Neutral Havells India; target of Rs 1100: Motilal Oswal

Motilal Oswal's research report on Havells India

Havells (HAVL)’s revenue came in 18% above our estimates, supported by (a) strong pre-buying prior to price hikes across categories, (b) market share gains (at the cost of the unorganized sector), (c) a strong performance from Lloyd – owing to the shift to own manufacturing, which provides the ability to supply to the market v/s outsourcing brands (Voltas is an exception to this as the company had INR10b worth of inventory at Sep’20-end). With costs such as ad spends yet to normalize, adj. PAT grew 75% YoY, 29% ahead of our expectation. n The B2C and Residential portfolio did exceedingly well with 40% growth, while B2B (Industrial and Infra) saw growth in the mid-teens. Adj. for the low base of last year, the two-year revenue CAGR is back in the double digits at ~12%. While retail sales trailed primary sales in 3Q, we expect it to catch up subsequently. Also, with price hikes in place now, we expect revenues to sustain double-digit growth hereafter – although, we may see a marginal dip in volume offtake for around a month or some normalization of supply-side disruption for the unorganized sector. n With likely improvement in the demand outlook (as economic growth picks up), we increase our earnings assumption by 16–20% over FY21–23E. While the near-term outlook remains strong on the demand front, our FY21–23E EPS CAGR stands at 15% (v/s a revenue CAGR of 17%). This is because FY21 is turning out to be a high-base year v/s the earlier expectation of a fairly low base. We maintain our Neutral rating, with TP of INR1,100 (earlier: INR850), based on a higher target PE multiple of 50x v/s 45x earlier.

Outlook

We maintain our Neutral rating, with TP of INR1,100 (earlier: INR850), based on a higher target PE multiple of 50x v/s 45x earlier.