Buy Havells India Ltd For Target Rs. 1,237 - Yes Securities
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Outperformance to continue; upgrade to BUY
Result Highlights
* Quarter summary – Havells delivered better than expected revenue growth of 50% yoy, with ECD being the best performer. All other segments have grown in‐ line with revenue growth except Lloyd which grew 29% yoy. EBITDA margin saw 411bps improvement to 15.2% on cost controls and stable gross margins.
* Growth across segments – Broad based growth was seen across segments with Switchgears/Cable & Wires/Lighting & Fixture/ECD/Lloyds/Others registering growth of 53%/50%/40%/70%/29%/70%.
* Commodity inflation impact – Gross margins expanded 127bps to 37.4% as low‐ cost inventory and timely pricing action has enabled company to offset increased commodity inflation. HAVL is the only company in the electrical/durables space to report gross margin expansion among the companies that have reported so far.
* Working capital – Working capital cycle has seen increase to 55 days vs 27 as on Mar’20. This increase is mainly on back of increase in inventory and receivable days. Higher inventory of summer products has led to increase in inventory, while quality of receivables continues to remain comfortable.
Valuation and view –
Havells has delivered three consecutive quarters of outperformance on both revenue and profitability. Growth has been broad based with B2C segments continuing growth momentum and B2B segment returning to growth. Company has been able to manage commodity cost inflation with its superior product‐ mix and pricing actions. Lockdown/restrictions across various parts of the country on the back of second wave could challenge growth momentum in the near term; however, with its strong distribution footprint and product offerings, it is expected to continue its outperformance as soon as the situation normalizes.
We expect FY21‐23E revenue growth of 13% CAGR (core Havells+12% and Lloyd +17%). Enhanced distribution, new product launches, sustained market share gains and better margin performance will enable it to outperform its peers. We estimate FY21‐23E EBITDA and PAT CAGR of 13% and 18% respectively (8% increase in our EPS estimates) and continue with our positive stance on the stock. We view the current dip as a good buying opportunity and upgrade our rating from Add to BUY with TP of Rs1,237 valuing it at 55x FY23 EPS.
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