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Havells’ 2QFY24 revenue grew 6% YoY (+15% 4-year CAGR; 7% below JMFe and 5% below consensus) led by strong growth in Lloyd (+19% YoY; 15% below JMFe) and Cables and Wires (+8% YoY; 10% below JMFe). ECD revenue declined 5% YoY (+11% 4-year CAGR) on account of weakness in demand in general. EBITDA grew by 30% YoY (+12% 4- year CAGR) to INR 3.74bn (14% below JMFe/12% below consensus) on account of low base (inventory loss in C&W segment due to drop in copper prices). Adj. PAT rose by 33% (+9% 4-year CAGR) to INR 2.49bn (17%/15% below JMFe/consensus respectively). Demand continued to be driven by industrial and infrastructure segments (cables and switchgears), while consumer-facing categories remained sluggish; demand is seen stronger in 2HFY24. ExLloyd EBIT margin was 13.5% in 2QFY24 (+240bps YoY/flat QoQ) and is expected to improve further in the medium term. On the other hand, Lloyd’s margin is likely to remain muted over the next couple of years as the management continues to focus on RAC market share gains and ramp-up in other white goods categories. We cut our FY24/25 EPS estimates by 4%/5% respectively and arrive at a Sep’24TP of INR 1,460 (earlier INR1,500). CMP offers 15% IRR over the next 3 years, in our view. We maintain BUY.

* 2QFY24 summary: Havells’ 2QFY24 revenue grew 6% YoY (+15% 4-year CAGR; -19% QoQ) to INR 38.9bn and was 7% below JMFe/5% below consensus. Havells’s (ex-Lloyd) revenue grew 4% YoY (+13% 4-year CAGR; -5% QoQ) led by cables and wires (+8% YoY) and switchgears (+9% YoY). Lloyd’s revenue grew by 19% YoY (+29% 4-year CAGR; -62% QoQ). EBITDA grew 30% YoY (+12% 4-year CAGR/ -7% QoQ) to INR 3.74bn (14% below JMFe and 12% below consensus). Adj. PAT grew 33%YoY (+9% 4- year CAGR / -9% QoQ), at INR 2.49bn, 17%/15% below JMFe/consensus respectively

* Improved margin performance at contribution level: Contribution margin (Havells exLloyd) improved 30bps QoQ to 22.7%, (+310bps YoY on inventory loss in 2QFY23 in Cable and Wires) on the back of stable RM prices. Cable margin improved 600bps YoY/+70bps QoQ as there was inventory loss in the base quarter due to fall in copper prices. ECD margin too improved 80bps QoQ (170bps YoY) while lighting margin was stable at 28.8%. Overall, gross contribution margin expanded 240bps YoY/290bps QoQ to 9.6%, partially helped by lower A&P spend (2.2%, -20bps YoY/-60bps QoQ).

* Seasonality and under-absorption of overheads take toll on Lloyd’s performance: Lloyd reported 19% revenue growth for 2QFY24 (15% below JMFe) while contribution margin came in at 3.9%, -110bps QoQ (under-absorption of overheads; high capacity utilisation in 4QFY23) while EBIT loss of INR 608mn (-4.7% of revenue) was higher than JMFe loss estimate of INR 325mn (-2.5% of revenue). The company continues to invest in various initiatives (manufacturing, R&D, branding, distribution, etc.) as it aims to be a meaningful player in the longer term in the INR 1trln white goods industry. Having said that, the company believes these initiatives on premiumisation and operating leverage should help it significantly improve margin in Lloyd over the long term.

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CIN Number : L67120MH1986PLC038784