Accumulate Havells India Ltd For Target Rs.1,620 By Elara Capital
In-line Q3, led by C&W; decline at Lloyd moderates
For Havells India (HAVL IN), C&W led the show in Q3, with robust volume growth and increase in ASP on account of a sharp rise in copper prices. Lloyd decline moderated despite a high base as channel inventory normalized. Solar continued to outgrow other categories (more steam left). We raise our TP to INR 1,620 on 40x December FY27E P/E and maintain Accumulate. HAVL is a strong player in the consumer electricals space given a welldiversified portfolio, with robust growth expected in C&W and solar in the upcoming quarters and RAC inventory issues normalizing. Monitor price hikes in RACs – So far, price inflation due to raw material hike, BEE changes and rupee depreciation has not been fully passed on.
C&W led the show with both value and volume rising: The C&W segment saw a robust 33% YoY sales growth to INR 22.4bn, led by a 20%+ volume growth coupled with value growth (led by a 50% YoY surge in copper prices). However, due to significant stocking, particularly in wires, expect some demand to normalize in the short term. HAVL is facing a capacity crunch in cables (90-100% utilization currently), resulting in lower growth compared with peers, while wires growth remains healthy. HAVL has taken continuous price hikes in Q3 and in early Q4 for C&W, passing on the price increase up to December so far.
Lloyd inventory normalizing gradually, but be wary of pricing: Lloyd saw a moderate decline of 6% YoY despite a high base, as channel inventory moved towards normalization after a weak H1 due to weather changes. However, low production resulted in net loss increasing to INR 604mn from INR 361mn in the base quarter. The sharp increase in commodity prices coupled with a rise in costs (from BEE norm changes and rupee depreciation) should spike costs for RACs from Q4, while management has highlighted a potential 5-10% price hike from Q4 to offset this rise. However, this may not be enough to match the entire cost increase, with further price hikes likely needed in the future.
Margins rise led by operating leverage: EBITDA margin rose 50bps YoY to 9.2%, led by operating leverage despite concerns at Lloyd and Lighting. C&W margin grew 70bps YoY to 11.8% due to mix. Switchgears margins expanded 380bps YoY to 22%. ECD margins rose 150bps YoY to 10.1%, while Lighting margin contracted 350bps YoY to 11.1% due to price deflation.
Reiterate Accumulate; TP raised to INR 1,620: We lower FY26E EPS estimates by 2%, FY27E estimates by 4% and FY28E by 3%, factoring in a rise in commodity prices, increase in solar contribution (which hit margin), higher depreciation and lower other income (as capex increases). We raise our TP to INR 1,620 (from INR 1,580) on 40x (unchanged) December FY27E P/E as we roll forward by a quarter. We reiterate Accumulate. HAVL is a strong player in consumer electricals due to a well-diversified portfolio, with robust growth likely in C&W and solar in the upcoming quarters and RAC inventory issues normalizing. Expect earnings CAGR of 23% in FY25-28E, with average ROE and ROCE of 22% each in FY26E-28E. Monitor price hikes in RACs. So far, price inflation due to raw material hike, BEE changes and rupee depreciation has not been fully passed on.
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SEBI Registration number is INH000000933
