13 may 2020 results review 4qfy20 havells - 4qfy20 - hsie... · call & other takeaways: (1) co...

13 May 2020 Results Review 4QFY20

Havells

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Recovery Interrupted by Covid

Havells' clocked 20% revenue dip in 4QFY20 due to high revenue contribution

from the last 12-15 days of March (~25% mix). However, co was witnessing

strong recovery with ~9% growth for the quarter (ex-Covid) after posting weak

show in 9MFY20 (-1% in 9MFY20 and -10% in 3QFY20). Lloyd recovery pre-

Covid was strong led by various initiatives taken by the company. Besides,

Havells has managed its cost very effectively and posted strong 11% EBITDA

margin. With pressure led by negative oplev, most appliances companies will

face pressure on sustaining margins. Additionally, the co is well positioned in

terms of its working capital to ride out the disruption caused by Covid-19.

Our expectation of a recovery by Havells, albeit delayed, remains intact.

However, due to the loss of sales of summer products and weak demand

environment, we cut our EPS estimates by 8-9% for FY21/FY22 (28/23% cut in

our 4QFY20 preview). We value Havells at 36x on Mar-22E EPS, and derive a

TP of Rs 515. Maintain ADD.

Robust pre-Covid growth: Net revenue contracted by 20% yoy vs. exp. of

4% dip (+9% in 4QFY19 and -10% in 3QFY20) to Rs 22.2bn. Revenues in

Switchgears/Cables/Lighting/ECD/Lloyd declined by 14/24/31/14/14%.

Havells was on the course of achieving 9% yoy growth in 4Q before Covid

disruption. Lloyd recovery was sharp as it saw 45% yoy growth in Jan/Feb

led by various initiatives. ECD growth was also strong at 24% in Jan/Feb.

Healthy operating margin: GM contracted by 71bps yoy to 36.2%.

Employee/ASP/Other expenses declined by 10/69/14% yoy. EBITDA

declined by 22% yoy to Rs 2.45bn vs. expectation of Rs 2.82bn. EBITDA

margin stood at 11.1% vs expectation of 10.7%, consistent cost control

supported the margin even in such weak revenue show. Contribution

margins for Switchgears/Cables/ECD/Lloyd declined by 485/521/112/530bps

yoy while contribution margin for Lighting increased by 293bps yoy.

Call & other takeaways: (1) Co lost sales worth ~Rs 8bn due to the impact of

Covid-19. Loss of sales in Lloyd was ~Rs 2.25bn, (2) Currently, consumer

activity pan-India is at 30-40% of normal levels (3) Loss in sales of summer

products is unlikely to be recovered, (4) Growth in Jan/Feb 2020 for

ECD/Switchgears/Lloyd was 24/15/45%, (5) RAC channel inventory is higher

in South than North, (6) NWC days reduced to 26 days vs. 28 days in FY19

Maintain ADD: Havells’ performance pre-Covid indicates that the co was

on the cusp of a recovery. FY21 will be a challenging year for both cooling

products and core categories. With superior execution skills, large

portfolio and strong balance sheet, we believe Havells will bounce back

quickly once normalcy comes. We maintain ADD rating.

Financial Summary

YE Mar (Rs mn) Q4

FY20

Q4

FY19

YoY

(%)

Q3

FY20

QoQ

(%) FY19 FY20P FY21E FY22E

Net Sales 22,161 27,535 (19.5) 22,699 (2.4) 100,576 94,283 84,427 100,718

EBITDA 2,453 3,149 (22.1) 2,690 (8.8) 11,918 10,241 9,976 12,645

APAT 1,772 2,007 (11.7) 1,995 (11.2) 7,911 7,320 6,665 8,866

Diluted EPS (Rs) 2.8 3.2 (11.7) 3.2 (11.2) 12.6 11.7 10.7 14.2

P/E (x)

40.2 43.5 47.8 35.9

EV / EBITDA (x)

25.7 30.0 30.4 23.6

RoCE (%)

26.7 21.0 18.3 24.0

Source: Company, HSIE Research

ADD

CMP (as on 13 May 2020) Rs 509

Target Price Rs 515

NIFTY 9,384

KEY

CHANGES OLD NEW

Rating ADD ADD

Price Target Rs 560 Rs 515

EPS % FY21E FY22E

-8% -9%

KEY STOCK DATA

Bloomberg code HAVL IN

No. of Shares (mn) 626

MCap (Rs bn) / ($ mn) 320/4,249

6m avg traded value (Rs mn) 1,098

52 Week high / low Rs 807/458

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) (17.2) (24.2) (30.2)

Relative (%) 5.6 (4.0) (16.5)

SHAREHOLDING PATTERN (%)

Dec-19 Mar-20

Promoters 59.52 59.52

FIs & Local MFs 5.89 8.27

FPIs 25.88 23.04

Public & Others 8.71 9.17

Pledged Shares 0.0 0.0

Source : BSE

Naveen Trivedi

[email protected]

+91-22-6171-7324

Aditya Sane

[email protected]

+91-22-6171-7336

Page | 2

Havells: Results Review 4QFY20

Havells Quarterly Commentary Particulars 1QFY20 2QFY20 3QFY20 4QFY20

Industry/ Co

Strategy

- The demand continues to be

weak, aggravated by real estate

slow down, liquidity squeeze

and delays in projects, post

elections

- Co is working with the

channel partners to keep their

cash flows healthy

- Havells is focusing on taking

product to a completely new

channel of rural distribution,

through superstores and retail

distributors

- Co is optimistic on

improvement in economy as

govt investment starts yielding

benefits.

