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Havells India Ltd>
  • CMP : 1,297.2 Chg : -11.05 (-0.84%)
  • Target : 1,375.0 (10.0%)
  • Target Period : 12-18 Month

06 May 2022

Higher raw material cost weighs on margin…

About The Stock:

Havells India (HIL) is India’s leading electrical appliances & equipment manufacturer with a diversified product portfolio consisting of switchgears, cables, electrical consumer durables and lighting & fixtures. Apart from ‘Havells’, HIL’s other major brands include Crabtree, Standard, Reo and Lloyd.

  • In all its business segments, Havells has a strong presence in the organised product category with market share ranging between 6% and 20%
  • Robust balance sheet with RoE & RoCE of 20% & 25%, respectively (five-year average), with stringent working capital policy
Q4FY22 Results:

Strong performance on the revenue front. However, high raw material costs dragged overall EBITDA margin.

  • Revenue up ~33% YoY to Rs. 4417 crore led by volume growth of 20% YoY
  • EBITDA margin declined ~340 bps YoY to 11.8%, mainly due to lower gross margin. Gross margin saw a sharp fall of ~812 bps YoY (~300 bps QoQ) mainly due to higher raw material costs and delay in price hike
  • PAT increased ~17% YoY to Rs. 353 crore tracking lower EBITDA margin
What should Investors do?

Strong B2C brand, focus on market share gains of Lloyd through improved product mix and dealer addition. The company’s share price has grown 2.4x in the last five years.

  • We revise our rating from BUY to HOLD
Target Price & Valuation

We value the stock at 53x FY24 EPS with revised target price to Rs. 1375/share

Key Triggers for future price performance
  • Total ~1.7 crore new houses under PMAY, urbanisation and rising aspiration level will give a significant boost to demand for home appliances
  • Revival in the Lloyd business through new launches and improvement in segment margin
  • It aims to increase its town penetration from current 1150 to 2000 and retail touch points from 1.6 lakh to 2.5 lakh over the next five years
  • Model revenue, earnings CAGR of ~13%, 16%, respectively, in FY22-24E
Alternate Stock Idea

Besides Havells, we like Supreme Industries in our coverage.

  • Supreme is market leader in plastic piping segment with ~14% market share. Robust b/s with average RoE, RoCE of 24%, 27%, respectively
  • BUY with a target price of Rs. 2320

Key Financial Summary

Rs# Crore FY19 FY20 FY21 FY22 5Year CAGR (FY17-22E) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Net Sales 10,067.8 9,429.2 10,427.9 13,888.5 17.8 15,725.5 17,867.3 13.4
EBITDA 1,183.9 1,027.4 1,565.2 1,757.6 16.4 1,826.9 2,294.1 14.2
EBITDA Margin (%) 11.8 10.9 15.0 12.7 - 11.6 12.8 -
PAT 787.4 733.0 1,039.6 1,194.7 17.2 1,258.7 1,604.6 15.9
EPS (|) 12.6 11.7 16.7 19.1 - 20.2 25.7 -
P/E (x) 99.0 106.4 75.0 65.3 - 62.0 48.6 -
Price/Book Value (x) 18.6 18.1 15.1 13.0 - 13.3 13.1 -
Mcap/Sales 7.7 8.3 7.5 5.6 - 5.0 4.4 -
RoE (%) 18.8 17.0 20.1 19.9 - 21.5 26.9 -
RoCE (%) 25.4 19.6 24.9 23.7 - 25.5 31.9 -
Source: Company, ICICI Direct Research

Key takeaways of results & conference call highlights

Q4FY22 Results: Strong revenue growth, delay in price hike drags margin

  • Havells’ topline growth at 33% YoY to Rs. 4417 crore was a strong beat from our estimate. This was largely driven by ~20% volume growth. Segment wise, revenues of wire & cable, ECD, Lloyd and lighting segment revenues were up ~45%, 22%, 62% and 22%, respectively, to Rs. 1488 crore, Rs. 870 crore, Rs. 959 crore and Rs. 399 crore, respectively. The switchgear segment revenue grew albeit at a slow pace of 2% YoY to Rs. 474 crore. The strong demand was attributable to timely onset of summer and strong demand for B2C products
  • Havells’ EBITDA margin at 11.8% declined ~340 bps YoY, mainly due to lower gross margin. Gross margin declined ~812 bps YoY due to higher raw material costs
  • PAT came in higher by ~17% YoY, tracking strong sales growth

