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Focus on expanding reach to customers

Havells has themed its annual report on its efforts to reach out to its customers across channels. It is now also investing in extending its rural presence by launching new exclusive stores. We believe distribution expansion and steady launch of new products could help the company to continue recording healthy volume growth. The company had expanded its manufacturing capacities for washing machines and refrigerators in FY22 and plans to expand for RAC and C&W segments in FY23. We believe healthy volume growth of early teens will likely continue and model Havells to report revenue and PAT CAGRs of 17.1% and 27.2% over FY22-FY24E. We remain structurally positive on the company due to its competitive advantages and growth opportunity in consumer durables. Maintain BUY with a DCF-based target price of Rs1,644 (implied 53x FY24E EPS).

* Investing in omni-channel presence: Customers are increasingly reaching out to new channels such as e-commerce and other modern format retails for more convenience and better service. Havells has identified this trend and is heavily investing in building strong presence across channels. While the company has sizeable presence in urban areas through its exclusive stores, it is now opening up new Utsav stores to establish presence in rural areas.

* Segment-wise highlights: All the segments of the company grew in excess of 20% YoY in FY22. We note price hikes, strong volume growth, steady launch of new products, distribution expansion and premiumisation efforts were the main growth drivers. Inadequate price hikes in ECD and Lloyd segments resulted in lower profitability in these segments.

* Improvement in ESG ratings over the period of time: Havells has been steadily investing in all ESG parameters in the past decade. Its 32% R&D is invested for improving environment and social benefits. We note the company’s ESG rating has improved by all agencies. We believe better ESG ratings will likely result in lower cost of capital for the company.

* Strong R&D efforts: Havells invested 0.92% of its sales in R&D in FY22, up from 0.79% in FY21. We believe strong investment in R&D allows the company to steadily launch new products with better features. The company has also won several accolades for superior designs and R&D efforts in FY22.

* Maintain BUY: We model Havells to report PAT CAGR of 27.2% over FY22-FY24E and RoE to be upwards of 20% over FY22-24. We remain positive on the company’s business model due to strong moats and growth opportunities. We maintain BUY rating with a DCF-based target price of Rs1,644 (implied P/E 53x FY24E). Key risks: Delay in launch of new products and/or distribution expansion.

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