- Demand outlook has

continued to remain benign

- NBFC crisis has aggravated

the liquidity crunch in the real

estate market

- The overall sentiment

continues to remain weak and

thus, people are delaying their

purchases

- LED Panels saw an industry-

wide price decline of 25%

- Weak govt spending and real

estate demand kept industrial

demand muted

- Co continues to focus on

expanding its rural distribution.

Co has already appointed 1,800

distributors and plans to reach

to 3,000 in 1 year

- Rural contribution is expected

to be ~Rs 1,200mn in FY20

- B-B contributes 30% for

Havells which saw significant

degrowth. B-C was flat while

retail offtake was better

- Co has witnessed

improvement in demand in the

last 1 month

- Demand pickup is visible in

semi-urban and rural currently

- Pickup of primary sales right

now is restricted to Fans, RAC,

domestic wires. To a small

extent in personal grooming

- 35-40% shops have opened in

Red Zones. Almost all shops in

Orange and Green Zones have

opened but activity is 30-40%

- Best part of sales for summer

products (March and April) is

lost and the lost sales are

unlikely to be recovered.

- Co lost ~Rs 8 bn sales due to

Covid

- March ending inventory for

dealers is high for seasonal

products like Fans/RAC.

Normal for other products

Revenue

C&W - Industrial cable and lighting

demand impacted by delay in

fresh government projects

- Wires is holding steady

despite housing slowdown.

Gains from unorganized

- Cables will be a beneficiary of

ongoing infrastructure

investment

- Reasonably sanguine on

growth in cables and wires in

H2 as govt accelerates

economic investment

- Industrial cables experienced

muted growth

- Domestic wires sustained its

growth level despite the slow

consumer demand

- Margin expansion has been

due to a time lag between

commodity prices and the

market price

- Margins will continue to

remain between 15% to 17%

over the next few quarters

- Power cable degrew by 20% in

volume and 23-25% in value

- Domestic wires have grown in

low single digit

- Domestic wires continued to

perform well pre-Covid

- Domestic wires has also seen

some pickup in demand in the

last few days

- However, Industrial wires and

capex related sales witnessed a

slowdown

ECD - Apart from Fans, there is high

growth from SDA, Water

Heater, Water Purifier and Air

Coolers

- Fans growth in mid-teens

(slower vs FY19)

- Established leadership in

Water Heaters

- Havells reached into the top 3

market players in the ECD

category and expect to gain

market share

- Within trade, have seen an

uptick in October due to the

festive season

- Have not done better than the

market in Fans, but managed to

maintain market share

- Market share in most

premium categories is stable

between 25-40%

- In Fan, co has maintained mkt

share (as per GFK). Fans

usually see stocking by dealers

in Nov/Dec which has been

delayed due to liquidity issue.

Thereby, fans were flat in 3Q.

Co has not witnessed

downtrading in fans.

- Delayed winter had an

adverse effect on water heaters

business

- Other appliances have done

well

- Jan/Feb saw strong growth for

ECD with the segment growing

at 24%

- Co expects recovery in ECD to

be quicker than other segments

due to pent up demand

- ECD is a promising category

for Havells led by Fans, Water

Heaters and SDA.

