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Maintains stable revenue growth amid soft consumer demand

Stable revenue growth: Havells reported its Q3 revenue at Rs 4,128 Cr registering a growth of 12.6% over last year, led by stable volumes in its Cables business. Amongst segments, Cables grew by 17.1% YoY supported by industrial and infrastructure demand. Its Electrical Consumer Durables (ECD) segment saw a moderate growth of 4.5% YoY, the slow growth rate was attributable to change in BEE norms which saw tepid demand from consumers and de-stocking from dealers. Its AC business Llyod saw a growth of 29.9% YoY.

Soft consumer demand in AC segment: In Q3FY23, the consumer demand was affected by extended monsoon and winters as well as holding of high cost inventory widened losses in Llyod segment. Further, the company is holding high cost inventory in its books, so the management expects the margins and profitability to improve gradually from Q4FY23. Also, it would see steady pick-up in sales due to onset of summers from Q1FY24 which would aid revenue growth.

Segmental Performance: Its Cables segment has the highest contribution at 34.2% to the total revenue, followed by ECD at 22.7% while Llyod, Switchgears and Lightings segment contribute 14.8%/12.5%/10.3% respectively. Cables segment also has the highest contribution in segmental EBIT which stands at 39.4% while Switchgears and ECD segment contributed 30.7% and 29.7% respectively whereas Llyod widened its losses to Rs 60 Cr vs Rs 43 Cr compared to a year ago period.

Sequential Margin Improvement: The company reported its EBITDA at Rs 424 Cr, de-growth of 3.7% YoY and EBITDA margin of 10.3% v/s 12% a year ago. However, on a sequential basis after a decline in 3 consecutive quarters the margins improved by 248bps supported by stable raw material prices during the quarter.

Key Concall Highlights: 1.) Robust demand in B2B category while B2C category demand was subdued. 2.) The company plans to take price hikes in Fans and AC category between 2-4% due to new energy norms. 3.) The management indicates that the increase in employee cost could become the new normal. 4.) The company has completed a capex of Rs 700 Cr so far in FY23.

Valuations: Havells has a strong presence in the organized markets across Switchgears, Cables, Lighting & Fixtures, ECD and Room AC segments. In the near term, demand is expected to be tepid due to inflationary pressure while from the long term perspective, rising demand of the B2B segment, government spending on infrastructure and housing for all as well as premiumization backed by rising disposable income would bode well for the growth of the company. Hence, we remain positive on the company’s growth perspective and have estimated its Revenue/EBITDA/PAT to grow at a CAGR of 13.2%/13.1%/15.3% over FY22-25E. We maintain a Buy rating with a target price of Rs. 1,466

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