IGI Logo

Strong recovery across product segments...

Havells continued its growth momentum in Q4FY21 with topline growth of 50% YoY in line with our estimate of 48%. The company witnessed strong revenue growth in all business verticals cables, switchgears, electrical consumer durable (ECD), Lloyd, lightings and others by 51%, 53%, 71%, 29%, 40% and 71%, respectively. The management reiterated market share gains, strong demand traction in rural helped drive sales recovery for Havells India in Q4 and in FY21. The company reported ~11% topline growth in FY21 despite a washout in Q1. The key takeaways from conference call are: 1) strong sales traction in first two weeks of April 2021 before lockdown imposed in many states, 2) May sales hit by lockdown across the country, 3) price hikes of 10% in fans and 45-50% in cable business to offset inflationary pressure, 4) focus on capacity building of Lloyd (future launches in refrigerators and washing machines categories), 5) focus on tapping rural and semi urban markets for the long term. However, considering lockdowns and higher input prices, we revise our FY22E revenue, PAT estimate downward by ~7%, 6%, respectively.

Strong b/s helps navigate challenging scenario

Havells India reported revenue, PAT CAGR of ~13%, ~15%, respectively, in the last 10 years with EBITDA margin expansion of 200 bps YoY to 15%. In the last 10 years, the company has faced various challenges like demonetisation, implementation of GST and complete lockdown in Q1FY21. However, Havells has recovered strongly post every challenges mainly due to its robust balance sheet condition (debt free status and average RoCE, RoE of 25%, 19%, respectively) and its strong brand that helped it to enter newer product categories. We believe the company’s strong brand and its balance sheet strength would help it to further sail through near term challenges of lockdowns and high inflationary pressure.

ECD, Lloyd to drive future growth

We model revenue CAGR of 18% in FY21-23E led by 22% and 17% revenue CAGR of ECD and Lloyd business, respectively. We believe Havells’ focus on strengthening Lloyd brand and reducing dependency on single products (by increased focus on refrigerators, washing machines) would help drive sales of Lloyd, going forward. Besides, Industrial products such as cable, switchgear would also grow at CAGR of 15% led by increased government and private capex post easing of lockdowns, going forward.

Valuation & Outlook

We believe Havells’ robust balance sheet condition (net cash of | 1438 crore) and its future plans to increase penetration in semi urban/rural markets will benefit it in the long term. We build in revenue, PAT CAGR of ~18% and 15%, respectively in FY21-23E. We upgrade our rating from HOLD to BUY with a revised TP of | 1215 (valuing 55x FY23E EPS) (earlier TP | 1255).

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer