Havells India Rating: Buy; a subdued showing in the final quarter

By: |
May 16, 2020 7:57 AM

Covid-19 pain was visible in results; balance sheet is robust; ‘Buy’ maintained with target price of Rs 660

Havells India Rating, havells consumer products, HAVL Q4 sales,COVID contagion, HAVL FY20 salesQ4 is seasonally the strongest quarter for HAVL, generally accounting for 27%-30% of annual sales.

HAVL reported a subdued Q4, with sales/PAT dipping by -20%/-12% y-o-y, missing JEF and consensus estimates. While Jan-Feb witnessed a revival in consumer products, COVID contagion impacted demand from mid Mar’20. As cited by HAVL, ex-Covid, Q4 sales could have been +9%y-o-y (9MFY20 at -1%). Q4 op-margin was at 11.1% (11.4% in Q4FY19). Lloyd saw good traction till operations ceased in mid-March (q-o-q margin +160bps).

Highlights: Q4FY20: HAVL’s Q4 sales stood at Rs 22.2 bn (-20% y-o-y) with op-margin at 11.1% (-30bps y-o-y); PAT was at Rs 1.8 bn (-12%y-o-y). Ad-spend to sales dipped to 1.4% (3.7% in Q4FY19). Q4 is seasonally the strongest quarter for HAVL, generally accounting for 27%-30% of annual sales.

FY20: HAVL’s FY20 sales stood at Rs 94.3 bn (-6% y-o-y) with op-margin at 10.9% (-90bps y-o-y); PAT at Rs 7.3 bn (-7% y-o-y). As per company, ex-Covid, annual growth could have been +2% y-o-y.

Revenue: Q4FY20 segmental sales split was as follows: (i) Switchgears Rs 3.5 bn (-14% y-o-y); (ii) Cables Rs 6.8 bn (-24% y-o-y); (iii) Lighting Rs 2.6 bn (-23% y-o-y); (iv) ECD Rs 4.6 bn (-14%); and (v) Lloyd at Rs 4.6 bn (-14% y-o-y).

Contribution Margin: Q4FY20 segmental margin was as follows: Switchgears at 34.4% (39.3% in Q4FY19); Cables at 12.3% (17.5%); Lighting at 27.1% (25.9%); ECD at 24.6% (25.7%); Lloyd at 9.7% (15.0% y-o-y; 8.0% q-o-q). Margins declined due to under-absorption of manufacturing expenses amidst lower volumes. Cables margin was also impacted due to sharp fall in commodities and pricing pressure due to weak demand.

Balance Sheet: HAVL continues to showcase a robust balance sheet. As of Mar’20, the company exhibits nil leverage; net cash is at Rs 10.7 bn. Working capital improved to 38 days, compared to 42 days as of Mar’19.

Current Status: As cited by HAVL, operations are gradually being restored. Sales markets have resumed on a limited basis. A few plants have resumed operations, though with limited manpower. Few warehouses and offices have also opened.

Buy: HAVL has corrected by ~35% YTD and is currently trading at PE of 35x /28x on FY21/22e earnings. We currently have a Buy on HAVL with PT of Rs 660 (38x FY22 EPS). Key Risks: extended slowdown, subdued traction in Lloyd, RM volatility and pricing pressures.

 

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