PL Stock Report - Havells India (HAVL IN) - Q1FY24 Result Update - Strong growth in Cable & Lloyd; margins weak - BUY

Havells India (HAVL IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,348 | TP: Rs1,460

Q1FY24 Result Update - Strong growth in Cable & Lloyd; margins weak

Quick Pointers:

§ Robust growth in Cables revenue (+24.5%YoY) with 30%+ vol. growth.

§ Lloyd growth momentum continues (up ~20% YoY), but with increased losses.

Havells India’s (HAVL IN) reported decent revenue growth mainly with healthy growth in Cables and Lloyd business (+24.5%/19.9% YoY) with strong volume growth of 30%+/20% respectively, while ECD segment impacted due to sluggish consumer demand and disrupted summer reduced fans sales. Lighting segment impacted with deflationary trend in LED segment. Operating margin impacted from 1) softening of commodity price not fully passed on, 2) low value growth and price erosion in lighting segment, 3) higher overheads plus A&P expenses and 4) continued losses in Lloyd. Cable & Switchgear business is expected to report healthy growth of 20-25% in FY24, given B2B sustains steady demand led by infrastructure/construction. Lloyd is also expected to maintain growth momentum, through expansion in South India and venturing in EMS segment.

Overall, we are positive on HAVL’s Cables & Switchgears growth prospects along with improvement in Lloyd’s revenue. However, margins may take time to improve given weak demand scenario in FMEG portfolio and continued loses in Lloyd. We have downward revised our FY24 earnings by 6.7% mainly with correction in margins and maintained FY25 earnings as H2FY24 is expected to see revival in demand & margins. Maintain ‘BUY’ at a DCF based target price of Rs1,460.

Sales grew 14.3%, PAT grew 18.4%: Revenue grew by 14.3% YoY to ~Rs48.3bn (PLe ~Rs45bn) led by growth in Cables (+24.5% YoY), Lloyd (+19.9% YoY), Switchgear (+4.6% YoY) and ECD (4.5% YoY). Slowdown in ECD revenue due to poor fan sales owing to unseasonal rains and price erosion in lighting segment resulted in flat revenue. EBITDA grew 15.8% YoY to Rs4.0bn (PLe ~Rs4.9bn), while EBITDA margins flat YoY to 8.3%, (PLe 11.1%). In terms of segmental EBIT margin, Cables margin came in at 11.4% (+400bps YoY), Lighting at 14.3% (-210bps YoY), ECD at 10.9% (-220bps YoY) and Switchgear at 27.7% (+150bps YoY). Lloyd continues to see losses at Rs616mn vs loss of Rs563mn in Q1FY23. PBT grew by 22.1% YoY to Rs3.8bn. Adj. PAT grew 25.4% YoY to Rs2.9bn (PLe Rs3.4bn) with higher other income. Net working capital days came at 36 (Vs 25 in Q1FY23).

Concall Takeaways: 1) Healthy traction in Cables & Switchgears business was seen more in Tier-1 cities with increasing infra and real estate demand, which is expected to continue for next 12-18 months, 2) Volume growth for lighting was 6%-8% in Q1, while margin contribution to remain at 30-31% forward, 3) Havells has strong market share in premium category of fans, 4) BLDC fans contribute 15% to the overall fan portfolio, 5) Lloyd has gained market share in RAC segment, 6) Mgnt. to focus on brand positioning and distribution for increasing its Llyod business, 7) Mgnt. to focus on expanding its International business in the near term, 8) Manufacturing overheads remained unabsorbed which led to margin contraction in Q1, 9) Mgnt. guided for EBITDA margin of 13%-14% for standalone business of Havells, 12) Higher other income is on account of sale of property of Rs100mn. Other expenses increased due to increase in warehousing costs because of unseasonal rains, 13) Capex would remain around Rs6bn in FY24, 14) New greenfield facility for C&W in Karnataka to become operational by end of FY24.

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