IGI Logo

Strong B2C performance drives growth, margins set to improve; upgrade to Neutral

Result Synopsis

Havells strong revenue growth has been driven by better performance of B2C segment which grew by 17% yoy, demand outlook remains positive with festive season expected to fare better than previous year. B2B and B2G demand is expected to make come back as capex cycle continues to remain healthy and government orders are expected to pickup pace as elections are done with and normal business resumes. Gross margins have expanded on yoy basis, while EBITDA margin contraction is largely on account of higher A&P spends and advancement of A&P spends to Q2. Lloyds continues to fare better in both topline growth and improving profitability which has been positive. Management expects margins to return to its normalized levels as employee expenses will get normalized as revenue starts to trickle in medium term. We believe margins should improve from the current levels given the contribution margins are strong and operating leverage will result in margin improvement as revenue growth remains healthy

We are factoring FY24-27E Revenue/EBITDA/PAT CAGR of 16%/23%/24%. Our EPS estimates for FY25 are marginally revised downwards while FY26 EPS remains unchanged. We have introduced FY27 estimates with revenue growth of 15% and EBITDA growth of 18%. Expect continued B2C consumer demand on back of real estate uptick and positive sentiments, while continued industrial and infrastructure led demand will result in strong B2B growth as well. Considering improved demand environment and strong potential of margin improvement we upgrade the stock to Neutral with PT of Rs 1,942 valuing the company at 50x FY27 EPS

Result Highlights

* Revenue beats estimates- Havells delivered better than expected revenue growth on back of strong performance of B2C business, which grew by 17% yoy.

* Margins - Gross margins has seen improvement of ~45bps on yoy basis on better product mix. EBITDA margin at 8.4% has contracted on yoy and sequential basis on back of higher employee expenses and advancement of A&P spends.

* Price revisions – The company has increased prices across the product category. Price increase has resulted in gross margin improvement. Further stabilization in commodity prices will result in normalized margins foe wires and cables.

* Lloyd – Lloyd has registered 19% yoy growth with growth in non-AC segment being better as compared to RAC. Contribution margin for non-AC products are lower as compared to AC as some non-AC products still continues to be bought. Contribution margin for non-AC products will improve once in-house production starts.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632.