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Outperformance to continue; reiterate BUY

Result Synopsis

Havells has once again delivered inline revenue growth with sequential margin improvement. Growth was aided by higher volumes across the product categories with B2B side faring better while B2C business saw impact of high inflationary environment. Margins saw sequential improvement on back of stable commodity prices as most of the high?cost inventory for Havells was liquidated in Q3. Management expects further margin improvement in Q4 as high?cost inventory for Lloyds would be liquidated in Q4. Managementis cautiously optimistic of demand as channelfilling for summer products has been strong for Fans and RAC, while rise in commodity prices from end of December could lead to margin volatility going forward.

Given the thrust on revenue growth and market share gains, we are factoring FY22?25E revenue growth trajectory of 15% CAGR. We however have trimmed our margin estimates considering volatility again increasing in commodity prices, higher investments in brand building and normalization on A&P spends. We estimate EBITDA and PAT CAGR of 13% and 16% respectively. We maintain our target price to Rs 1,480 valuing the stock at 55x and roll forward our target multiple and reiterate our BUY rating. We see strong revenue growth momentum and gradual margin improvement in next 2 years as company is increasing its distribution presence on e?commerce and rural areas. We continue to maintain our positive stance on the stock and current correction in the stock price should be used to accumulate the stock as we feel company can continue to outperform industry and its peers

Result Highlights

Inline revenue growth? Havells delivered inline revenue growth as B2C demand was impacted by high inflationary environment, while B2B demand remained strong aiding in revenue growth. Lloyds continues to see strong growth in AC on back of channel filling.

Margins ?Margins have seen sequential improvement in Q3. Management expect margin expansion to continue in Q4 as most high?cost inventory have been already liquidated in Q3.

Inventory and product portfolio – Channel inventory for Havells is now at normalized level and all the high?cost inventory for Havells has been liquidated. For Lloyds high?cost inventory is still there and will be liquidated in Q4

Price increases – Company has taken price increase in Fans as well as Lloyd from Q4 onwards as there will be costs increase on account of change in BEE ratings which will be passed on to the market. Quantum of price increase on average basis is 3?4%.

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