Buy Havells India Ltd For Target Rs. 1,345 - ICICI Direct
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Strong performance amid challenging scenario…
About the stock:
Havells India (HIL) is India’s leading electrical appliances & equipment manufacturer with a diversified product portfolio consisting of switchgears, cables, electrical consumer durables and lighting & fixtures. Apart from ‘Havells’, HIL’s other major brands include Crabtree, Standard, Reo, and Lloyd.
* At all its business segment, Havells has a strong presence in the organised product category with market share ranging between 6% and 20%
* Robust balance sheet with RoE & RoCE of 20% & 25%, respectively (five year average), with stringent working capital policy
Q1FY22 Results:
Better-than-expected operational performance led by industrial product segments
* Reported revenue growth of 76% YoY to | 2598 crore (down ~22% QoQ)
* Higher gross margin and savings in other costs drove EBITDA margin higher by 474 bps YoY to 13.6%
* PAT jumped ~4x YoY to | 234 crore mainly on a favourable base
What should investors do?
Strong B2C brand, focus on margin improvement of Lloyd through change in product mix and strong pan-India distribution (~14,270 dealers). The company’s share price has grown ~3x in the last five years.
* We continue to remain positive and maintain BUY rating
Target Price and Valuation: We value Havells at | 1345 i.e.55x P/E FY23E EPS
Key triggers for future price performance:
* Total ~1.7 crore new houses under PMAY, urbanisation and rising aspiration level will give a significant boost to demand for home appliances
* Revival in the Lloyd business through new launches and improvement in segment margin
* It aims to increase its town penetration from current 1150 to 2000 and retail touch points from 1.6 lakh to 2.5 lakh over the next five years
* Model revenue, earnings CAGR of 20%, 21%, respectively, in FY21-23E
Alternate Stock Idea:
* Besides Havells, we also like Bajaj Electricals in same space
* Increasing rural penetration, improved product mix and focus on high margin orders in the project business would help drive revenue and profitability for the company
* BUY with a target price of | 1280
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