- Personal Grooming is

showing strong momentum

currently

Switchgears - Switchgears being related to

construction have been

subdued owing to realty and

project slow down

- Heavy base, slowdown,

liqudiity squeeze impacted 1Q

- Industry grew negatively

since Nov-18

- Recovery will be gradual,

could be stretched out

- Domestic residential

protection continues to do well

- Industrial business has seen a

slowdown due to the dip in

govt spending on infrastructure

- Tie up with Hyundai for

development of industrial

switchgears is continuing but it

is still a WIP

- Switchgears Industrial

performance was tepid due to

sluggish real estate demand

and curb in govt spending

- Co expects gradual recovery

- Switchgears witnessed strong

momentum in Jan/Feb 2020

with 15% growth pre-Covid

- Growth was led by domestic

demand

- Industrial switchgears

witnessed a slowdown

Page | 3


Particulars 1QFY20 2QFY20 3QFY20 4QFY20

Lighting - Professional luminaires has

been impacted by election

- Consumer luminaries have

grown despite LED price

erosion. Govt lighting demand

is stabilizing. See improvement

from 2Q. P Luminaries price

declines by 13-15% while vol

was up by 20%

- "Slight improvement in B2B,

interest should come back in

2H". Optimism for a better

lighting growth in the next

quarter

- Professional luminaires has

been impacted due to the

slowdown in the industrial

segment

- Overall margins in the

business are quite healthy

despite professional luminaires

contributing to the dip in

margins

- Gained market share during

2QFY20

- REO has not led to margin

contraction, and in some

categories, it has contributed to

margin expansion

- Professional lighting in

commercial segment has

performed well but govt

contracts have dipped

- Growth in the B2C segments

was in low single digits

- Lighting margins continued to

remain stable

- B-C lighting continued to

show strong momentum

- However, Industrial lighting

witnessed a slowdown due to

lower construction activity

Lloyd - AC offtake recovered from Q4

albeit continued to be soft. The

steep decline in LED panels has

caused overall lower sales for

Lloyd

- The loss due to low-priced

channels could not be

completely compensated by

gains in mass premium outlets

- RAC vol was flat in 1QFY20

- Higher cost due to increased

import duty

- Brand recognition, available at

leading stores, product

portfolio strengthened

- LED panels under severe

stress may not recover

immediately, LED 25% mix

annually.

- RAC channel inventory higher

than mkt but at par with last

year

- Mixed bag as co has seen a lot

of traction from large-format

retail and regional retailers but

LED panels has seen a decline

- LED will be filler business and

the main focus will be on ACs

- TVs have seen significant

market disruption over the last

few quarters, but the long term

strategy remains focused on

increasing market share

- The plant is now operational

and the co has taken significant

steps in distribution

realignment which will give

them far more control on the

supply chain, inventories and

costs

- Witnessed mkt share loss in

RAC in 1HFY20

- 2HFY20 will be better than

1HFY20. Expecting to see some

growth over 2H

- TV Panels continued to

struggle but AC has done well

- Level of automation in the

new plant will help going

forward

- Majority of the corrective

steps to control the supply

chain have been taken

- Expecting traction in AC to be

better in Q4

- The co has seen positive

movement in AC mkt share.

Distributors remain confident

about recovery

- WM range will be expanded

and Ref will be launched from

1QFY21

- Will not focus just on

premium in Ref. The range of

products will be complete

- 6-8% margin can be achieved

in Lloyd over the medium to

long term

- Lloyd showed strong

momentum in Jan/Feb 2020

with 45% growth pre-Covid

- Pickup in RAC during Feb

was stronger due to concerns of

supply constraints among

distributors

- However, co lost ~2.25bn of

revenues due to the disruption

caused by Covid-19

- Co is focusing on diversifying

the channels on which Lloyd is

sold. 35% of revenues now

come from modern format

stores

- Launch of Ref may see minor

delay of a few days. However,

it is broadly on track

Margin

Gross Margin - Going forward there is scope

for margin enhancement as

commodity and crude remain

benign

- Contribution margins for

Havells have been sustained

despite the sluggish sales

- Lloyd factory being

operational will contribute to

margin expansion

- Margins for Havells have been

sustained despite the sluggish

sales

- Lloyd factory being

operational will contribute to

margin expansion

- Margins in cables saw impact

due to the pricing pressure in

the industry caused by fall in

commodity prices

EBITDA

Margin

- Investing in distribution,

employee, brand salience, R&D

--- these cost are now peaking..

Op-lev coming

- Adv spend will be moderate

in next 3 qtrs vs 1Q (World

Cup)

- Margin expansion coming

given stable commodity costs

- Margins will definitely be

better in 2HFY20 vs. 1HFY20

- Strong steps have been taken

to reduce non-essential costs,

but the results will be visible

from 4QFY20 onwards

- Focus is on improving

profitability through better

pricing and cost control

- MGT is tightening the belt on

non-essential costs, results will

be visible from 4QFY20

onwards

- Focus is on improving

profitability through better

pricing and cost control

- Lloyd margin will improve in

FY21, 6-8% margin can be

achieved

- Co is exploring cost

management models in order to

maintain its margins

Page | 4


Quarterly Financial Snapshot

Particulars (Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ(%) FY20 FY19 YoY(%)

Net Revenue 22,161 27,535 (19.5) 22,699 (2.4) 94,283 1,00,593 (6.3)

Material Expenses 14,146 17,382 (18.6) 13,718 3.1 58,432 62,859 (7.0)

Employee Expenses 1,989 2,217 (10.3) 2,195 (9.4) 8,992 8,329 8.0

ASP Expenses 325 1,030 (68.5) 773 (58.0) 3,209 3,842 (16.5)

Other Operating Expenses 3,249 3,757 (13.5) 3,323 (2.2) 13,410 13,720 (2.3)

EBITDA 2,453 3,149 (22.1) 2,690 (8.8) 10,241 11,843 (13.5)

Depreciation 625 392 59.4 553 13.1 2,054 1,487 38.2

EBIT 1,828 2,757 (33.7) 2,137 (14.5) 9,187 11,632 (21.0)

Other Income 195 311 (37.1) 239 (18.3) 1,145 1,277 (10.3)

