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