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Solid growth traction across segments but margin headwinds persist; maintain BUY

Result Synopsis

Havells once again surprised positively on the revenue growth front with strong double‐ digit revenue growth led by 20% growth in volumes. Strong volume growth is on the back of robust demand for summer products which benefitted from timely onset of summer and pent up demand. Gross margins continued to remain under pressure and made new lows as fresh costs increase coupled with competitive intensity restricted effective and adequate price transmission. Management is confident of strong demand momentum continuing for the entire summer season. On the margin front, management expects gradual improvement once commodity prices stabilize

Given the thrust on revenue growth, we now factor in 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 increase our target price to Rs 1,523 as we see strong revenue growth momentum and gradual margin improvement in next 2 years. We continue to maintain our positive stance on the stock and reiterate our BUY rating continuing to value the stock on 55x FY24E earnings. Current correction in stock price provides an ideal opportunity to enter the stock

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 2.4%/44.6%/21.5%/22.1%/9.2% yoy respectively. Lloyd surprised positively with 62% yoy growth.

Margins – Gross margins contracted (historic lows) 812bps/298bps yoy/qoq respectively to 29.3%. EBITDA margin contracted 339bps yoy restricted by lower A&P spends and strict control on expenses

Inventory and product portfolio – Inventory with the channel is at the normalized levels. Company is working to put out a comprehensive portfolio for Lloyds in the market by end of the current fiscal as distribution reach has improved across the channels.

Price increases – Company is finding it difficult to increase the price of the products as it is facing intense competition and has already taken sharp price increases in past six months. Company is waiting for commodity prices to stabilize before taking any pricing action, which indicates near‐term margin pressure should continue

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