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Revenue growth to sustain...

Havells India Ltd (HAVL) is a leading player in electrical consumer goods in India. Its key verticals include switchgears, cables & wires, lighting fixtures and consumer appliances.

* HAVL focus is on improving product mix, expanding distribution strength and gaining market share.

* Revenue growth to remain healthy on account of uptick in infrastructure investment and revival in real estate sector and discretionary demand.

* Prices of key raw materials including copper remained elevated for past ~1 year is impacting margins, which is expected to take some more time to normalise.

* However, with gradual price hikes and cost rationalisation, the impact on margins will reduce.

* Given healthy earnings outlook & strong balance sheet, we value HAVL at a P/E of 45x on FY24E. Given healthy correction, we upgrade to BUY with target price of Rs.1,245.

Broad based growth….

FY22 revenue grew by 33% YoY, supported healthy demand and higher realisation. Revenue growth was broad based across product categories; Cables & wires, Switch gears, Lighting & Consumer durables & other products which grew by 46%, 23%, 26%, 29% & 19% YoY, respectively. Lloyd’s revenue grew by 34%. . Overall revival in construction sector was witnessed and this trend is expected to continue given pick-up in residential demand. In cables, B2B & B2C shown healthy growth. Consumer durable segments continue to witness strong growth; largely led by fans. While, Lloyd continue is impacted by high competition and higher inventory levels. However, in Q4 strong summer led to recovery in demand. Management expect revenue growth to remain healthy on account of strong discretionary demand and recovery in B2B business. We expect revenue to grow by 17% over FY22-24E.

Margins pressure continues…

FY22 EBITDA grew by 12% and margins declined by 240bps to 12.7%. In Q4FY22, gross margins declined by 800bps to 29.3%. Led by cost rationalisation, decline in EBITDA margins was limited to 340bps to 11.8%. PAT grew by 17% YoY supported by higher other income. Going ahead, revenue growth is likely to be stable supported by strong B2B demand & pick-up in construction activities. EBITDA margin is expected to improve gradually, led by price hikes. We lower our EBITDA margin estimates by 80bps & 110bps for FY23E & FY24E, considering the current elevated input cost. We expect PAT to grow by 22% over FY22-24E.

Valuations

Current inflationary environment will remain for short term, post which, the margin will improve. HAVL’s revenue growth remained healthy on account of pick-up in construction activities, revival in consumer sentiments and market share gains. Considering its strong product portfolio, improving distribution, market share gains and healthy balance sheet, we expect HAVL to trade at premium valuation. Given healthy of 20% correction in stock price, we value HAVL at a P/E of 45x (historical average) on FY24E and upgrade to BUY with a target price of Rs.1,245.

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