Interest Cost 46 61 (25.1) 53 (12.5) 186 159 16.6

PBT 1,977 3,006 (34.2) 2,324 (14.9) 8,989 11,473 (21.7)

Exceptional item - - na - na - - na

PBT after exceptional 1,977 3,006 (34.2) 2,324 8,989 11,473 (21.7)

Tax 205 1,000 (79.5) 329 (37.6) 1,669 3,620 (53.9)

RPAT 1,772 2,007 (11.7) 1,995 (11.2) 7,320 7,854 (6.8)

Exceptional (net of taxes) - - na - na - - na

APAT 1,772 2,007 (11.7) 1,995 (11.2) 7,320 7,854 (6.8)

EPS (adjusted) 2.8 3.2 (11.7) 3.2 (11.2) 11.7 12.6 (6.8)


Quarterly Performance Analysis

As a % of net sales Q4FY20 Q4FY19 YoY(bps) Q3FY20 QoQ(bps) FY20 FY19 YoY(bps)

Material Expenses 63.8 63.1 71 60.4 340 62.0 62.5 (51)

Employee Expenses 9.0 8.1 92 9.7 (69) 9.5 8.3 126

ASP Expenses 1.5 3.7 (228) 3.4 (194) 3.4 3.8 (42)

Other Operating Expenses 14.7 13.6 102 14.6 2 14.2 13.6 58

EBITDA Margin (%) 11.1 11.4 (37) 11.9 (78) 10.9 11.8 (91)

Tax Rate (%) 10.4 33.3 (2,288) 14.2 (378) 18.6 31.5 (1,298)

APAT Margin (%) 8.0 7.3 71 8.8 (79) 7.8 7.8 (4)


Net revenue contracted by

20% yoy vs. exp. of 4% dip

(+9% in 4QFY19 and -10%

in 3QFY20) to Rs 22.2bn.

Employee/ASP/Other

expenses declined by

10/69/14% yoy

GM contracted by 71bps

yoy to 36.2%

EBITDA declined by 22%

yoy to Rs 2.45bn vs.

expectation of Rs 2.82bn

EBITDA margin stood at

11.1% vs expectation of

10.7%

Lower taxes (10% ETR vs.

33% 4QFY19) supported

PAT as it declined by 12%

yoy to Rs 1.77bn vs exp of

Rs 1.87bn.

Page | 5


Segmental Performance

(Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ(%) FY20 FY19 YoY(%)

Segmental Revenues

Cables and Wires 6,823 8,979 (24.0) 7,121 (4.2) 29,942 32,346 (7.4)

Consumer Durables 4,603 5,331 (13.7) 5,814 (20.8) 22,158 20,962 5.7

Switch Gears 3,511 4,085 (14.0) 3,713 (5.4) 14,976 15,778 (5.1)

Lighting & Fixtures 2,646 3,816 (30.7) 3,046 (13.1) 10,995 12,434 (11.6)

Lloyd Consumer Division 4,579 5,324 (14.0) 3,004 52.4 15,903 18,556 (14.3)

Total 22,161 27,535 (19.5) 22,699 (2.4) 94,283 100,591 (6.3)

Segmental Contribution

Cables and Wires 841 1,575 (46.6) 1,248 (32.6) 4,890 5,218 (6.3)

Consumer Durables 1,133 1,372 (17.4) 1,496 (24.3) 5,744 5,494 4.6

Switch Gears 1,209 1,605 (24.7) 1,479 (18.3) 5,768 6,320 (8.7)

Lighting & Fixtures 758 982 (22.8) 893 (15.1) 3,199 3,499 (8.6)

Lloyd Consumer Division 444 798 (44.4) 236 88.2 1,687 3,175 (46.9)

Total 4,385 6,331 (30.7) 5,351 (18.1) 21,402 23,835 (10.2)

Less:

(a) Interest Cost & Bank

Charges 46 61 (25.1) 53 (12.5) 197 159 23.9

(b) Other Un-allocable

Expenses 2,361 3,264 (27.7) 2,976 (20.6) 12,132 12,203 (0.6)

PBT 1,977 3,006 (34.2) 2,323 (14.9) 9,073 11,473 (20.9)

Capital Employed

Cables and Wires 3,874 2,854 35.7 4,536 (14.6) 3,874 2,854 35.7

Consumer Durables 4,380 3,070 42.6 4,271 2.5 4,380 3,070 42.6

Switch Gears 3,688 3,689 (0.0) 3,840 (4.0) 3,688 3,689 (0.0)

Lighting & Fixtures 2,839 3,590 (20.9) 2,986 (4.9) 2,839 3,590 (20.9)

Lloyd Consumer Division 20,208 21,273 (5.0) 21,993 (8.1) 20,208 21,273 (5.0)

Total 34,989 34,477 1.5 37,626 (20.9) 34,989 34,477 1.5

Unallocable Capital

Employed 8,060 7,446 8.2 6,662 21.0 8,060 7,446 8.2

Total Capital Employed 43,048 41,923 2.7 44,288 (2.8) 43,048 41,923 2.7


Contribution Margin

Contribution Margin Q4FY20 Q4FY19 YoY(bps) Q3FY20 QoQ(bps) FY20 FY19 YoY(bps)

