Q3FY23 Review: Havells India: Valuations corrected, losses in Lloyd continued

20 Jan 2023 , 03:08 PM

Havells India (HAVL) missed Q3FY23 Ebitda/PAT forecasts by 4-5% as forecast by the analysts of IIFL securities. Margins are low despite better than expected volume offtake, especially in C&W and Lloyd. Price transmission did help QoQ recovery in gross margins, but pending high cost inventories in RAC will keep Lloyd profitability muted in Q4. The operating profitability was soft in core portfolio, while losses in Lloyd continued owing to high cost inventory and investments in non-RAC portfolio. Contrary to expectations, recovery in B2C demand is likely to take longer while inflationary headwinds are back on the anvil.

The analysts has cut FY23 EPS of HAVL by 7% and roll-forward target price to December 2024 EPS. Valuations have corrected in the recent months, but re-rating catalysts will depend on recovery in consumer demand and turnaround in Lloyd. 

The core portfolio of Havells India is on a strong footing for structural recovery in Housing demand, profitable growth in Lloyd is essential for sustained re-rating of the stock. Price hikes of 3-4% in Fans and RAC will have effect with the onset of the season.

Analysts of IIFL Capital Services maintain Add on Havells India while the stock trades at 40x FY25 EPS with a target price of Rs 1375.