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Weak performance as higher A&P spending hurts margins Lloyd and switchgear lag; renewable growth continuing

* Havells India (HAVL) reported a weak performance in 1QFY27 due to a dip in switchgear revenue and margin contraction, led by higher A&P spending (4.4% of revenue vs. 2.6% in 1QFY26/4QFY26, each) and higher raw material costs. Revenue grew ~19% YoY (in line). EBITDA declined ~10% YoY to INR4.7b (~24% below our estimate). OPM contracted 2.3pp YoY to 7.2% (est. 9.2%). PAT declined ~17% YoY to INR2.9b (~29% miss).

* Management indicated that the Lloyd/ECD segments experienced higher volatility due to changing weather conditions. In switchgear, the export business was affected by the West Asia crisis, while domestic demand remained fairly stable. Advertising spending was front-loaded due to seasonality and higher brand-building efforts. HAVL expects advertising spending to normalize over the rest of the year. In C&W, volume growth remained flat across wires and cables. In lighting, pricing has stabilized, and it is now seeing some value growth. The renewables business continued to scale rapidly with strong revenue growth, leveraging sector tailwinds.

* We cut our EBITDA estimates by ~6%/8% for FY27/FY28 due to a cut in our margin estimates. This cut has led to an EPS reduction of ~8%/10% for FY27/FY28. HAVL trades at 48x/39x FY27E/ FY28E EPS. We reiterate our Neutral rating with a TP of INR1,220 (based on 40x FY28E EPS).

C&W/ECD margins down 2.2pp/2.6pp YoY to ~10%/5.2%

* HAVL’s consol. revenue/EBITDA/PAT stood at INR65.2b/INR4.7b/INR2.9b (+19%/-10%/-17% YoY and -2%/-24%/-29% vs. our estimate). Gross margin contracted 2.2pp YoY to ~31%. OPM dipped 2.3pp YoY to 7.2%. OPM (exLloyd) stood at 9.8% (down 2.9pp YoY; 3.8pp below our estimate).

* Segmental highlights: 1) HAVL’s revenue (excl. Lloyd) increased ~21% YoY to INR50.6b. C&W’s revenue grew ~27% YoY to INR24.6b, and EBIT margin declined 2.2pp YoY to ~10%. The Switchgear revenue declined ~4% YoY to INR6.1b, while EBIT margin contracted 2.6pp YoY to ~21%. The Lighting revenue increased ~5% YoY to INR4.0b, while the EBIT margin dipped 1.6pp YoY to ~10%. The ECD revenue increased ~12% YoY to INR11.1b, and EBIT margin declined 2.7pp YoY to ~5%. 2) Lloyd’s revenue grew ~15% YoY to INR14.6b. Segment loss was INR563m vs. a loss of INR209m in 1QFY26

Key highlights from the management commentary

* In Lloyd, volume growth was in single digits YoY; however, value growth was higher, led by calibrated price hikes in 1HCY26. It indicated that secondary sales remained healthy.

* It has implemented staggered price hikes across product categories in the range of ~7-8%, while categories with higher copper and aluminum content witnessed steeper increases (up to ~20%).

* Capex was pegged at INR8.0b for the cables business, INR2.0b was marked for establishing a new R&D center, and the balance was allocated to other businesses.

Valuation and view

* HAVL's 1QFY27 performance was below our estimates due to lower-thanestimated revenue growth in switchgear/Lloyd businesses and weak margins due to higher advertising spends. Although management remains confident of margin improvement through price hikes, normalization of advertising spends, and operating leverage, demand remains uneven across segments. Further, we estimate losses to continue in the Lloyd business till FY28E. In C&W, commodity volatility remained a key challenge in the near-term.

* We expect HAVL to report a revenue/EBITDA/PAT CAGR of ~13%/15%/12% over FY26-28E. We estimate C&W/ECD/Lloyd revenue CAGR in the range of ~12%- 16% and ~4%-5% in switchgear/lighting segments. We estimate its OPM range bound at 9.5%-10.0% over FY27-28 (below its historical average of ~13% over FY12-22). We estimate a stable RoE and RoCE of ~16% (each).

* HAVL trades fairly at 48x/39x FY27E/FY28E EPS. We reiterate our Neutral rating with a TP of INR1,220, based on 40x FY28E EPS.

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