Maintain ADD on Havells India - Beat in margin; ECD steals the show - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Havells posted a strong revenue/EBITDA growth of 50/106% YoY (HSIE 50/94%), beating ours as well as the street's expectations. Such performance in an adverse environment reiterates Havells' superior execution and strong business model. Revenue was clocked at 10% 2-year CAGR while ECD remained the showstopper, registering 71% YoY growth in 4Q (16% 2-year CAGR) and 19% growth in FY21. The growth was led by improved consumer sentiment (ease-out in lockdown), pre-buying, market share gains, and improved distribution for the company in smaller towns and rural areas. Lloyd recovery in FY21 was also healthy despite a challenging year for the RAC industry (which declined by 29% in FY21). Lloyd posted 29/6% revenue growth with EBIT margin of 5.4/4.4% in 4Q/FY21. Despite steep RM inflation, gross margin was up by +127bps YoY (beat in margin) and EBITDA margin expanded by +400bps YoY to 15.2% (HSIE 14.3%). EBITDA grew by 107% YoY (HSIE 94%), clocking a robust 27% 2-year CAGR. COVID-led lockdown impacted FY22 performance (mainly seasonal products); hence, we cut EPS by 5/2% for FY22/23. We value Havells at 50x P/E on Jun-23E EPS to derive a target price of INR 1,150. Maintain ADD.

Robust growth across segments: Revenue grew by 50% YoY (HSIE 50%). Switchgears/Cables/Lighting/ECD/Others grew by 53/51/40/71/40% YoY. Lloyd sustained its momentum and registered 29% YoY growth despite robust 70% growth in 3Q (45% YoY growth in 2HFY21). It clocked 11% 2-year CAGR in 2HFY21. This encouraging growth was led by improved distribution and penetration into smaller towns and rural areas as well as the improving consumer sentiment due to lower COVID-19 cases. Havells gained market share, led by supply chain disruptions with high import dependence as well gains from the unorganised sector.

Beat in margin: GM was up by 127bps YoY (-71bps in 4QFY20 and -145bps in 3QFY21), better than the expectation of a 67bps YoY dip. Employee/A&P/Other expenses grew by 30/72/32% YoY. A&P for FY21 was down by 59% YoY. EBIT margin for Switchgears / Cables / Lighting / ECD / Lloyd expanded by 450/502/660/189/342 bps YoY to 27/15/21/15/5%. EBITDA margin was robust and saw an expansion of 411bps YoY to 15.2% (-37bps in 4QFY20 and +420bps in 3QFY21). EBITDA grew by 106% YoY (HSIE +94%).

ConCall and BS/CF takeaways: (1) Supply chain and demand situation as of now is better than last year; (2) MGT expects quick recovery (particularly Tier-1 cities) post ease-out of lockdown; (3) steep price hike would not impact demand as categories have low price elasticity; (4) B-B saw strong growth in 4Q (declined in 1HFY21); (5) consumers are increasingly preferring trusted brands; (6) RAC inventory is high both at channel and company level; (7) rural revenue clocked >100% YoY growth; (8) fans saw 10% price hike (up to April), while wires saw >20% price hike; (9) Cable gross margin expanded due to low priced inventory; (10) FCF was at Rs 4.3bn vs Rs 4.6bn in FY20.

Shares of HAVELLS INDIA LTD. was last trading in BSE at Rs.1015.75 as compared to the previous close of Rs. 1027.85. The total number of shares traded during the day was 75438 in over 3900 trades.

The stock hit an intraday high of Rs. 1036.75 and intraday low of 1014. The net turnover during the day was Rs. 77117850.

Source : Equity Bulls

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