Published on 9/07/2020 10:29:14 AM | Source: HDFC Securities Ltd

Update On Havells India Ltd By HDFC Securities

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Takeaways from call recently hosted by HDFC Securities Institutional team

Current state of business:

* Business  has  normalised  currently,  post  washout  in  April  and  sub-normal business  in  May.  Demand  at  consumer  level  is  being  witnessed  across categories.

* Management   is   not   witnessing   any   down-trading   in   different   product categories; hence, don’t foresee major risk to realizations.

* Recovery has been swifter in rural India. Tier 1 and 2 cities are still not doing well  in  terms  of  demand  as  key  distribution  centres  in  metros  are  not  fully functional due to local regulations. Havells is at marginal disadvantage due to comparatively lower presence in rural markets.

* Industrial  demand  has  not  picked  up  yet.  However,  some  green  shoots  are visible in the form of government orders

* Capacity  utilisation  of  plants  has  reached  normalised  levels.  Company  has sorted out labour issues.

Channel inventory and current status:

* Company  could  not  stock  up  inventory  at  channel  level  during  March  due to  COVID-19,  so  channel  inventory  is  at  normalized  level.  However,  this helped  company  to  cater  to  pent-up  demand  post  lockdown  relaxation. Currently, channel itself is only stocking products where primary demand at consumer level is being witnessed.

* As of now, there is no pressure from channel for improved trade terms.

Impact on A.C.:

* Summer-2020   was   fairly   strong.   But   COVID-19   impacted   RAC   sales. However, 1QFY20 was a lean quarter forRACs, therefore, YOY impact will not be significant. 

New product/platformlaunches:

* Company is planning to launch refrigerator. The launch has got delayed due to COVID-19.

* Managementhas  launched  O2O  platform  (Online  to  Offline)  in  midst  of COVID-19  outbreak  during  May  to  compete  better  with  online  channel.  In the  past,  Havells  had  strategically  taken  a  call  not  to  push  Lloyd  RACs  on online  platform  due  to  higher  discounting  practices.  Management  believes current  O2O  platform  is  a  win-win  situation  for  customers  (getting  similar service  like  online/modern  format)  and  management  can  reduce  the  extent of price erosion.

COVID-19 fallout and cost cutting measures:

* Bigger  players  are expected  to  gain  market  share  as  smaller/unorganized players are struggling due to supply chain disruptions.

* Management  is  evaluating  to  tilt  marketing  spend  more  towards  digital medium  rather  than  TV  and  newspaper  advertisements  in  order  to  reduce A&P spend


Our  analyst  Naveen Trivedi  believes,  once  normalcy  resumes  Havells  will bounce  back  quickly  due  to  superior  execution  skills,  large  portfolio  and strong  balance  sheet.  Maintain  ADD  rating.


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