Key Takeaway: HAVL’s FY21 AR elaborates its key strategic levers – 1) Product extension, 2) Reach in semi-urban & rural, 3) Omni-channel distribution, 4) R&D spend (+3x from FY16) and 5) Lloyd revamp. Mar’21 inventory spiked with overstocking of Lloyd ACs, in view of price hikes amid peak demand. We view this as one-off, since excess inventory would liquidate as demand resumes. We stay optimistic on HAVL’s growth prospects beyond near term hiccups (Q1FY22). Buy. PTRs 1,190.

Strategy, catalysts in place: HAVL’s FY21 sales / PAT grew by +11%/+42% YoY with op margin at 15% (+410 bps). This resilience was driven by – 1) Electrification & infrastructure, esp. in semi-urban, rural, 2) Govt. impetus to indigenisation Eg: AC import restrictions from Oct’20. Going forward, HAVL is evaluating PLI in AC and Lighting, and also Rs10bn capex over coming years, 3) Omni-channel distribution: Retail, Online, MFR, Canteen, Rural. In fact, E-comm & rural saw 50%+ YoY growth Exh 16, 4) Market share gains, 5) New Launches (Exh 15) and 6) Lloyd revamp synergies, with in-house manufacturing.

Outlook: FY22 could be subdued, due to rising input costs and 2nd-wave disruption. But, beyond this, medium-term drivers should stay robust. Over FY19-24e, we pencil +15% PAT CAGR, with +270bps op-margin to 14.5% – driven by share gains, new launches, in-house production, and Lloyd revamp. We foresee FY21 all-time high op-margin (15%) to normalize from hereon.

Deepening reach: This is a strong moat for HAVL, outpacing most peers. Pan-India dealer network is at ~14K (~11K in FY20) and 180K retailers. HAVL targets to enhance penetration in semi-urban & rural areas. Company has now tapped 2,500+ Rural towns (> 28K outlets). In FY22, target is to reach 3000+ towns, with 40K+ outlets. HAVL has 14 manufacturing sites – most production in-house.

Retain buy: HAVL has shown superior execution, even amid disruption in FY21 – PAT +42%; highest op-margin at 15%. Company showcases the most expansive product mix, strong market shares (Exh 2), distribution and high B2C mix, which could underpin further share gains. B/S stays strong. All these factors could help sustain its premium multiples. Retain Buy with PT ofRs 1,190 (PE at 55x, premium to hist 5-yr avg). Key risks: Demand slowdown, pricing pressures, RM volatility.