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Volume across product categories continues to grow on 3-year CAGR basis; maintain BUY

Result Synopsis

Havells continues to surprise positively on the revenue growth led by strong growth in volumes. Volume of the quarter on the blended basis has seen growth of 40%; Even on 3-year CAGR basis volume growth has been in the range if mid-single digit to low double digit. Gross margins continued to remain under pressure as company refrained from taking price increases as they didn’t want to disturb strong demand momentum. On the margin front, management expects margins to improve from Q3 as commodity prices have corrected and are trending lower. Inventory adjustments on account of lower commodity prices especially in wires and cables will be done by Q2

Given the thrust on revenue growth and market share gains, we are factoring FY22- 24E growth trajectory of 14% CAGR. We have trimmed our margin estimates considering lower gross margins and normalization on A&P spends. We estimate EBITDA and PAT CAGR of 17% and 20% respectively. We marginally reduce our target price to Rs 1,506 on lower margins. We see strong revenue growth momentum and gradual margin improvement in next 2 years on falling commodity prices. We continue to maintain our positive stance on the stock and reiterate our BUY rating continuing to value the stock on 55x FY24E earnings.

Result Highlights

? Broad based growth across segments- Havells delivered better than expected revenue growth on back of strong performance across product categories; Switchgears/Cables and wires/Lighting & Fixtures/ECD/Others growing at 38.4%/47.8%/76.8%/45.5%/65.8% yoy respectively. Lloyd surprised positively with 119.2% yoy growth.

? Margins – Gross margins contracted (historic lows) 669bps/32bps yoy/qoq respectively to 29.0%. EBITDA margin contracted 505bps yoy on lower gross margins and higher A&P spends.

? Inventory and product portfolio – Inventory with the channel is at the lower levels across product categories. For wires and Cables current de-stocking by dealers is expected to normalize by end of Q2. For Lloyd

? Price increases – Company has not taken any price increase in Q1 as it did not want to disturb the strong demand momentum especially for the summer products which was there as this was the first normalized quarter after two years. Company is expected to take price increase as there will be costs increase on account of change in BEE ratings.

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