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Emerging as a one-stop FMEG player

Leading FMEG player: Havells India Ltd is India’s leading Fast Moving Electrical Goods (FMEG) company with an extensive distribution network and world class quality. It enjoys market dominance across a wide spectrum of products, including industrial & domestic circuit protection devices, cables & wires, motors, fans, modular switches, home Appliances, air conditioners, electric water heaters, power capacitors, luminaires for domestic, commercial and industrial applications. It has a wide distribution network of 14,000 direct dealers and 2,10,000 retailers. The company manufactures >90% of its products in-house through its 14 manufacturing units.

Biggest beneficiary of industry tailwinds: Given its strong presence across key segments, Havells would be the biggest beneficiary of growing trend in its addressable market i.e consumer electrical industry. This would be led by structural growth drivers like rapid urbanization, nuclearization of families, rising disposable income, faster shift towards organized players, and increased government thrust on infrastructure and housing.

Wires & Cables business key to growth: The wires & cables business is the single largest business for Havells contributing nearly 33% of its overall revenue and 31% of overall EBIT. The company delivered an impressive performance in FY22 with revenue growth of 46%. However, a large portion of this growth was predicated on the rise of copper and aluminium prices. Going forward, we remain constructive on medium to long term prospects for this industry on the back of shift from unorganised to organised and channel expansion. Moreover, revival of real estate, thrust on infrastructure, telecommunication and renewable to drive category growth.

Consumer Durable segment to provide impetus to growth: Havells acquired Lloyd consumer durable business in 2017 to enter the fast growing consumer durable business. The consumer durables industry is well poised to grow given the underpenetration of key appliances, electricity dissemination, and rising base of aspiring customers. The constant focus of company towards strengthening the brand through channel expansion, innovative product offer and investments in manufacturing and customer outreach would help the company to outperform the industry.

Valuations: Havells delivered a decent show in FY22 with revenue growth of 33% however, higher material cost pressure impacted margins which resulted in PAT growth of 15%. In Q1FY23 as well, while the growth remained robust, margins were impacted. However, we expect margins to normalize in coming quarters led by recent correction in commodity prices and combination of price hikes and cost optimization measures. Factoring this, we estimate Havells Revenue/EBITDA/PAT to grow at a CAGR of 15.2%/19.5%/22.1% over FY22-24E. While we remain constructive on the company, we initiate with a Hold rating and a target price of Rs. 1,466 due to limited upside from current levels.

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