ICICI Direct is bullish on Havells India has recommended buy rating on the stock with a target price of Rs 575 in its research report dated May 14, 2020.
ICICI Direct's research report on Havells India
Despite a strong demand revival in consumer category in the first two months of Q4FY20, the ~20% YoY drag in overall revenue was led by 1) weak demand for industrial products (underground cable, industrial switchgear, professional lightings), 2) lockdown situation in second half of March 2020. On the margin front, gross margin pressure (led by pricing pressure in cable segment) was partly offset by saving in advertisement expenses (down ~69% YoY), restricting a fall in EBITDA margin to ~40 bps YoY at 11.1%. The management also guided at low inventory at dealer’s level for non-seasonal products translating to a fast recovery in demand in the orange and green zones (~80% of districts). We believe while demand for industrial products would be impacted by a slowdown in infrastructure activities, consumer facing products would witness a demand revival from H2FY21E with the start of the festive season. The management has also guided for rationalisation of future advertisement expenditure and capacity expansion plans if there is any delay in demand recovery. We maintain our positive stance on the stock considering Havells is a strong retail brand, a debt free balance sheet position supported by a strong promoter pedigree.
We cut our revenue, earnings estimates for FY21E due to extended lockdown. We expect Havells, as a strong brand in FMEG category, to benefit from its backward integration (strong supply chain, pan-India distribution) & strong balance sheet position as and when business returns to normal. We maintain BUY rating on the stock and target price of Rs 575.
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