Maintain ADD on Havells India - Beat across the board; justifying rich valuation
Havells posted a stellar revenue/EBITDA growth of 40/89% YoY, beating our as well as the street's expectations. Such performances in adverse phase reiterate Havells' superior execution and strong business model. Company capitalised improving consumer sentiments (with ease in lockdown), festive demand, pre-buying, market share gains and distribution expansion. Broad based growth was heartening and gives confidence on improving underlying demand. Lloyd recovery (65% growth in the last 2 quarters) was also driven by several initiatives (pricing, product, distribution and confidence boost to trade partners) taken in the last 12 months. Commodity inflation is kicking in and leading into pricing action. With supply constraints, share gain, and oplev, we do not foresee impact on operating margin. We increase EPS by 21/15/9% for FY21/22/23. We value Havells at 50x P/E on Mar-23E EPS to derive a target price of Rs 1,150. We believe rich valuation will sustain owing to non-linear growth and several growth drivers (PLI also on cards). Maintain ADD.
Robust growth across segments: Revenue grew by 39% YoY (HSIE 18%). Switchgears/Cables/Lighting/ECD/Others grew by 32/27/28/46/28% YoY. Consumer and Residential portfolio registered ~40% growth whereas Industrial and Infra grew mid-teens. Lloyd sustained its momentum with a robust 70% YoY growth (-16% in 3QFY20 and +56% in 2QFY21). Festive demand was encouraging and supported growth along with distribution expansion and supply chain constraints for marginal players. Havells saw market share gains, led by supply chain disruptions for marginal players.
EBITDA margin expansion continues: Contribution margin was flat at 23.6% due to commodity inflation. Employee/Other expenses grew by 7/24% YoY while ASP fell by 34% YoY despite sharp cut in 1HFY21. EBITDA margin expanded by 420bps YoY to 16% (+15bps in 3QFY20 and +662bps in 2QFY21). EBITDA grew by 89% YoY (HSIE +45%). EBIT margin was up by 495/57/554/358/1,030 bps YoY for Switchgears/Cables/Lighting/ECD/Lloyd to 31/11/23/18/6%. PAT grew by robust 75% to Rs 3.5bn.
Concall takeaways: (1) Rural revenue clocked >100% YoY growth; (2) rural and e-comm revenue mix stood at 12%; (3) copper related products like wires saw 15% price hike in 3QFY21; (4) all ECD categories could see double digit price hike if inflation sustains; (5) operating margin will be healthy.
Shares of HAVELLS INDIA LTD. was last trading in BSE at Rs.1122.1 as compared to the previous close of Rs. 1132.2. The total number of shares traded during the day was 228204 in over 9843 trades.
The stock hit an intraday high of Rs. 1164 and intraday low of 1114.05. The net turnover during the day was Rs. 259301667. |