Cables and Wires 12.3 17.5 (521) 17.5 (519) 16.3 16.1 20

Consumer Durables 24.6 25.7 (112) 25.7 (112) 25.9 26.2 (29)

Switch Gears 34.4 39.3 (485) 39.8 (540) 38.5 40.1 (154)

Lighting & Fixtures 28.7 25.7 293 29.3 (66) 29.1 28.1 96

Lloyd Consumer Division 9.7 15.0 (530) 7.8 184 10.6 17.1 (651)

Total 19.8 23.0 (321) 23.6 (379) 22.7 23.7 (100)


Revenues in

Switchgears/Cables/Lighti

ng/ECD declined

14/24/31/14%.

Page | 6


Segmental Analysis and Segmental Assumption

Cables & Wires 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 FY19 FY20E FY21E FY22E

Sales (Rs mn) 7,499 7,665 8,203 8,979 7,785 8,213 7,121 6,823 32,346 29,942 26,461 29,837

Sales Gr. (%) 18.0 34.6 31.1 16.8 3.8 7.2 (13.2) (24.0) 24.0 (7.4) (11.6) 12.8

Sales Mix (%) 28.9 35.0 32.6 32.6 28.7 36.8 31.4 30.8 32.2 31.8 31.3 29.6

Contribution Gr. (%) 18.0 34.6 31.1 16.8 3.8 7.2 (13.2) (24.0) 19.1 (6.3) (17.5) 18.6

Contribution Margin (%) 17.0 14.0 15.8 17.5 16.6 18.4 17.5 12.3 16.1 16.3 15.2 16.0

Contribution Margin Chg 355bps -594bps -133bps 40bps -47bps 442bps 174bps -521bps -72bps 20bps -109bps 79bps

Contribution Mix (%) 20.4 20.3 21.7 24.9 20.3 28.5 23.3 19.2 21.9 22.8 20.8 20.1

Consumer Durables 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 FY19 FY20E FY21E FY22E

Sales (Rs mn) 5,040 4,805 5,785 5,331 6,235 5,506 5,814 4,603 20,962 22,158 21,331 25,468

Sales Gr. (%) 43.0 49.5 39.1 14.7 23.7 14.6 0.5 (13.7) 30.0 5.7 (3.7) 19.4

Sales Mix (%) 19.4 21.9 23.0 19.4 23.0 24.7 25.6 20.8 20.8 23.5 25.3 25.3

Contribution Gr. (%) 74.4 44.0 14.8 8.7 21.7 7.5 5.9 (17.4) 30.8 4.6 (4.7) 23.3


Contribution Margin Chg 546bps -102bps -517bps -142bps -46bps -166bps 132bps -112bps -72bps -29bps -26bps 83bps


Switchgears 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 FY19 FY20E FY21E FY22E

Sales (Rs mn) 3,758 4,006 3,929 4,085 3,775 3,977 3,713 3,511 15,778 14,976 13,533 15,251

Sales Gr. (%) 26.0 21.4 14.1 3.5 0.5 (0.7) (5.5) (14.0) 21.0 (5.1) (9.6) 12.7

Sales Mix (%) 14.5 18.3 15.6 14.8 13.9 17.8 16.4 15.8 15.7 15.9 16.0 15.1

Contribution Gr. (%) 14.2 16.7 18.2 5.4 (0.1) (0.1) (9.3) (24.7) 13.4 (8.7) (11.2) 16.2


Contribution Margin Chg 116bps -160bps 144bps 70bps -23bps 23bps -167bps -485bps 47bps -154bps -68bps 117bps


Lighting & Fixtures 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 FY19 FY20E FY21E FY22E

Sales (Rs mn) 2,573 2,856 3,189 3,816 2,712 2,591 3,046 2,646 12,434 10,995 10,135 11,430

Sales Gr. (%) 25.0 18.0 18.1 24.4 5.4 (9.3) (4.5) (30.7) 16.0 (11.6) (7.8) 12.8

Sales Mix (%) 9.9 13.0 12.7 13.9 10.0 11.6 13.4 11.9 12.4 11.7 12.0 11.3

Contribution Gr. (%) 14.3 13.7 24.2 0.1 8.7 (8.4) (7.0) (22.8) 12.1 (8.6) (8.1) 15.6


Contribution Margin Chg -265bps -115bps 147bps -625bps 87bps 29bps -79bps 293bps -233bps 96bps -8bps 73bps


Lloyd 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 FY19 FY20E FY21E FY22E

Sales (Rs mn) 7,081 2,579 3,572 5,324 6,520 1,800 3,004 4,579 18,556 15,903 12,722 18,447

Sales Gr. (%) 14.0 (4.4) 21.9 (8.9) (7.9) (30.2) (15.9) (14.0) 6.4 (14.3) (20.0) 45.0

