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Maintain ADD on Havells - Marginal beat, recovery in sight - HDFC Securities

Posted On: 2020-07-28 10:30:23

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Havells' performance was marginally better than expected as it clocked a lower revenue/EBITDA decline (of 46/53% YoY) than expected (48/64% YoY). The company saw a sequential recovery in May and June, led by a quicker recovery in the B-C business (70% mix). Lloyd's recovery was ahead of other categories as sales bounced back to 80% of previous year's level in May and clocked 8% YoY growth in June. A weak season of RAC (lockdown) impacted Lloyd's performance while it was on course of recovery. We remain optimistic of its performance in the coming years though. Havells clocked better EBITDA margin than expected despite our estimates being above consensus'. Although the intensity of recovery has slightly slowed down in July, Havells is poised to continue gaining market share. The company will also benefit from the consistent shift from unorganized to organized players. We maintain our EPS estimate for FY21/FY22/FY23. We value Havells at 40x P/E on Jun-22E EPS and derive a target price of Rs 610. Maintain ADD.

B-C supports revenues: Revenue declined by 46% YoY (+5% in 1QFY20 and -20% in 4QFY20). Switchgears/Cables/Lighting/ECD/Lloyd saw revenue dip by 44/41/45/46/53% YoY as the lockdown disrupted sales significantly in April. The B-C portfolio of the company (70% revenue mix) saw stronger recovery than the industrial portfolio, clocking 12% YoY growth in June. Havells gained market share across most of its portfolio, and the management expects this to continue.

Beat in EBITDA: Overall gross margin dipped by 281bps YoY (-8bps in 1QFY20 and -71bps in 4QFY20) vs expectation of a dip of 36bps YoY. Employee/ASP/other expenses declined by 27/96/45% YoY. EBITDA margin dipped by 140bps YoY (+37bps in 1QFY20 and -37bps in 4QFY20) to 9%. Overall EBITDA was lower by 53% YoY to Rs 1.3bn (above estimate). Contribution margins for Switchgears/Cables/Lighting/ECD/Lloyd dipped by 810/430/1210/61/630 bps YoY. APAT declined by 64% YoY.

Concall takeaways: (1) secondary sales were better than primary and channel inventory is currently lower than the pre-COVID level; (2) e-commerce revenue mix doubled (3% mix). Rural revenue mix also doubled in June from pre-COVID level (2%); (3) cash flow in 1QFY21 was negative due to quick payment to creditors, with collections now having improved; (4) capex for Lloyd in FY21 will be Rs 400-500mn; (5) 5% of the company's sales are dependent on imports from China.

Shares of HAVELLS INDIA LTD. was last trading in BSE at Rs.576.25 as compared to the previous close of Rs. 595.2. The total number of shares traded during the day was 336496 in over 5681 trades.

The stock hit an intraday high of Rs. 597.9 and intraday low of 571.05. The net turnover during the day was Rs. 194493267.

Source: Equity Bulls

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