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Buy Havells India Ltd For Target Rs.1,466

Strong revenue growth: Havells reported its Q2 revenue at Rs 3,669 Cr registering a growth of 13.9% over last year, led by strong volumes growth of 12% YoY. The company posted growth across all its segments, Cables accounts for 37.1% of the total revenue saw a growth of 18.8% YoY on the back of rising demand in B2B segment. Its switchgears, lighting and fixtures as well as Lloyd segments saw a growth of 10.2%, 12.0% and 21.3% respectively. Meanwhile, Its ECD (Electrical consumer durables) segment growth did not pick up pace as much as other segments due to de-stocking in fans led by changes in energy efficiency norms but grew in single digit by 6.2% YoY. On contrary, comparing QoQ numbers, de-growth was seen across segments and amongst them its Air conditioners business (Lloyd) registered a significant de-growth of 61.8%.

Betting on growing Lloyd segment: Although the margins and revenue growth on sequential basis was majorly impacted by this business unit but going ahead the company’s plan is to revive growth by launching new products, gaining market share and improving distribution reach.

Subdued Margins: The company reported its EBITDA at Rs 287 Cr, de-growth of 35.3% YoY and EBITDA margin of 7.8% versus 13.8% a year ago. Margins were majorly impacted by seasonality in demand for AC and absorption of high-cost inventory against falling raw material prices. However, we expect the margins to normalize in coming quarters led by price hikes, declining trend of input cost and healthy topline growth driven by improvement in penetration of appliances, rising demand and high spending by customers.

Key Concall Highlights: 1) The company has planned a capex of Rs 1,000-1,200 Cr by FY24 of which Rs 700 Cr will be spend in FY23. 2) Price hikes to continue in Q3 & Q4FY23 due to higher cost inventory. 3) With implementation of energy efficiency norms in Q4FY23 (from Jan 1st, 2023), prices of finished product may see further hike.

Valuations: Havells has a strong presence in the organized markets across switchgears, cables, lighting and fixtures, ECD (Electrical consumer durables) and Lloyd. Going forward, rising demand of B2B segment, government spending on infrastructure would bode well for the growth of the company. Along with it, management plans to enter international markets as well as grow its Lloyd segment. We remain positive on company’s growth perspective and have estimated its Revenue/EBITDA/PAT to grow at a CAGR of 16.2%/21.0%/23.9 over FY22-24E. We maintain a Buy rating with a target price of Rs. 1,466.

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