Sales Mix (%) 27.3 11.8 14.2 19.3 24.0 8.1 13.2 20.7 18.4 16.9 15.1 18.3

Contribution Gr. (%) 247.8 (9.6) 10.7 (37.8) (23.4) (108.7) (55.6) (44.4) 18.3 (46.9) 2.5 62.5

Contribution Margin (%) 19.4 18.5 14.9 15.0 16.1 (2.3) 7.8 9.7 17.1 10.6 13.6 15.2

Contribution Margin Chg 461bps -106bps -151bps -698bps -326bps -2,078bps -702bps -530bps -187bps -651bps 299bps 164bps

Contribution Mix (%) 21.8 9.0 8.9 12.6 16.5 (0.8) 4.4 10.1 13.3 7.9 8.9 11.8


Page | 7


Key Assumptions

Assumptions FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Havells Revenue Growth (%)

Cables and Wires 6.2 13.8 13.7 1.0 8.8 9.3 24.0 (7.4) (11.6) 12.8

Consumer Durables 38.0 8.1 20.5 11.0 22.4 21.0 30.0 5.7 (3.7) 19.4

Switch Gears 20.3 13.1 4.9 1.0 10.5 7.0 21.0 (5.1) (9.6) 12.7

Lighting & Fixtures 20.0 8.3 2.8 8.0 22.6 12.8 16.0 (11.6) (7.8) 12.8

Total Revenue 16.9 11.7 11.0 4.0 14.1 37.0 24.0 (6.3) (10.5) 19.3

Lloyd revenue growth (%) - - - - - 11.0 2.3 (14.3) (20.0) 45.0

Contribution Margin (%)

Cables and Wires 9.1 11.0 12.1 14.2 13.7 16.8 16.1 16.3 15.2 16.0

Consumer Durables 25.1 27.0 25.1 25.5 25.3 26.9 26.2 25.9 25.7 26.5

Switch Gears 33.9 36.3 36.5 39.5 39.9 39.6 40.1 38.5 37.8 39.0

Lighting & Fixtures 23.6 24.8 26.6 24.2 27.3 30.5 28.1 29.1 29.0 29.7

Total EBIT 20.7 22.5 22.7 24.0 24.5 24.8 23.7 22.7 22.9 23.6

Lloyd EBITDA margin (%) - - - - - 8.0 5.3 -5.9 4.0 6.0

Havells Progress: Key focus areas are manufacturing, R&D, distribution and talent

Page | 8


Segments Market Size

(Rs bn)

Havells' Mkt Share

(%) Rank

Organized

Penetration Peers

Switchgears - MCB 22 27-28 1 High Legrand, Schneider

Switchgears - Switches 22 16 3 Medium Panasonic (Anchor), Legrand

Cable - Domestic 80 16 3 Low Finolex, Polycab

Cable - Industrial 120 10 3 Medium Polycab, KEI

Lighting & Fixtures 65 12-15 2-4 Medium Philips, Crompton, Bajaj, Wipro

Fans 69 19 3 High Crompton, Orient, Usha

Water Heater 14 19 3 Low Racold, AO Smith

Other Appliances 50 5-6 na Low Bajaj, Philips


Change in Estimates

FY21E FY22E

OLD NEW Chg (%) OLD NEW Chg (%)

Net Sales 84,427 100,189 (15.7) 100,718 115,994 (13.2)

EBITDA 9,976 10,739 (7.1) 12,645 13,748 (8.0)

APAT 6,665 7,258 (8.2) 8,866 9,736 (8.9)

EPS 10.7 11.6 (8.2) 14.2 15.6 (8.9)

Peer Set Comparison

Company Mcap

(Rs bn)

CMP

(Rs/sh) Reco TP

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

Havells 318 509 ADD 515 11.7 10.7 14.2 43.5 47.8 35.9 30.0 30.4 23.6 21.0 18.3 24.0

Voltas 154 465 ADD 551 16.9 15.1 19.4 27.6 30.8 23.9 24.2 26.9 20.8 19.9 15.9 20.0

Crompton 134 214 ADD 227 7.7 6.6 7.6 27.9 32.4 28.3 22.3 23.3 20.8 47.2 39.5 43.0

V-Guard 75 176 REDUCE 157 4.7 4.8 5.6 37.1 36.6 31.5 25.9 26.7 23.2 24.9 23.1 25.4

Symphony 58 835 REDUCE 900 25.4 23.3 30.0 32.9 35.8 27.8 25.5 29.5 22.6 43.4 31.9 41.3


Page | 9


Financials Income Statement

Year End (March) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Net Revenues 52,387 53,783 61,353 81,386 100,576 94,283 84,427 100,718

