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Havells India’s (HAVL) sales grew 10% YoY to Rs48.5bn, 7% above our estimates. While B2C demand stayed sluggish, B2B segments were steady driven by infrastructure & construction sector. Among product segments, Lloyd/switchgears sales grew 32%/27% YoY while sales for cables and lighting grew in 4?5% range. ECD sales fell 14% YoY as trade has high fans inventory. Stability in RM prices drove 120bps YoY expansion in gross margin to 30.5%. Higher ad?spends (at 2.3% of Q4FY23 sales vs. 1.6% YoY) led to 80bps dip in EBITDA margin to 10.9%. PAT grew 3% YoY to Rs3.6bn, above our estimate of Rs3.2bn. Losses in Lloyd were on expected lines at Rs221mn vs. Rs213mn YoY. In the current summer season, the intensity of heat is below expectations (including April) and will impact demand of summer products. B2C demand remains impacted due to retail inflation, whereas B2B demand outlook stays strong. No price hikes are on the cards as commodity costs have stabilized, which will likely
revive margins. We marginally tweak our earnings estimates for FY24E/FY25E by ~1% and retain REDUCE rating on the stock. We roll forward our valuation to Mar’25 and assign a revised target price of Rs1,130 (Rs1,120 earlier) based on 42x FY25E EPS.

Electricals – B2C remains tepid; B2B growth aided by infra & construction sector

Cables sales grew only 5% YoY (volume?value growth at par) to Rs15.7bn as frequent input price volatility led to lower channel inventory. EBIT margin at 12%, was up 40bps YoY. With high capacity utilization at existing plant, HAVL plans to construct a new greenfield plant in Karnataka at a capex of Rs3bn. For switchgears, strong B2B demand and better product mix led to 27% YoY growth in sales at Rs6bn and 270bps rise in EBIT margin to 28.6%. Lighting sales grew only 4% YoY at Rs4.1bn as mid?teen volume growth was offset by lower realizations from falling LED prices. EBIT margin was at 18.2%, up 280bps YoY. ECD sales fell 14% YoY to Rs7.5bn as channel had high inventory of fans (~65% of ECD sales) due to BEE rating change.
In Q4FY23, HAVL undertook 5?7% price hike in fans, which would be margin neutral. HAVL expects its core electrical segment margins to revert to pre?COVID levels.

Lloyd – Healthy growth; EBIT loss continues; new RAC plant leads to doubling of capacity

continued at Rs221mn (vs. Rs213mn YoY) as Lloyd remains in investment phase. Achieving higher scale will be the core driver of making profit, but is likely to take some more time. AC formed 70% of Lloyd sales. AC production has commenced at the new Sri City plant, which has installed capacity of 1mn units and revenue potential of Rs27bn?Rs30bn. Apart from compressors and motors, Lloyd makes everything in?house. The combined capacity, including the Ghiloth plant, has doubled to 2mn units. Lloyd believes it is now among the top 3 AC players. It expects industry level margins to stabilize going ahead. In?house production of washing machines is likely to provide significant revenue growth prospects for Lloyd while outsourced categories of Refrigerator and LED TVs are also growing at decent pace.

Other key takeaways: (1) Ex?cash NWC cycle stood at 6.6% of sales in FY23 vs. 2% YoY. (2) OCF in FY23 was lower at Rs5.6bn vs. Rs17.4bn YoY. (3) Capex planned for FY24 is Rs6bn.

Maintain REDUCE with a revised target price of Rs1,130 

We expect HAVL to post 14% revenue CAGR over FY23?25E while earnings CAGR will be 25% on suppressed base (FY22?FY25E will be 12% CAGR). We maintain REDUCE rating, as valuations are stretched while losses in Lloyd will suppress earnings. The extent of recovery in electrical margins and consumer demand are key things to monitor.

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