Havells India rating – Buy: Performance was robust in fourth quarter

Three pointers from Q4FY21: (i) Strong consumer off-take, market share gains from smaller players, higher revenues from E-commerce and rural markets and price hikes were chief reasons for 50.6% revenue growth y-o-y; (ii) improvement in revenue mix as well as cost-saving initiatives resulted in 420bps higher Ebitda margin; and (iii) the localised lockdowns as well as 20-40% increase in commodity prices are expected to impact near-term earnings but we expect recovery post lifting of lockdown.

We model Havells to report an earnings CAGR of 17.4% over FY21-FY23e with:

(i) strong volume growth; (ii) price hikes in high single digits; and (iii) improvement in profitability of Lloyd consumer. We remain structurally positive on the company due to its competitive advantages and growth opportunity in consumer durables. Maintain Buy with a DCF-based TP of Rs 1,198 (implied P/E 52x FY23e).

Q4FY21 performance: Havells reported revenue, Ebitda and PAT growth of 50.6%, 107.9% and 71%, respectively, y-o-y. We believe (i) strong consumer off-take sustained from Q3FY21; (ii) market share gains from smaller/unorganised players; (iii) higher revenues from E-commerce and rural markets; (iv) mid-high single digit price hikes across products; and (v) favourable base helped to report strong revenue growth. Gross and Ebitda margins expanded 130bps and 420bps, respectively, due to better revenue mix and cost-saving initiatives.

All segments doing well: Segment-wise revenue growth rates were as follows: Switchgears 53.1%, Cables 50.8%, Lighting & fixtures 42.9%, Electrical consumer durables 70.6%, Lloyd Consumer 29% and Others 70.7%. While there is strong consumer off-take, revival in government and private capex is leading to strong growth of Industrial and Infrastructure portfolio.

Impact of Covid wave-2: The onset of Covid wave-2 and localised lockdowns impacted revenue growth from 15th Apr’21 and there is further deceleration in growth rates in May’21. While the lockdown is likely to impact near term earnings, we expect the consumer off-take to revive once the lockdown is over.

Inflation in input prices: Prices of key raw materials such as copper, aluminum, steel and HDPE have increased 20-40% y-o-y. While the company has raised prices in H2FY21 and also initiated cost saving measures, we believe it may need to raise prices again to maintain margins in FY22. Ad-spend is also likely to increase in FY22.

Maintain BUY: We model Havells to report PAT CAGR of 17.4% over FY21-FY23E and RoE to be upwards of 20% over FY22-23. We remain positive on the company’s business model due to strong moats and growth opportunities. We maintain Buy with a DCF-based target price of Rs 1,198 (implied P/E 52x FY23e).