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Havells reported healthy 9.8% revenue growth in-spite of (1) higher up-stocking of
fans in trade in Q3FY23, (2) unseasonal rains and delayed summer which impacted
revenues of summer products and (3) weak consumer sentiments especially muted
rural consumption. We also believe it has likely gained market shares in
switchgears and air conditioners. With correction in input prices, we also model
EBITDA margin to recover to 11.3% in FY25 from 9.6% in FY23.

We remain positive on Havells due to its competitive advantages and growth
opportunity in durables. We model Havells to report revenue and PAT CAGR of
15.1% and 27.1% over FY23-FY25E. However, we cut FY24-25 earnings estimates to
factor in muted consumer demand. Maintain BUY with a revised DCF-based TP of
Rs1,450 (implied 52x FY25E; Earlier TP: Rs1,550).

* Q4FY23 performance: Havells reported revenue, EBITDA and PAT growth of 9.8%,
3.2% and 4.2%, respectively YoY. While gross margin improved 115bps YoY, higher
staff cost and brand building expenses as percentage of sales pulled the EBITDA
margin down by 71bps YoY. PAT margin contracted to 7.6% (down 40bps) YoY.

* Segmental performance: Segment-wise YoY revenue growth rates were as follows:
Switchgears 26.7%, C&W 5.4%, Lighting & fixtures 2.6%, Electrical consumer
durables -14.1% and Lloyd 32.5%. While EBIT margin of Switchgears, Cables and
wires and lighting improved, EBIT margin of Electrical Consumer Durables declined
YoY due to revenue decline and negative operating leverage. Lloyd continues to
report losses at the EBIT level.

* Electrical consumer durables continue to suffer: Due to trade up-stocking of fans
in Q3FY23, 5-7% price hikes of fans, unseasonal rains as well as weak consumer
sentiments, the revenues of Electrical consumer durables declined YoY. We model
this segment to remain under pressure in next 2-3 quarters due to weak consumer
sentiments as well as muted demand from rural consumers.

* Higher revenues from B2B segment: The revenues from B2B segment were 25% of
overall revenues. However, the revenue share of B2B products was 30% in Q4FY23
due to higher demand from infrastructure sector and revival in real estate sector. The
margins in most B2B segments except cables and wires is similar to B2C segments.

* Maintain BUY: We model Havells to report PAT CAGR of 27.1% over FY23-FY25E
and RoCE to be upwards of 20% over FY24-25. We remain positive on the
company’s business model due to strong competitive advantages and growth
opportunities. We maintain BUY rating with a DCF based revised target price of Rs1,450 (implied P/E 52x FY25E).

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