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Higher ad spending results in a marginal EBITDA miss

* Havells (HAVL)’s 3QFY24 revenue grew 7% YoY to INR44.1b (in line with our estimates). Revenue growth (ex-Lloyd) was 7% YoY, led by an 11% growth in the Cables & Wires segment. Revenue for Lloyd grew 8% YoY. EBITDA was up 2% YoY to INR4.3b (est. INR4.5b). OPM was down 50bp YoY to 9.8% (-30bp vs. our estimate).

* Infrastructure development continued to result in robust cables and professional lighting demand. While consumer demand remained subdued, the recent trends suggest some recovery. Festive gains in the ECD segment were offset by high base in Fans.

* We have a BUY rating on the stock and we will review our assumptions after the concall.

Cables, Lloyd drive topline growth amid subdued consumer demand

* HAVL’s consolidated revenue was up 7% YoY to INR44b (in line with our estimate). Gross margin was up 30bp YoY to 33.3% (+30bp vs. our estimate). EBITDA grew 2% YoY to INR4.3b, 3% below our estimate. EBITDA margin came in at 9.8% (-30bp vs. our estimate). Adj. PAT inched up 1% YoY to INR2.9b (6% below our estimate). Depreciation/interest costs rose 18%/ 40% YoY. Other income grew 40% YoY. Ad spends stood at 4% of the revenue vs. 3.1%/2.2% in 3QFY23/2QFY24.

* Segmental highlights: 1) HAVL (ex-Lloyd): Revenue was up 7% YoY to INR37.6b. Cables and Wires: Revenue grew 11% YoY to INR15.7b and EBIT margin was down 1.1pp to 10.4%. Switchgear: Revenue was up 1% YoY to INR5.2b and EBIT margin contracted 60bp to 24%. Lighting: Revenue was up 3% YoY to INR4b and EBIT margin improved 1.5pp to 14%. ECD: Revenue was up 3% YoY to INR9.6b and EBIT margin declined 2pp to 11%. 2) Lloyd’s revenue grew 8% YoY to INR6.6b. The company reported a loss of INR646m at the EBIT level in 3Q vs. INR596m YoY (estimated EBIT loss of INR577m).

* In 9MFY24, Revenue/EBITDA/PAT grew 9%/13%/15% YoY, respectively. EBITDA margin was up 30bp YoY to 9.2%. Within segments, C&W/Lloyds’ revenue grew 14.2%/16.5% YoY, while Switchgear revenue was up 5.0% YoY. The ECD and Lighting revenue was up 1% (each).

Valuation and view

* Lloyd’s 2Y CAGR was at ~18% and the management believes that the growth levers are intact for the coming season.

* We have a BUY rating on the stock. However, we will review our estimates after the concall on 24th Jan’24

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