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Result Synopsis

Havells growth has been lower as consumer demand continues to remain subdued offsetting strong growth in B2B categories. All B2C categories have posted muted low single digit growth, while B2B categories like Cables and Professional lighting continues to see strong traction. Gross margins continue to improve on back of stable commodity prices, while higher A&P spends have resulted lower EBITDA margins. Contribution margin for most categories has seen sustained improvement and is inching up towards historical levels, while EBIT margins are expected to improve as growth returns. As far as Lloyd is concerned losses are at elevated levels on increased A&P spends. Losses are expected to reduce as brand investments will stabilize and benefits of investments will result in higher growth. Contribution margins of Lloyd have already seen improvement. Management expects demand revival to be driven summer products as real estate activity remain strong.

We are factoring FY23-26E Revenue/EBITDA/PAT CAGR of 12%/21%/23%. We have marginally lowered our margin estimates as company will not shy away from making brand investments in Lloyds as company believes there is sustainable growth opportunities in the longer term which company wants to take advantage. We reiterate our BUY rating with target price to Rs 1,597 valuing the stock at 50x on FY26 EPS. We foresee gradual improvement in demand from Q4 as its growth drivers like real-estate continues to see demand traction and private capex activity is expected to pick up steam with continued strong government capex

Result Highlights

Revenue misses estimates- Havells delivered lower than expected revenue growth as B2C consumer demand has been continues to remain sluggish offsetting strong growth in B2B categories

Margins -Gross margins has seen improvement of ~33bps on yoy basis as commodity prices have stabilized. EBITDA margin at 10% has seen contraction of ~44bps on higher A&P spends as company continues to invest in brand building activity

Price revisions – Company now has passed on increased price on account of change in BEE ratings in both Fans as well as RAC and now does not envisage further price increase as commodity prices have been benign.

Lloyd – Lloyd lower growth in Q3 is attributed to lower channel filling as compared to the previous year. Lower channel filling is on account of company having enough capacities to supply during the peak summer season and now company supply will now follow actual demand.

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