Havells Rating | Buy — Steady quarter for the core business

By: |
June 11, 2019 1:00 AM

Company poised for multi-year growth trajectory, justifying valuations; ‘Buy’ retained

At 42x/35x PE on FY20/21e, HAVL valuations are at a premium.At 42x/35x PE on FY20/21e, HAVL valuations are at a premium.

While HAVL’s revenue at Rs 27.5 bn (+9% YoY) was in line with JEFe, op-margin was lower at 12% (14% est.), impacted by Lloyd (delayed summer, cost escalations) and Lighting (lower project orders). In FY19, notwithstanding multiple headwinds, HAVL clocked sales/PAT growth of 24%/15% YoY (Core biz. ex-Lloyd at 22%/20% YoY). We remain bullish on HAVL, given its market leadership, strong product mix & distribution, pristine B/S and superior execution. Maintain Buy.

Q4FY19: HAVL’s Q4 sales stood at `27.5 bn (+9% YoY) with op-margin at ~12% (14% in Q4FY18), largely impacted by a poor show in Lloyd. PAT came in at `2.1 bn (-8% YoY). On the other hand, company’s core biz. (ex-Lloyd) posted a steady quarter, with sales/PAT growth at +14%/+9% YoY and op-margin at 14%. This, despite Q4 witnessing a demand slowdown intensified by liquidity crunch and impending general elections. Fan and AC sales were impacted due to delayed onset of summer.

Core strength: We believe HAVL is poised for a multi-year growth trajectory, given its diversified product mix & market share, distribution (7,500+ dealers, 100,000 retailers), unleveraged B/S, robust FCFF (~`6 bn p.a. avg. over FY19-21e), sizeable cash pile (~`19 bn p.a. avg. over FY19-21e) and sturdy return ratios (RoCE at ~35%, RoE at ~25% By FY21e).

Maintain Buy
At 42x/35x PE on FY20/21e, HAVL valuations are at a premium. However, we believe a varied product mix, robust structural drivers (holistic consumption play), strong execution, and solid returns should continue to support premium multiples. Maintain Buy with PT of `830. Key risks: (1) lower growth, margin traction in Lloyd, (2) slowdown in demand scenario and (3) higher competition & pricing pressures.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Dodla Dairy IPO subscribed 3.30 times on second day of subscription
2Sugar production up 13pc so far this market year at 307 lakh ton; 58 lakh ton exports contracted
3Weekly F&O expiry: Sensex, Nifty fall post US Fed meet outcome; here’s what technical charts say