Buy Havells India Ltd For Target Rs.1515 - ICICI Direct
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Slower price hikes delay margin recovery…
About the stock: Havells India (HIL) is India’s leading electrical appliances & equipment manufacturer with a diversified product portfolio consisting of switchgears, cables, electrical consumer durables and lighting & fixtures. Apart from ‘Havells’, HIL’s other major brands include Crabtree, Standard, Reo and Lloyd.
* In all its business segments, Havells has a strong presence in the organised product category with market share ranging between 6% and 20%
* Robust balance sheet with RoE & RoCE of 20% & 25%, respectively (fiveyear average), with stringent working capital policy
Q3FY22 Results: Strong revenue growth but EBITDA margins under pressure due to delayed price hikes.
* Revenue up 15% YoY to | 3652 crore supported by strong growth in the wire & cable segment (was up 33% YoY)
* EBITDA margin declined 400 bps YoY to 12%, mainly due to a sharp increase in raw material cost and delayed price hike
* PAT fell ~12% YoY to ~| 306 crore tracking lower EBITDA margin
What should investors do? Strong B2C brand, focus on margin improvement of Lloyd through change in product mix and strong pan-India distribution (~14,270 dealers). The company’s share price has grown ~3x in the last five years.
* We continue to remain positive and maintain BUY rating
Target Price and Valuation: We value the stock at 53x FY24 EPS and revise the target price to | 1515/share
Key triggers for future price performance:
* Total ~1.7 crore new houses under PMAY, urbanisation and rising aspiration level will give a significant boost to demand for home appliances
* Revival in the Lloyd business through new launches and improvement in segment margin
* It aims to increase its town penetration from current 1150 to 2000 and retail touch points from 1.6 lakh to 2.5 lakh over the next five years
* Model revenue, earnings CAGR of ~21%, 20%, respectively, in FY21-24E
Alternate Stock Idea: Besides Havells, we also like CGCEL in the same space.
* Increasing rural penetration and improved product mix would help drive revenue and profitability for the company
* BUY with a target price of | 540
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