Buy Havells India Ltd For Target Rs.1,390 - Yes Securities
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Outperformance continues with another quarter of earnings beat; reiterate BUY
Our view
Havells has managed to deliver earnings beat for the 3rd consecutive quarter in a row with superior margin performance. Growth continues to be broad‐based with B2B segment returning to normalcy and all B2C engines firing well. The company has been able to manage commodity cost inflation with its superior product‐mix and swift pricing actions. Strong distribution footprint and robust product portfolio are expected to enable the company to continue its outperformance over peers.
We expect FY21‐24E growth trajectory of 13% revenue CAGR. Enhanced distribution, new product launches, sustained market share gains and better margin performance should drive outperformance over peers. We estimate FY21‐24E EBITDA and PAT CAGR of 12% and 15% respectively. We maintain our positive stance on the stock, roll over our valuation to FY24 estimates and reiterate our BUY rating with TP of Rs 1,390 based on 55x FY24E earnings.
Result Highlights
* Growth across segments – Havells delivered better than expected revenue growth on back of strong performance across product categories; ECD/Switchgears/Cables and wires outperformed with growth of 91%/96%/75% respectively, while Lighting/Lloyds/Others grew 52%/61%/67% respectively.
* Margins – Gross margins expanded 99bps yoy, while it has contracted 176bps qoq. Havells has been able to manage volatility in commodity prices better than its peers on back of timely pricing action.
* Inventory and Product launches – Inventory of summer products especially Fans and RAC is on the higher side on the back of lockdown during peak summer months. Company expects inventory to be liquidated in Q2. HAVL has launched innovative premium SKU’s in Fans and revamped washing machine portfolio which has got good response from the market.
* Working capital and operating cashflow – Operating cash flow has been negative for the quarter on back of higher working capital requirement as company is carrying higher inventory of the summer products on back of truncated quarter. Inventory is expected to be normalized by Q3. Working capital has marginally increased to 68 days vs 65 days in Q1FY21.
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