Covid led uncertainties mar Havells strong Q4 show
Premium- Havells' stock is trading at more than 50 times FY22 earnings estimates and to sustain such premium valuations, the growth momentum needs to be maintained
Electronic good manufacturer Havells saw its stock prices correct more than 2% despite a strong March quarter performance. The company’s Q4 revenues surged 50% year-on-year (y-o-y). Except acquired Lloyd’s business, the revenues surged 56% y-o-y. The March quarter could sustain the growth momentum that the company saw in the December quarter with the highest quarterly sales.
The company said that the structural shift and market share gains in favour of the organized sector seem to be further consolidating. Investments in e-commerce and the rural sector by the company are paying off with high growth, visibility and distribution expansion. However, the onset and ferocity of the second pandemic wave is impacting its growth, said Havells. From the second week of April, the growth has slowed with further deceleration in May. Thus, the concerns on near term growth took away exuberance from the strong Q4 show.
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Analysts at Jefferies India Pvt. Ltd said that Havells' Q4FY21 performance beat their estimates. Sales/net profit grew by 50%/ 71% y-o-y, with the highest-ever Q4 operating margin at 15.2% (up 410 basis points). Traction in e-commerce, rural and market share gains aided growth. Lloyd saw a robust contribution margin at 12.7% in FY21 (up 210 bps). One basis point equals 1/100th of 1%.
The company saw cables and switchgear segments mark a revenue growth of more than 50% y-o-y. Revival in government and private capex resulted in good performance of industrial and infrastructure portfolio. Electrical consumer durables continued their robust growth momentum posting 71% y-o-y growth. Even products classified under 'others’ such as motor, pump, solar, personal grooming and water purifier businesses grew 71% y-o-y. Even the lighting and fixtures segment saw a robust 40% growth. Meanwhile, Lloyds segment too is catching pace and marked 29% growth y-o-y.
The company managed to post improvement in Ebitda margins despite rising input costs. The key raw materials have seen steep surge. Ebitda stands for earnings before interest, taxes, depreciation, and amortization. However, the contribution margins by cables, switchgears, lighting and fixtures expended more than 500 bps. Even consumer durables saw more than a 300 bps improvement in margins. The same was remarkable even Lloyd which saw revenues grow 29% y-o-y and a reported margin expansion of 350bps to 5.4%. The company’s own facility is contributing, while the government's curbs on imports from China are helping organised players such as Havells
Overall, the company’s net profits grew good 42% y-o-y despite higher taxes. Analysts at Motilal Oswal Financial Services said that higher tax rate (33.5% in Q4FY21 compared to 10.4% in Q4FY20) meant the company’s net profits missed estimates (by 10%).
Nevertheless, while overall performance remains impressive, it is the near-term uncertainties related to the second wave of covid-related lockdowns that is adding to concerns. The stock is trading at more than 50 times FY22 earnings estimates and to sustain such premium valuations, the growth momentum needs to be maintained.
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