FY20-22e EPS cut by 3% due to macro scenario; TP revised to Rs 850; ‘Buy’ maintained
HAVL reported a weak Q3 with sales/PAT clocking -10%/+2% y-o-y. Muted demand, liquidity crunch and subdued B2B traction (30% mix) dragged topline. But, cost rationalisation aided op-margin expansion (+130bps q-o-q; +10bps y-o-y). Challenging domestic macros warrant caution, entailing us to trim FY20-22e EPS by ~3%. We continue to view HAVL as a quality, multi-year growth franchise with diversified mix, market leadership, entrenched brand & reach and robust B/S. Buy.
Highlights: HAVL’s Q3 sales stood at Rs 22.7 bn (-10% y-o-y; +2% q-o-q) with op-margin at 11.8% (+10bps y-o-y; +130bps q-o-q); PAT at Rs 2.0 bn (+2%y-o-y; +11% q-o-q). Almost 70% of HAVL’s biz mix is B2C and the remainder B2B. Weak macros, liquidity challenges and slowdown in infra segment sharply impacted demand for industrial cables and switchgears as well as professional lighting. ECD sales remained flattish y-o-y, despite subdued consumer sentiment, delayed winter (~15% mix is Water Heaters) and dealer de-stocking. On the brighter side, cost rationalisation initiatives are seen playing out, aiding y-o-y & q-o-q expansion in op-margin, despite soft revenue.
Buy: In our opinion, HAVL’s diversified product mix (holistic play), market leadership, consistent product launches, strong brand and entrenched distribution should continue to support its premium valuation. Further enhancing comfort are HAVL’s nil leverage, robust CFs, sizeable cash pile & good return ratios. Retain Buy with revised PT of Rs 850 (post roll-over). Key risks: (i) Extended demand slowdown; (ii) subdued traction in Lloyd (iii) higher competition, pricing pressures.