Sell Havells India Ltd For Target Rs.1,644 By Geojit Financial Services Ltd
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Strong performance...premium valuation
Havells India Ltd. (HAVL) is a leading player in electrical consumer goods in India. Its key verticals include switchgears, cables & wires, lighting fixtures, and consumer appliances.
* Revenue grew by 20% YoY and net profit was up 43% YoY, led by strong summer related sales.
* EBITDA grew by 43% YoY, and margins expanded by 160bps to 9.9% but missed our estimates 60bps, as full benefits of price hikes will be visible only in upcoming quarters.
* HAVL's core portfolio underperformed as cables growth was modest due to destocking given sharp decline in copper prices. We anticipate recovery in H2FY25 given healthy demand in real estate & construction sector.
* We anticipate better consumer sentiment in FY25 amid softening inflation and healthy demand from construction sector. We expect 28% CAGR growth in earnings over FY24-FY26E
* We value HAVL at a P/E of 52x on FY26E given premium valuation and we downgrade to Sell from Hold rating, with a revised TP of Rs.1,644.
Summer products drive growth...
In Q1FY25, revenue grew by 20% YoY, propelled by summer-related products, fans (ECD) and air conditioners (Lloyd). However, the wires and cables segment, accounting for 34% of FY24 sales, saw a modest 2% YoY growth due to destocking following a sharp decline in copper prices during the quarter. The switchgear segment was impacted by postponement of export shipments to the next quarter. The lighting segment experienced a modest 5% YoY growth. Overall, healthy demand from the infrastructure and real estate sectors is expected to drive growth in HAVL's core portfolio going ahead. We anticipate destocking in the wires segment is expected to normalize by Q2FY25, and capacity expansion in cables will drive further growth in this segment. Additionally, improved consumer sentiment in FY25, amid softening inflation, is likely to sustain the growth momentum in the ECD and Lloyd businesses. We anticipate a revenue growth of 15% CAGR over FY24-26E.
EBITDA growth healthy…
In Q1FY25, EBITDA surged by 43%, with a 160bps YoY margin expansion to 10%, though this fell short of our estimates by 60 basis points due to a 28% YoY increase in ad spends and delayed price hikes. Net profit increased by 43% YoY, aided by 19% YoY, rise in other income. Future margin expansion will be driven by normalization of growth in the core portfolio and pricing actions initiated in Q1FY25. However, high brand-building investments may cap near-term margin improvements. We project a robust 28% CAGR growth in net profit over FY24-26E.
Key con-call highlights…
* FY25 CAPEX guidance amounts to Rs.1,200cr.
* Signed JVs with focus on exports- target products include Kitchen appliances, Lighting & fixtures, and ACs.
Valuations
We maintain a positive long term outlook on HAVL given its brand recall, strong product portfolio, and robust channel networks, we expect 28% CAGR growth in earnings over FY24-FY26E. However, given premium valuation, we value HAVL at a P/E of 52x in FY26E, and downgrade to Sell from Hold with a target price of Rs.1,644.
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SEBI Registration Number: INH200000345
