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Havells India’s (HAVL) sales grew 14% YoY to Rs48.2bn, 10% above our estimate. While consumer demand was muted in April and May, it recovered in June. B2C-B2B sales mix stood at 70-30 with B2C categories growing 12% YoY. Cables/Lloyd sales grew 25%/21% YoY while other electrical categories grew in low single digits. Gross margin expanded 140bps YoY to 30.4% led by softer input costs. EBITDA margin remained weak at 8.3%, down 20bps YoY and below our/consensus of 9.8%/10.2%, owing to losses in Lloyd (Rs608mn) and weak profitability in ECD segment. Higher other income (up 38% YoY to Rs647mn) led to 19% YoY increase in PAT to Rs2.9bn, 4%/16% below our/consensus estimate. B2B demand outlook stays healthy with uptrend in construction capex, which would benefit cables, switchgears and professional luminaires. However, B2C demand remains tepid with hopes of revival in H2FY24. We marginally tweak our earnings estimates and retain REDUCE rating with unchanged target price of Rs1,130 based on 42x FY25E EPS.

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

Cables sales grew 25% YoY (volume growth was +30% YoY) to Rs14.9bn. HAVL’s existing cables plant has touched peak capacity while the new greenfield plant at Tumkur, Karnataka will get commissioned by end-FY24. EBIT margin rose 410bps YoY to 11.4% on low base. Lighting sales fell 1% YoY to Rs3.7bn as 6-8% volume growth was offset by decline in LED prices. Professional lighting grew faster than consumer lighting and is likely to continue this momentum further. EBIT margin fell 210bps YoY to 14.4%. ECD sales grew only 5% YoY to Rs8.8bn as fans sales were hit due to unseasonal rains. HAVL has a strong market share in premium category of fans while its BLDC fans share in total fans portfolio is at 15%. ECD’s EBIT margin fell 220bps YoY to 10.9%. For switchgears, growth was moderate (volume/value growth at 5%) as inventory levels got normalized post strong growth in Q4FY23. EBIT margin were healthy at 27.7%, up 150bps YoY.

Lloyd – Healthy growth; EBIT loss widens as HAVL continue investment in brand building

Lloyd posted healthy growth of 21% YoY to Rs13.1bn (similar volume and value growth) despite unseasonal rains impacting cooling products sales. By growing faster than the market, Lloyd gained market share in the quarter and continue to remain amongst the top 3 players. EBIT loss widened to Rs608mn vs. loss of Rs559mn/Rs221mn YoY/QoQ. Lloyd is sensing an opportunity for manufacturing RACs under white label brand for overseas markets. As a pilot project, it has started booking some small quantity, however, in the initial years its share is likely to remain low. It aims to become a meaningful player in the white goods sector, valued at ~Rs1trillion, and to achieve this it will prioritize market share gains over profitability. Lloyd will keep investing in brand, distribution, R&D, products and channel and eventually aim to achieve industry level margins.

Other key takeaways: (1) Cash conversion cycle at end-Q1FY24 was at 36 days vs. 25 days YoY on TTM sales basis. (2) OCF in Q1FY24 rose to Rs7.3bn vs. Rs5.7bn in FY23. (3) Capex planned for FY24 is Rs6bn. (4) Inventory in the channel is at normalized level.

Maintain REDUCE with an unchanged target price of Rs1,130

We expect HAVL to post 15% 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.

Maintain Reduce with TP of Rs173

We have assigned lowest EV/EBITDA multiple within our coverage of 7x for HEIM owing to lack of capacity addition and sub-par volume growth. We have factored in discontinuation of incentives in our numbers and with some more tweaks to volume assumptions, our FY24 and FY25 EBITDA estimate are lower by 9% and 11% respectively. We maintain our Reduce rating on the stock

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