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Market share gains + improving margin outlook

We continue to remain positive on Havells as it gained market shares across segments (our view) as well as managed to largely maintain margins via price hikes. With improving economic activity post covid wave-2 and higher real estate and construction led demand, we expect strong volume growth to continue in rest of FY22.

Likely reduction in input prices indicate no need of additional price hikes. We also expect improvement in working capital in next 2-3 quarters with normalization of the business activities. We model recovery in revenues/ profitability of Lloyd which was impacted due to lockdown in key summer season.

We model Havells to report PAT CAGR of 19.3% over FY21-FY23E with: (1) strong volume growth, (2) price hikes and (3) benefits of cost saving initiatives and recovery in Lloyd. We remain structurally positive on the company due to its competitive advantages and growth opportunity in consumer durables. Maintain BUY with a DCF-based target price of Rs1,350 (57x FY23E; Earlier TP-Rs1,320).

* Price hikes across segments: The company has initiated price hikes of 10-15% in all segments ex-cables and wires. It raised prices by 30-35% in cables and wires. Most pricing actions have been initiated by Havells now and considering the input prices, there is no immediate need to raise prices. The benefits of recent pricing actions will be seen over next 2-3 quarters.

* Distribution and reach: The company has established Pan-India presence due to its strong distribution network of 155,000 retailers and 14,500 distributors. It has presence in ~25,000 retail outlets in rural areas. To expand its presence in the rural areas, it has identified ~3,000 towns with population < 50,000. It also indicated that Ecommerce and rural channels have registered good growth on favorable base. The company believes the sales from these two channels will become meaningful in next 2-3 years.

* Higher working capital investments: Due to un-sold inventories of fans and Air conditioners (led by lockdown restrictions), the operating cash flow was adversely impacted. Lower purchases resulted in lower creditors and it also affected working capital. However, the company indicated working capital will normalize in next 2-3 quarters.

* Export opportunity in Switchgears: Havells believes there is large export opportunity in switchgears which enjoys ~27% EBIT margin. Switchgear is already the leading exports category for the company. Havells is among the top ten players in the world, in the switchgears business.

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