Havells Share price: Buy with price target of Rs 1050 says Jefferies
Jefferies currently have a Buy rating on Havells with a price target of Rs 1050. Havells reported a strong Q3 FY21, with sales/PBT/PAT growth at +39%/+101%/+75% YoY, a beat to Jefferies. While Consumer and Residential portfolios saw +40% growth, Industrial and Infrastructure segments grew in mid-teens.
Jefferies currently have a Buy rating on Havells with a price target of Rs 1050. Havells reported a strong Q3 FY21, with sales/PBT/PAT growth at +39%/+101%/+75% YoY, a beat to Jefferies. While Consumer and Residential portfolios saw +40% growth, Industrial and Infrastructure segments grew in mid-teens. Havells's operating margins stood at 16% (+420 bps YoY). Lloyd saw notable traction, with sales +70% YoY and contribution margin at 13.2% (+540 bps). Balance sheet stays strong with Net Cash at Rs 18.2 bn. Jefferies currently rates Havells as Buy.
Q3 FY21 segmental sales split as follows:
1) Switchgears Rs 4.4 bn (+32% YoY)
2) Cables Rs 9.1 bn (+27% YoY)
3) Lighting Rs 3.5 bn (+28% YoY)
4) ECD Rs 7.8 bn (+46%)
5) Lloyd at Rs 5.1 bn (+70% YoY)
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Robust growth across segments was mainly driven by expanding distribution, sturdy supply chain and (market share) gains from the unorganized sector.
Q3 FY21 segmental contribution margin as follows:
Switchgears at 42.2% (42.6% in Q3FY20), Cables at 15.2% (17.5%), Lighting at 34.4% (30.3%), Electrical Consumer Durables at 25.6% (26.3%), Lloyd at 13.2% (7.8% in Q3FY20). Contribution margins are derived after deducting material cost, manufacturing variables, direct selling variables and depreciation from the net revenue. Segmental profitability improved YoY, primarily aided by operating leverage.
Havells continues to showcase a robust balance sheet. As of Dec'20, net cash stood at Rs 18.2 bn (Rs 10.9 bn as of Dec'19). The working capital is at an optimum level of 35 days (stable YoY). The operating cash flow as of Q3 FY21, stood at Rs 7.7 bn (Rs 8.2 bn as of Mar'20).
Broader demand slowdown, subdued traction in Lloyd, raw material volatility, increased competition and pricing pressures
Havells is an electrical company, diversified into appliances and consumer durables. While electrical categories such as cables and wires and switchgears remain its mainstay products, it has entered into appliance and consumer durable categories over the past five to six years, which allays its product concentration risk.
HDFC Securities says it is a momentous day for India's capital markets as the Sensex touched 50,000 on Jan 21. The gain of the last 5,000 points has come in just 32 trading sessions. Expectations of turnaround in the economy post Covid vaccinations and continued FPI inflows have led to this kind of gains for Indian markets in a globally low interest scenario. Post the Forthcoming Union Budget we may witness a temporary break to the uptrend and further upmoves from hereon will depend on the pace of economic and corporate earnings growth and the trajectory of inflation and interest rates in India and the world.
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