Mr. Naveen Trivedi, Institutional Research Anayst, HDFC Securities.
Havells (Q4FY20): Recovery Interrupted by Covid. Maintain ADD
(TP Rs 515, CMP Rs 509, MCap Rs 320 bn)
Havells' clocked 20% revenue dip in 4QFY20 due to high revenue contribution from the last 12-15 days of March (~25% mix). However, co was witnessing strong recovery with ~9% growth for the quarter (ex-Covid) after posting weak show in 9MFY20 (-1% in 9MFY20 and -10% in 3QFY20). Lloyd recovery pre-Covid was strong led by various initiatives taken by the company. Besides, Havells has managed its cost very effectively and posted strong 11% EBITDA margin. With pressure led by negative oplev, most appliances companies will face pressure on sustaining margins. Additionally, the co is well positioned in terms of its working capital to ride out the disruption caused by Covid-19. Our expectation of a recovery by Havells, albeit delayed, remains intact. However, due to the loss of sales of summer products and weak demand environment, we cut our EPS estimates by 8-9% for FY21/FY22 (28/23% cut in our 4QFY20 preview). We value Havells at 36x on Mar-22E EPS, and derive a TP of Rs 515. Maintain ADD.
Robust pre-Covid growth: Net revenue contracted by 20% yoy vs. exp. of 4% dip (+9% in 4QFY19 and -10% in 3QFY20) to Rs 22.2bn. Revenues in Switchgears/Cables/Lighting/ECD/Lloyd declined by 14/24/31/14/14%. Havells was on the course of achieving 9% yoy growth in 4Q before Covid disruption. Lloyd recovery was sharp as it saw 45% yoy growth in Jan/Feb led by various initiatives. ECD growth was also strong at 24% in Jan/Feb.
Healthy operating margin: GM contracted by 71bps yoy to 36.2%. Employee/ASP/Other expenses declined by 10/69/14% yoy. EBITDA declined by 22% yoy to Rs 2.45bn vs. expectation of Rs 2.82bn. EBITDA margin stood at 11.1% vs expectation of 10.7%, consistent cost control supported the margin even in such weak revenue show. Contribution margins for Switchgears/Cables/ECD/Lloyd declined by 485/521/112/530bps yoy while contribution margin for Lighting increased by 293bps yoy.
Call & other takeaways: (1) Co lost sales worth ~Rs 8bn due to the impact of Covid-19. Loss of sales in Lloyd was ~Rs 2.25bn, (2) Currently, consumer activity pan-India is at 30-40% of normal levels (3) Loss in sales of summer products is unlikely to be recovered, (4) Growth in Jan/Feb 2020 for ECD/Switchgears/Lloyd was 24/15/45%, (5) RAC channel inventory is higher in South than North, (6) NWC days reduced to 26 days vs. 28 days in FY19.
Maintain ADD: Havells' performance pre-Covid indicates that the co was on the cusp of a recovery. FY21 will be a challenging year for both cooling products and core categories. With superior execution skills, large portfolio and strong balance sheet, we believe Havells will bounce back quickly once normalcy comes. We maintain ADD rating.
Shares of HAVELLS INDIA LTD. was last trading in BSE at Rs.511.2 as compared to the previous close of Rs. 480.45. The total number of shares traded during the day was 214527 in over 6559 trades.
The stock hit an intraday high of Rs. 514 and intraday low of 484.2. The net turnover during the day was Rs. 107017541.