Growth (%) 11.0 3.8 14.1 37.0 23.6 (6.3) (10.5) 19.3

Material Expenses 31,784 31,735 36,485 49,808 62,786 58,432 51,903 61,567

Employee Expense 3,127 3,708 5,004 6,497 8,329 8,992 9,008 9,909

ASP Expense 1,550 1,788 1,906 3,076 3,842 3,209 2,531 3,503

Distribution Expense 1,837 1,917 2,215 2,717 3,422 3,303 2,955 3,576

Other Expenses 6,433 7,086 7,501 8,795 10,280 10,107 8,054 9,519

EBITDA 6,992 7,549 8,241 10,493 11,918 10,241 9,976 12,645

EBITDA Growth (%) 9.0 8.0 9.2 27.3 13.6 (14.1) (2.6) 26.8

EBITDA Margin (%) 13.3 14.0 13.4 12.9 11.8 10.9 11.8 12.6

Depreciation 875 1,049 1,196 1,395 1,486 2,178 2,288 2,434

EBIT 6,117 6,500 7,045 9,098 10,432 8,063 7,688 10,211

Other Income (Including EO Items) 522 2,717 765 1,289 1,276 1,124 1,365 1,710

Interest 176 127 122 240 159 197 155 83

PBT 6,463 9,090 7,688 10,147 11,548 8,989 8,898 11,837

Total Tax 1,813 1,970 2,298 3,022 3,637 1,669 2,233 2,971

PAT 4,650 7,120 5,390 7,125 7,911 7,320 6,665 8,866

Adjusted PAT 4,650 5,141 5,967 7,036 7,911 7,320 6,665 8,866

APAT Growth (%) (3.8) 10.6 16.1 17.9 12.4 (7.5) (9.0) 33.0

EPS 7.4 8.2 9.5 11.3 12.6 11.7 10.7 14.2

EPS Growth (%) (3.8) 10.5 16.0 17.9 12.4 (7.5) (9.0) 33.0


Balance Sheet

Year End (March) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

SOURCES OF FUNDS

Share Capital - Equity 625 625 625 625 626 626 626 626

Reserves 23,134 28,912 32,111 36,766 41,800 42,900 46,437 50,925

Total Shareholders Funds 23,758 29,537 32,736 37,392 42,425 43,525 47,062 51,550

Long Term Debt 417 - - 810 405 - - -

Short Term Debt 417 444 1,981 270 540 540 440 -

Total Debt 835 444 1,981 1,080 945 540 440 -

Net Deferred Taxes 434 863 1,138 2,070 3,217 3,217 3,217 3,217

Other Non Current Liabilities 61 100 137 471 536 649 649 649

TOTAL SOURCES OF FUNDS 25,088 30,943 35,990 41,012 47,123 47,931 51,369 55,416

APPLICATION OF FUNDS

Net Block 9,848 11,773 12,476 13,017 14,306 18,994 18,207 17,773

Goodwill - - 182 14,835 14,707 14,529 15,200 15,200

CWIP 280 306 747 366 2,553 1,059 645 645

Non Current Investments 10,118 3,096 2,274 417 583 583 583 583

LT Loans & Advances 409 631 259 276 445 356 356 356

Other Non Current Assets 1,754 305 136 176 1,088 912 912 912

Total Non-current Assets 22,408 16,111 16,072 29,087 33,682 36,433 35,903 35,469

Inventories 6,897 7,844 9,284 16,217 19,170 18,718 16,191 19,316

Debtors 1,325 1,576 2,285 3,254 4,048 2,409 2,776 3,311

Other Current Assets 631 925 804 1,432 1,864 1,772 1,627 1,866

Cash & Equivalents 5,224 14,973 20,992 15,262 12,848 11,482 15,209 19,636

Total Current Assets 14,076 25,318 33,365 36,164 37,930 34,381 35,804 44,129

Creditors 3,945 4,363 6,296 16,340 15,594 14,141 12,662 15,106

Other Current Liabilities & Provns 7,451 6,123 7,151 7,899 8,895 8,742 7,675 9,075

Total Current Liabilities 11,396 10,486 13,446 24,239 24,489 22,883 20,338 24,181

Net Current Assets 2,680 14,832 19,919 11,925 13,442 11,498 15,466 19,948

TOTAL APPLICATION OF FUNDS 25,088 30,943 35,991 41,012 47,123 47,931 51,369 55,416


Page | 10


Consolidated Cash Flow Year ending March FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Reported PBT 6,463 9,142 7,688 10,028 11,548 8,989 8,898 11,837

Non-operating & EO Items 1 (2,014) 512 (204) (43) - - -

Interest Expenses (229) (450) (889) (249) (650) (197) (155) (83)

Depreciation 875 922 1,196 1,395 1,486 2,178 2,288 2,434

Working Capital Change 399 (911) 1,323 2,556 (4,752) 216 73 (457)

Tax Paid (1,505) (1,446) (2,052) (2,450) (2,468) (1,669) (2,233) (2,971)

OPERATING CASH FLOW ( a ) 6,005 5,243 7,778 11,077 5,121 9,516 8,870 10,760

Capex (1,628) (1,741) (2,369) (15,888) (5,009) (5,194) (1,758) (2,000)

Free Cash Flow (FCF) 4,377 3,502 5,410 (4,811) 112 4,323 7,113 8,760

Investments (3,476) 2,412 (722) 5,028 6,002 13 (1,171) (500)

