Havells reported strong 11% y-o-y EBITDA growth (in line) in a weak market led by 18% growth in gross profit (margins up 300bps y-o-y). Lighting saw robust 23% y-o-y growth led by LEDs. Consumer durables disappointed with only 7% y-o-y growth despite favourable weather conditions. Cash conversion deteriorated by 2 days y-o-y to 13 due to rising inventory days. FY17 should see revenue growth improve to 15% from 4% in FY16 led by green shoots of recovery (2HFY16 saw 17% y-o-y volume growth in cables/wires), rural demand revival led by pay commission hikes and likely good monsoon, and higher market share post streamlining of discounts. We raise TP by 3% to Rs 375. Acquisition in appliances is a key catalyst. Stock trades at FY18 P/E of 26x; 40% premium to both 5-year average and peers; justified given strong EPS CAGR of 26% over FY16-FY18 and strong FY16 ROIC of 59%.
Revenue increased by an impressive 9% y-o-y to Rs 14.7bn (2% below our estimate), vs 1% y-o-y decline in 1HFY16, led by strong growth in lighting (23% y-o-y growth) and strong volume growth in cables and wires (17/20% y-o-y growth in cables/wires). Strong 17% volume growth in cables and wires in 2HFY16 implies green shoots of recovery in demand. Electrical consumer durables revenue growth however disappointed at 7% y-o-y despite early onset of summer season and extreme weather conditions. It seems like Havells may have lost market share in fans to Crompton/V-Guard.