Q4FY22 Earnings Conference Call highlights

  • FY22 performance highlight: Havells reported price led revenue growth of 33% YoY to Rs. 13889 crore. Volume growth for the year was ~11-12%. The gross margin dipped 547 bps YoY due to a delay in price hikes and restoration of key operating costs. As a result, EBITDA margin declined 230 bps YoY to 12.7%. PAT, at Rs. 1195 crore, was up 15% YoY
  • Future demand outlook: The management expects revenue CAGR of 13-14% for FY22-24E. Long term growth drivers like revival in real estate industry, higher government capex, rising disposable income remain intact
  • Margin: The management expects raw material prices to cool off in the next quarter or two with easing of supply pressure. The company does not see any sharp price hike in the near term
  • Lloyd: Inventory is at a normal level for Lloyd. The company aims to further increase market share in the RAC segment. The management expects Lloyd’s margin to be at the company level in the medium to long term with price hike, improved product mix and positive operating leverage
  • Capex: Planned Rs. 700 crore of capex for FY23E of which Rs. 350 crore will be for the Lloyd division. The near AC manufacturing capacity at Sri City is expected to be operational by the end of FY23

Variance Analysis

  Q4FY22 Q4FY22E Q4FY21 YoY (%) Q3FY22 QoQ (%)   Comments
Revenue 4417.1 3584.1 3331.2 32.6 3652.3 20.9   Sharp revenue growth led by volume growth of 20% YoY
Other Income 44.2 39.4 37.2 18.7 48.8 -9.5    
Raw Material Exp 3122.3 2439.2 2084.1 49.8 2473.0 26.3   Gross margin dipped ~800 bps YoY mainly due to higher raw material costs and delay in price hike
Gross Margin (%) 29.3 31.9 37.4 -812 bps 32.3 -298 bps    
Employee Exp 275.3 254.5 258.5 6.5 257.4 7.0    
Other expenses 498.9 480.3 482.9 3.3 481.5 3.6    
EBITDA 520.5 410.2 505.6 2.9 440.3 18.2    
EBITDA Margin (%) 11.8 11.4 15.2 -339 bps 12.1 -27 bps   Sharp fall in gross margin led to decline in EBITDA margin in Q4
Depreciation 70.7 69.7 65.0 8.8 66.2 6.8    
Interest 19.1 21.9 23.5 -18.9 12.3 54.9    
PBT 474.9 358.1 454.4 4.5 410.7 15.7    
Total Tax 122.0 91.3 152.1 -19.8 104.7 16.5    
PAT 353.0 266.8 302.3 16.8 305.9 15.4   Increase in PAT was led by strong growth in topline
Key Metrics                
Cable 1,488.1 1,143.9 1,029.2 44.6 1,205.8 23.4   Strong demand from both B2B and B2C segment drives Cable segment revenue growth
Switchgear 474.4 511.5 463.3 2.4 496.0 -4.3   Lower demand from the B2C segment amid covid led disruption in  Jan-Feb22 period
ECD 1,829.0 1,373.7 1,303.0 40.4 1,358.3 34.7   ECD revenues increased by 22% YoY to | 870 crore led by 15% volume growth. The Lloyd revenue increased by 62% YoY to | 959 crore due to pent up demand and rise in temparature
Lighting & Fixtures 399.4 337.8 328.7 21.5 408.0 -2.1   Growth was largely driven by consumer lighting segent
Others* 226.1 217.3 207.0 9.2 184.1 22.8    
* Motor, Pump, Solar, Personal Grooming and Water Purifier businesses                

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