Buy Havells India Ltd For Target Rs.1,780 By JM Financial Services
1Q was a weak quarter for Havells. Revenue from Lloyd Consumer and ECD businesses saw a revenue decline of 34% and 14% respectively. From the concall we note that despite a weak performance in these segments, Havells has held onto its #3 position in ACs and maintained market share in ECD, especially fans. Incrementally on an overall basis, a 27% YoY revenue growth and a 130bps EBIT margin expansion in cables and wires came to the rescue, restricting 1Q revenue and PAT degrowth to 6% and 14% respectively. We cut our FY26/27E estimates by 10%/9%. However, we roll forward to Jun’27E (from Mar’27E earlier) and maintain BUY with a revised target price of INR 1,780, set at 50x Jun’27E EPS.
* Weak ECD and Lloyd performance drive 1Q miss:
: Havells’ 1Q revenue at INR 54.4bn, -6% YoY missed JM and consensus estimates by 7% and 10% respectively. Absolute EBITDA at INR 5.2bn declined 10% YoY. Margin at 9.6% contracted 30 bps YoY, lower than expected operating expenses arresting the margin decline. As compared to JM and street estimates, 1Q EBITDA was a 7% and 5% miss respectively. Havells’ 1Q PAT at INR 3.5bn, came in 14% lower YoY, missing JM and consensus estimates by 7% and 8%
* ECD and Lloyd a dampener; C&W outshines: As far as the segmental performance is concerned, negative highlights included (1) 34% YoY revenue decline in Lloyd Consumer (unseasonal rains impacting AC sales) and a -1.6% EBIT margin (vs. +3.5% YoY); (2) 14% YoY decline in the ECD business (unfavourable weather impacting fan and cooler sales) with EBIT margin at 8.7%, -220bps YoY; and (3) a 3% YoY revenue decline and 400bps EBIT margin contraction (12.4% vs. 16.3% YoY) in the lighting business, owing to price erosion in LED lights. Positive highlights included strong performance in the cables and wires business, revenue growing 27% YoY supported by new capacities and industry tailwinds. Here, EBIT margins expanded 130bps YoY to 12.6%. Besides this, the switchgears business registered a 9% YoY revenue growth, EBIT margins declining 120bps YoY to 23.4%
* Retains #3 position in Lloyd; future strategy clear: Havells has maintained its #3 position in the Indian RAC market, and amidst weak industry performance, has not seen any drop in market share. Further, it remains clear with its strategy of not resorting to heavy discounting to drive volume growth. In the concall, we further noted that channel inventory is yet not at normalized levels, both for the industry and Havells, and it is likely to take a few months to reach normalized levels.
* Volume growth strong in C&W; new capacities to aid growth in MV segment: The C&W segment registered a YoY revenue growth of 27%, wherein volume growth was at 20- 21%. While Havells is currently heavy on LV (low-voltage) cables, new capacities are expected in the MV (medium-voltage) segment. Further, the newly commissioned Tumkur facility has also started contributing. Havells is targeting to double capacities in underground cables through FY24-27.