Non-operating Income (986) (1,427) 816 843 788 (176) - -

INVESTING CASH FLOW ( b ) (6,089) (756) (2,275) (10,017) 1,782 (5,357) (2,929) (2,500)

Debt Issuance/(Repaid) (1,154) (434) 1,533 (901) (135) (202) (507) (131)

Interest Expenses (171) (62) (93) (197) (132) 197 155 83

FCFE 3,394 3,129 7,035 (5,514) 109 3,924 6,451 8,545

Share Capital Issuance 99 41 93 147 180 0 - -

Dividend (1,460) (4,511) (2,256) (2,632) (3,016) (6,220) (3,128) (4,379)

Others - - - - - - - -

FINANCING CASH FLOW ( c ) (2,686) (4,965) (724) (3,583) (3,103) (6,225) (3,479) (4,426)

NET CASH FLOW (a+b+c) (2,770) (478) 4,780 (2,523) 3,799 (2,066) 2,462 3,833

EO Items, Others 3,996 12,692 13,828 12,236 (34) - - -

Closing Cash & Equivalents 1,228 750 5,548 3,026 12,883 10,982 14,209 18,136

Key Ratios KEY RATIOS FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

PROFITABILITY (%)

GPM 39.3 41.0 40.5 38.8 37.6 38.0 38.5 38.9

EBITDA Margin (%) 13.3 14.0 13.4 12.9 11.8 10.9 11.8 12.6

EBIT Margin 11.7 12.1 11.5 11.2 10.4 8.6 9.1 10.1

APAT Margin 8.9 13.2 8.8 8.8 7.9 7.8 7.9 8.8

RoE 20.6 19.3 19.2 20.1 19.8 17.0 14.7 18.0

RoIC (or Core RoCE) 25.3 27.8 35.5 33.9 26.7 21.0 18.3 24.0

RoCE 19.4 18.7 18.1 18.7 18.2 15.7 13.7 16.7

EFFICIENCY

Tax Rate (%) 28.1 27.9 27.8 30.1 31.5 18.6 25.1 25.1

Fixed Asset Turnover (x) 3.9 3.4 3.4 4.1 4.4 3.2 2.7 3.0

Inventory (days) 48.1 53.2 55.2 72.7 69.6 72.5 70.0 70.0

Debtors (days) 9.2 10.7 13.6 14.6 14.7 9.3 12.0 12.0

Other Current Assets (days) 4.4 6.3 4.8 6.4 6.8 6.9 7.0 6.8

Payables (days) 27.5 29.6 37.5 73.3 56.6 54.7 54.7 54.7

Other Current Liab & Provns (days) 51.9 41.0 43.5 36.2 32.9 33.8 33.2 32.9

Cash Conversion Cycle (days) (17.7) (0.4) (7.4) (15.7) 1.5 0.1 1.1 1.1

Net D/E (x) (0.2) (0.4) (0.5) (0.4) (0.3) (0.2) (0.3) (0.4)

Interest Coverage (x) 37.8 56.5 69.0 42.8 73.6 46.6 58.4 142.9

PER SHARE DATA (Rs)

EPS 7.4 8.2 9.5 11.3 12.6 11.7 10.7 14.2

CEPS 8.8 9.9 11.5 13.5 15.0 15.2 14.3 18.1

Dividend 2.4 6.0 3.5 4.0 4.5 4.0 5.0 7.0

Book Value 38.0 47.3 52.4 59.8 67.8 69.6 75.2 82.4

VALUATION

P/E (x) 68.3 61.8 53.3 45.2 40.2 43.5 47.8 35.9

P/BV (x) 13.4 10.8 9.7 8.5 7.5 7.3 6.8 6.2

EV/EBITDA (x) 44.8 40.2 36.3 29.0 25.7 30.0 30.4 23.6

EV/Revenues (x) 6.0 5.6 4.9 3.7 3.0 3.3 3.6 3.0

OCF/EV (%) 1.9 1.7 2.6 3.6 1.7 3.1 2.9 3.6

FCF/EV (%) 1.4 1.2 1.8 (1.6) 0.0 1.4 2.3 2.9

FCFE/Mkt Cap (%) 1.1 1.0 2.2 (1.7) 0.1 1.2 2.0 2.7

Dividend Yield (%) 0.5 1.2 0.7 0.8 0.9 0.8 1.0 1.4


Page | 11


Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: >10% Downside return potential

Date CMP Reco Target

30-May-19 733 NEU 743

4-Jun-19 770 NEU 743

9-Jul-19 739 NEU 732

29-Jul-19 666 NEU 694

22-Sep-19 729 NEU 764

11-Oct-19 656 BUY 766

25-Oct-19 669 BUY 730

9-Jan-20 639 BUY 745

22-Jan-20 600 BUY 710

2-Mar-20 613 BUY 725

17-Apr-20 547 ADD 560

13-May-20 509 ADD 515

From 2nd March 2020, we have moved to new rating system

RECOMMENDATION HISTORY

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Page | 12


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