Havells (HAVL) sustained its strong all-round revenue growth in 2QFY22. Revenue grew by 32% YoY and 24% QoQ to Rs32.4bn (higher than our estimate of Rs28bn), led by a healthy growth across segments. Revenue growth was supported by channel strategy, including online, rural and modern trade. The company has seen a healthy growth in projects and B2B segment. EBITDA increased by 6% YoY and 25% QoQ to Rs4.4bn (vs. estimate of Rs4bn), while EBITDA margin declined by 340bps YoY (+10bps QoQ) to 13.7%, impacted by the higher raw material cost (65.8% of sales in 2QFY22, and 59.9% of sales YoY). The margin sustained sequentially, though the cost pressure remains significantly high on a YoY basis due to the higher commodity prices. PAT came in at Rs3bn, down 7% YoY (up 28% QoQ) and was in line with our estimate of Rs3bn, due to the lower margin and cost pressure. We lower the EBITDA estimates by 6.7%/5.4%/6.9% for FY22E/FY23E/FY24E respectively, mainly to factor the higher commodity prices. Keeping the target multiple unchanged for FY24E at 60x, we maintain our BUY rating, with a revised 1-year target price of Rs1,631 (earlier Rs1,766).
Healthy Demand to Continue
We believe that demand is likely to remain healthy led by an uptick in projects and B2B segment, which were aided by a revival in Govt and private capex. This resulted in a strong performance of industrial and infra portfolios. HAVL is likely to benefit from the channel expansion, including online, rural and modern trade. The company has done selective price hikes and expects a further hike, based on competition and RM prices. However, the margin is likely to remain low for the next couple of quarters, from the peak of FY21, due to the cost pressure from higher commodity prices.
Outlook & Valuation
We expect HAVL to benefit from the market consolidation, with a strong shift in consumer preference from the unorganized to organized in the near term. The company witnessed a strong recovery in 2HFY21, post a washout in 1HFY21. Notably, FY22 also started on a similar note of FY21 due to the second COVID wave, with muted profitability in 2QFY22 owing to the higher commodity prices. However, we expect HAVL to report a strong uptick over the next three years, led by a recovery in consumer sentiment and Govt's push for infrastructure development. The company is expected to report 18% earnings CAGR over FY21-FY24E, led by an improving revenue visibility coming from operating efficiency. Notably, we have shifted to a 1-year target price, from the earlier 2-year. As we enter 2HFY22, instead of rolling forward the valuation, we maintain it based on FY24E earnings and shift to a 1-year target price of Rs1,631.
Link to the report
Shares of Havells India Limited was last trading in BSE at Rs. 1289.50 as compared to the previous close of Rs. 1285.60. The total number of shares traded during the day was 75074 in over 4915 trades.
The stock hit an intraday high of Rs. 1319.10 and intraday low of 1265.60. The net turnover during the day was Rs. 97087072.00.