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Buy Havells India Ltd For Target Rs.1,486

Solid growth despite inflationary pressures a key positive, margin headwinds remain

Our view

Havells has once again managed to deliver strong revenue growth in a difficult environment although margin headwinds remain. Growth continues to be broad‐based with B2B segment returning to normalcy and all B2C engines firing well. A 10‐12% volume growth despite sharp price hikes augurs well for future demand.

Margins were under pressure on back of high commodity cost inflation and delay in passing increased costs. Management is confident of improving margins as they increase prices of the products going forward as demand continues to remain resilient even in a high inflationary environment with the company continuing to gain market shares.  

Result Highlights

* Broad based growth across segments‐ Havells delivered better than expected revenue growth on back of strong performance across product categories; Switchgears/Cables and wires/Lighting & Fixtures/ECD/Lloyds/Others grew at 19.5%/45.8%/33.6%/25.6%/21.7%/22.8% yoy respectively.

* Margins – Gross margins contracted 597bps/142bps yoy/qoq respectively. Cost reduction initiatives restricted contraction in EBITDA margin. EBITDA margin contracted 339bps on yoy basis.  

* Inventory – Higher channel inventory in the system that had been accumulated due to lockdown in Q1 has now been liquidated. Primary sales are now in line with secondary sales indicating normal inventory. Expect wholesale of summer products to pick up from Q3 onwards.

* Volume growth – Company has seen strong volume growth (ex‐cables where 80% growth was pricing‐led) across product categories. 50% of the growth is led by volumes which is encouraging in the current high inflationary environment

Valuation

We now expect FY21‐24E growth trajectory of 15% revenue CAGR. With margins also expected to gradually normalize going forward, we estimate FY21‐24E EBITDA and PAT CAGR of 14% and 17% respectively. We maintain our positive stance on the stock and reiterate our BUY rating with TP of Rs 1,486 based on 55x FY24E earnings.

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