: UTC)

Havells delivered a strong Q1FY22 performance despite the industry facing several challenges due to COVID-19. Revenue grew by 76% YoY (HSIE 68%), driven by strong performance across all segments, notably switchgears and ECD. While our channel checks suggested a ~15% revenue decline vs. Q1FY20, Havells, through its superior execution capabilities, managed to control the revenue decline to 4% (vs. Q1FY20), as against the 46% YoY dip registered in Q1FY21. With the second wave hitting India at the peak of summer season, Lloyd lost out on crucial sales; however, it posted slightly higher revenue than our expectation (24% down vs. Q1FY20). Despite steep raw material inflation, gross margin was resilient. The company saw 99bps YoY expansion in gross margin to 35.7% but it was down 170bps QoQ. EBITDA margin expanded by 474bps YoY to 13.6% (HSEI 13.3%), but was down 160bps QoQ. EBITDA grew by 170% YoY (HSIE 152%), clocking a 13% two-year CAGR. We expect the growth momentum to sustain, owing to healthy underlying demand (driven by housing activities), share gains, and revival in B-B. We continue to value Havells at 50x P/E on Jun-23E EPS to derive a target price of INR 1,200. We expect the rich valuation to sustain; maintain ADD.

Continued its all-round performance: Revenue was up 76% YoY (HSIE 68%), but it was down by only 4% on Q1FY20 vs. the 46% YoY dip in Q1FY21. Switchgears / cables / lighting / ECD delivered YoY growth of 96/75/52/91% while compared to Q1FY20, the growth was +9/+4/-16/+3%. Lloyd lost out on crucial peak summer sales still it registered only 16% QoQ dip. Our channel checks suggest that the RAC industry saw a higher decline (on Q1FY20) than electrical categories. We expect revenue growth momentum to sustain with inspiring industry recovery, housing activities, and share gain. Havells has undertaken several initiatives for Lloyd, but it has yet to go through a full normal season for us to understand the extent of recovery of the brand.

Beat in margin: GPM was up by 99bps YoY (down 281bps in 1QFY21 and +127bps in 4QFY21), lower than our expectations of 131bps YoY expansion. Employee/A&P/other expenses grew by 32/645/48% YoY on a low Q1FY21 base. EBIT margin for switchgears/cables/lighting/ECD/Lloyd expanded by 1.2pp/770bps/1.3pp/-58bps/-2bps YoY to 27/16/15/12/2%. EBITDA margin saw an expansion of 474bps YoY to 13.6% (-140bps in 1QFY21 and +411bps in 4QFY21). EBITDA grew by 170% YoY (HSIE +152%).

Con call takeaways: (1) Compared to the first wave, in the second one, the demand was more driven by the underlying trend instead of pent-up demand. (2) Project execution this year is driving B-B growth. (3) Lloyds' inventory levels are high at company level (are expected to normalise in 1-2 quarters) while trade level inventory is not at a high level. (4) Capex plans remain unchanged at INR 5bn and INR 10bn for the next two years.

Shares of HAVELLS INDIA LTD. was last trading in BSE at Rs. 1143.85 as compared to the previous close of Rs. 1151.45. The total number of shares traded during the day was 149697 in over 8903 trades.

The stock hit an intraday high of Rs. 1166.55 and intraday low of 1139.05. The net turnover during the day was Rs. 172203831.

Source: Equity Bulls

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