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Stable revenue growth: Havells’ Q4FY23 number were in line with our expectation as its revenue from operations came in at Rs 4,859 Cr up by 9.8% YoY while it grew by 21.3% for whole of FY23 to Rs 16,911 Cr. Amongst segments, Llyod Business maintained momentum with a growth 32.5% to Rs 1,271 Cr backed by strong demand due to early heatwaves and on-set of summer season. Its core segment, Cables & Wires gave moderate performance as it grew by 5.4% YoY to Rs 1,568 Cr while Switchgears segment expanded by 26.7% YoY to Rs 601 Cr. On the flipside, its Electrical Consumer Durable segment (ECD) declined by 14.1% YoY to Rs 749 Cr as fans category were impacted by high channel stocking due to new energy norm in preceding quarter.

Low consumer sentiments leading to lower operating leverage: The consumer sentiments during the quarter remained low due to which its core segment grew merely by 5.4% in terms of revenue while it grew by ~5-7% in terms of volumes. Consequently, low volumes and lack of price hikes in categories (barring fans segment which saw a price hike of ~6-7% due to new BEE norms) impacted EBITDA growth to 1.7% YoY to Rs 536 Cr while EBITDA margin declined by 93bps YoY to 11%.

Tailwinds in Llyod RAC category: Its Llyod business has portrayed exceptional topline performance which has grown at a CAGR of 10.1% over Q4FY21-Q4FY23. Subsequently, the company has gained market share and is amongst top 3 players. Further, it plans to increase its market share by entering into newer geographies especially northern and eastern regions for which it has doubled its capacity to 2 Mn Units per year which accounts at ~20% of India’s total capacity. With low penetration in Indian RAC markets as well as its plans to enter different regions in India, we expect Llyod business to be the next leg of growth for the company.

Segmental Performance: Its Cables & Wires segment EBIT was reported at Rs 189 Cr, up by 8.7% YoY with an EBIT margin of 12.0%. Switchgears segment saw strong EBIT improvement of 39% YoY to Rs 172 Cr while EBIT margin improved by 250bps, driven by robust real estate and infrastructure activities which aided in revenue growth. Besides, its ECD EBIT declined by 36.5% YoY to Rs 96 Cr due to low sales amid high channel stocking owing to implementation of new norms.

Segmental Performance: Its Cables & Wires segment EBIT was reported at Rs 189 Cr, up by 8.7% YoY with an EBIT margin of 12.0%. Switchgears segment saw strong EBIT improvement of 39% YoY to Rs 172 Cr while EBIT margin improved by 250bps, driven by robust real estate and infrastructure activities which aided in revenue growth. Besides, its ECD EBIT declined by 36.5% YoY to Rs 96 Cr due to low sales amid high channel stocking owing to implementation of new norms

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 and lack of price hikes. While from the long term perspective, factors such as 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 11.4%/28.4%/33.1% over FY23-25E. We maintain a Buy rating with a target price of Rs. 1,466.

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