ICICI Direct recommended is bullish on Havells India has recommended buy rating on the stock with a target price of Rs 800 in its research report dated January 23, 2019.
ICICI Direct's research report on Havells India
Havells’ core business and Lloyd recorded strong topline growth of 29% and 22% YoY, respectively, leading to total topline growth of 28% YoY in Q3FY19. Strong festive demand in the appliances category coupled with market share gain in the water heater segment drove the overall ECD performances while government led initiatives into infrastructure and electrification drove the performance of cable and switchgear segment. Under Lloyd, while the AC segment recorded a muted performance (owing to higher inventory at channel), the LED panel recorded strong demand traction EBITDA margin of core business and Lloyd declined 200 bps and 120 bps YoY to 13.2% and 1.7%, respectively. As a result, overall EBITDA margin declined 160 bps YoY. Lower EBITDA margin was on mainly due to 1) delay in passing on higher RM prices in the ECD segment and 2) lower Lloyd margin owing to higher input cost and adverse currency movement. The management has guided for necessary price hikes in the coming quarter (to offset higher raw material prices), which help improve EBITDA margin, going forward.
Outlook
With the introduction of FY21E estimates, we expect Havells to record revenue, earning CAGR of ~20%, ~21%, respectively, in FY18-21E supported by a change in product mix, revival in industrial and consumer products. Scalability through acquisition coupled with launch of premium products in domestic market would negate the impact of higher commodity prices. However, key triggers for future growth would be sales growth in the switchgear segments and margin improvement in Lloyd business. The company’s strong balance sheet position (RoE, RoCE ~21%, 28%, respectively) coupled with integration of Lloyds business within itself (working capital & margin efficient) would be key reasons for growth. We roll over valuation on FY21E and maintain BUY rating on the stock with a revised target price of Rs 800/share.
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