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Steady margins; Llyod and cable drive growth

The slow start to summer hampers early demand for the season

* Havells India (HAVL)’s 4QFY25 revenue grew 20% YoY to INR65.4b (5% beat), led by better-than-expected growth in the Lloyd/C&W segments. Higher margins in the Lloyd and ECD segments have resulted in ~19% YoY EBITDA growth to INR7.6b (+17% vs. our est.). OPM stood at 11.6% (flat YoY) vs. our est. of 10.4%. PAT grew ~16% YoY to INR5.2b (15% above our est.)

* Management highlighted that the large appliances and cables fueled revenue growth. The ramp-up of new capacity in the C&W segment is underway. HAVL’s margin would reach a normalized level (ex-Lloyd) of 13.5- 14.0%, as the benefits of operating leverage kick in. Delayed summer has affected secondary demand in the ongoing season and the growth trajectory in rest of the season needs to be seen.

* We marginally increase our EPS estimates by ~3% each for FY26/FY27 as we raise our margin assumption for the Lloyd segment by 150-200bp. HAVL’s valuations at 60x/49x FY26/27E EPS remain expensive. We reiterate our Neutral rating with a revised TP of INR1,710 (based on 50x FY27E EPS).

ECD/Llyod’s EBIT margins improve 1.3pp/3.4pp YoY to ~13%/6%

* HAVL’s consolidated revenue/EBITDA/PAT stood at INR65.4b/INR7.6b/INR5.2b (+20%/+19%/+16% YoY and +5%/+17%/+15% vs. our estimates). Gross margin stood at ~32% (-65bp YoY). OPM flat YoY at 11.6%. Ad spending was at 2.2% of revenue vs. 2.4%/3.7% in 4QFY24/3QFY25.

* Segmental highlights: 1) HAVL revenue (excl. Lloyd) increased ~13% YoY to INR46.3b. The C&W revenue grew ~21% YoY to INR21.7b, and the EBIT margin flat YoY at ~12%. The Switchgear revenue rose ~6% YoY to INR6.9b, while the EBIT margin contracted 2.5pp YoY to ~26%. The Lighting revenue inched up 1% YoY to INR4.4b, while the EBIT margin dipped 1.6pp YoY to ~16%. The ECD revenue rose 10% YoY to INR10.0b, and the EBIT margin improved 1.3pp YoY to 13%. 2) Lloyd’s revenue grew ~39% YoY to INR18.7b. Margin improved 3.4pp to ~6%, leading to a profit of INR1.1b.

* For FY25, HAVL’s revenue/EBITDA/PAT grew 17%/16%/16% YoY. OPM margin flat YoY at ~10%. Among segments, Lloyd/ECD/C&W’s revenue rose 35%/15%/14% YoY, while Switchgear/Lighting’s revenue grew 7%/2% YoY. CFO declined 22% YoY to INR15.2b due to higher tax payments and an increase in WC. Capex stood at INR7.2b in FY25 vs. INR7.3b in FY24. FCF stood at INR7.9b in FY25 vs. INR12.3b in FY24.

Key highlights from the management commentary

* Low base of last year and inventory stocking led to higher revenues for Lloyd. However; delayed summer in both the South and North regions has hurt secondary sales, though there has been some accentuation of heatwaves recently in the North. So far there is no panic in the trade channel.

* In 4QFY25, half of the revenue growth in C&W was driven by volumes, while the rest was related to price hikes led by higher RM costs. HAVL witnessed more value growth in the wires segment, whereas volume growth was higher in underground cables.

* Measures taken in the Union Budget as well as by the RBI augur well for a pickup in consumption. Volume growth in the lighting segment was in high single digits in 4QFY25.

Valuation and view

* We believe the demand pickup in the summer season and the sustainability of Lloyd's margin will be key monitorables in the near term. Wires demand too, has been hit by the slow real estate demand. This has also hurt the margin of wires, and recovery needs to be monitored. We marginally raise our EPS estimates by ~3% each for FY26/27 by factoring in a 150-200bp increase in margins for Lloyd.

* We expect HAVL to report a revenue/EBITDA/PAT CAGR of 14%/21%/21% over FY25-27. We estimate OPM to reach 10.9% in FY27 vs. 9.8% in FY25. RoIC of the company is expected to improve to ~29% by FY27 from 24% in FY25, and its RoE is likely to be ~20% in FY27 vs. ~18% in FY25.

* The stock trades at rich valuations of 60x/49x FY26/27E EPS, and hence, we reiterate our Neutral rating with a revised TP of INR1,710 (premised on 50x FY27E EPS).

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