Q1FY24 Review: Havells India: Strong volumes led growth, OPMs lag

21 Jul 2023 , 12:09 PM

Despite 4% upgrade in revenues led by C&W and Lloyd, FY24/25/26 EPS forecasts for HAVL are lowered by 7/3/2%, respectively owing to slower-than-expected recovery in OPMs amidst weak consumer demand and softening commodity costs. While profitability in Lloyd is still bleak, visible change in brand positioning bodes well for the brand from a longer term perspective. Mgmt expects the underperformance on OPM side to bridge once demand improves, irrespective of the competitive environment. Analysts of IIFL Capital Services expect 15/28% revenues/ EPS Cagr in FY23- 25. Relative to peers, HAVL valuations have remained firm at 47x FY25 and 40x FY26 EPS. 12M TP implies 10% upside.

Upbeat on Cyclical demand, though consumer offtake lags: 

Management was sanguine on infra, industrial capex led demand recovery after many years of lull, driving strong volume growth and OPM expansion in SG, professional lighting and C&W segment. Consumer demand (incl rural offtake) has remained weak and will take 1-2 quarters to recover. OPMs though have been dismal in the recent quarters, is yet to see benefits of softening commodity prices.

Lloyd repositioning playing out well: 

Strategic changes in Lloyd, though painful, is now delivering results with a wider market acceptance of the brand. With investment in product, manufacturing facilities, brand, distribution, reach & placement and strategic intent to target volume growth in an intensely competitive market, now positions Lloyd amongst top 3 brands in India. Profitability, though trails currently, is expected to gradually deliver industry OPMs over 2-4 years. Increasing export footprint through white labelling approach (similar to switchgear), is positive and will optimise capacity utilization.

Peak capex behind, strong cash chest: 

After commissioning of its 2nd greenfield facility in the South (C&W in Tumkur) in FY24 and spend of Rs6bn across units, HAVL’s capex will taper from FY25 onwards. Net cash on books is robust at Rs28bn (>40% of NW).