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Lloyd’s performance better in 1Q; cables & wires muted

Price hikes would offset the surge in RM costs

* Havells India (HAVL)’s revenue/EBITDA grew ~20%/42% YoY to INR58.1b/ INR5.7b (in line) in 1QFY25. Though Lloyd’s revenue rose ~47% YoY to INR19.3b (in line), its profitability was better than estimated, with an EBIT of INR636m (est. INR371m). This was aided by cost efficiencies &premiumization. Overall EBITDA margin was ~10% (in line). Profit was INR4.1b vs. estimated INR3.9b.

* The management commentary was positive on demand, pricing, and Lloyd. Demand for wires rebounded to normal levels in Jul’24, and there were price hikes across categories in 1QFY25. Though management refrained from giving any guidance for Lloyd’s FY25 profitability, it mentioned that Lloyd remains on a strong footing as its own manufacturing has helped in offering differentiated products and led to margin improvement. In the switchgear segment, the contribution margin will be maintained around 38-41%.

* We retain our EPS estimates for FY25/FY26. We value the stock at 55x Jun’26E EPS to arrive at our TP of INR1,820. Reiterate Neutral.

Margin higher than estimate in Lloyd and Lighting segments

* Consolidated revenue/EBITDA/PAT stood at INR58.1b/INR5.7b/INR4.1b (up 20%/42%/42% YoY and up 2%/down 3%/up 5% vs. our estimates). Gross margin improved 1.5pp YoY to 31.9%. OPM expanded 1.5pp YoY to 9.9% (est. 10.3%). Ad spending was 3.0% of revenue vs. 2.8%/2.4% in 1Q/4QFY24.

* Segmental highlights: 1) Havells (ex-Lloyd)’s revenue grew 10% YoY to INR38.8b. C&W’s revenue rose 2% YoY to INR15.2b and EBIT margin was flat at ~11%. Switchgear’s revenue was up 7% YoY to INR5.8b and EBIT margin contracted 3.1pp to 24.6%. Lighting’s revenue rose 4% YoY to INR3.9b and EBIT margin improved 1.9pp to 16%. ECD revenue rose 20% YoY to INR10.6b and EBIT margin was flat at ~11%. 2) Lloyd’s revenue grew 47% YoY to INR19.3b. Lloyd reported an EBIT of INR636m in 1QFY25 vs. a loss of INR616m in 1QFY24 (estimated EBIT of INR371m).

Key highlights from the management commentary

* Cable registered double-digit growth, while demand for wires was hit in Jun’24 due to huge inventory destocking as commodity prices declined sharply in the month.

* Price hikes were taken in many product categories, including consumer durable products. These price hikes will likely offset the surge in RM costs.

* Capex in FY25 will be between INR8-9b. The total announced capex is INR11b as of now, of which 40% will be towards cables and INR1b for Lloyd.

Valuation and view

* We have introduced FY27E. We expect HAVL to report a revenue/EBITDA/ PAT CAGR of 15%/21%/ 24% over FY24-27. We have assumed a revenue CAGR of 21% for Lloyd, while other business segments should deliver a revenue CAGR of 8-14%. We have estimated Lloyd’s margin at 2.0%/3.5%/ 5.0% in FY25/FY26/FY27.

* The stock is trading at 59x FY26E EPS, reflecting the growth we anticipate. We value the stock at 55x Jun’26E EPS to arrive at our TP of INR1,820.

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