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Strong growth in electricals despite headwinds, focus now on building Lloyd brand; maintain BUY

Result Synopsis

Havells continues to surprise positively on the growth front with revenue growing in mid‐ teens despite high base and challenging conditions. Volume growth has been flattish as demand has tapered in later part of the quarter. Margins were under pressure as elevated commodity costs and partial price increase impacted the consumer durables business. Management is confident of demand revival before start of the peak summer season and the company is aiming for market share gains even if it has to sacrifice on margins in the near term. The entire focus now is on turning Lloyd into a formidable consumer durables brand over the next 3‐4 years.

Given the thrust on revenue growth, we now factor in FY21‐24E growth trajectory of 17% revenue CAGR. We have trimmed our margin estimates considering higher A&P spends and normalization of expenses. We estimate EBITDA and PAT CAGR of 14% and 17% respectively which marginally trims our TP. We maintain our positive stance on the stock and reiterate our BUY rating with TP of Rs 1,472 based on 55x FY24E earnings. Current correction in stock price provides an ideal opportunity to enter the stock.

Result Highlights

* Broad based growth across electrical segments‐ Havells delivered better than expected revenue growth on back of strong performance across electrical product categories; Switchgears/Cables and wires/Lighting & Fixtures/ECD/Others grew at 13%/33%/15%/14%/5% yoy respectively. Lloyd declined 9% yoy.

* Margins – Gross margins contracted (historic lows) 583bps/197bps yoy/qoq respectively. EBITDA margin contracted 399bps yoy on lower gross margins, higher A&P spends and normalization of expenses.   

* Inventory – Inventory with the channel was at normalized levels till end of the December. However, channel has been carrying lower than normal inventory as they have been jittery due to uncertain environment related to Covid 3rd wave.

* Price increases – Company plans to increase product prices by 5‐10% to cover commodity inflation depending on product category gradually in the months of Feb and March as it has to be absorbed by trade partners and consumers without disrupting demand.

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