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A full-stack consumer durable company seeking to raise market share

*  Highest TAM of INR2.2t Havells India (HAVL) has the highest total addressable market (TAM) of INR2.2t among listed companies in the consumer durable space. HAVL’s TAM has increased over the years due to its diverse product portfolio, presence in various sectors, and entry into the large home appliances segment through the acquisition of Lloyd.

* will benefit HAVL in its structural growth: The Indian appliances and consumer electronic industry was estimated to be at INR2.4t in FY22. The sector is likely to post a 10% CAGR over the next five years with higher growth estimated for white goods (10-12% for refrigerators/washing machines and 12-15% for air conditioners).

* Lloyd gaining market share in RAC segment: Lloyd’s market share is estimated at 10%+ in room air conditioners (RAC) vs. ~8% a few years back. It has established itself among the top three players in RAC. Lloyd is in a favorable position to leverage the success of its AC products to drive growth in other offerings, such as washing machines and refrigerators. In FY23, Lloyd contributed 20% to HAVL’s revenue. We estimate Lloyd’s revenue share to rise to 22.2%/23.5% in FY24/FY25.

* Focus on building distribution channel and in-house manufacturing: HAVL is diversifying its distribution channel through various digital and physical platforms. The company has expanded its presence in emerging channels. Further, HAVL’s sustained investments toward in-house manufacturing, research & development, and brand building give it a competitive edge over its peers.

* Earnings and return ratios to improve; reinitiate with a BUY: We reinitiate coverage on HAVL with a BUY rating and a TP of INR1,580 premised on 55x FY25E EPS (similar to last five-year’s average valuation). We expect HAVL to maintain its premium valuations given: a) the 29% earnings CAGR over FY23-25 and b) strong return ratios (RoE/ROCE of 21%/20% and RoIC of 30% in FY25).

* Key downside risks: a) rise in commodity prices, b) higher competitive intensity in the sector and c) a demand impact due to economic slowdown.

HAVL: the highest TAM across companies

* The Indian Appliances and Consumer Electronic Industry was estimated to be at ~INR2.4t in FY22. It is likely to post a ~10% CAGR over the next five years. With INR2.2t, HAVL has the largest TAM among the listed peers.

* HAVL’s TAM has reported consistent growth over the years due to an expanded product portfolio (led by continued investments in R&D). Additionally, the acquisition of Lloyd has facilitated HAVL’s entry into the lucrative large home appliances segment. Its product portfolio now consists of 20 products across categories vs. 9 and 15 in FY10 and FY17, respectively.

* We expect HAVL to benefit from higher growth expectation for the white goods segment as well as continued growth of its core portfolio (Cables & Wires, Switchgear, Lighting, etc.), propelled by strong momentum of the real estate industry.

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