Buy Navin Flourine; target of Rs 3200: Dynamic Levels

In 2QFY17, Havells India Ltd. (Havells) posted net revenue growth of 9% YoY to INR 14.5 bn, mainly boosted by notable growth of 22% YoY in company’s electrical consumer durable (ECD) segment. On the other hand, revenue growth in Switchgears (5% YoY) and Cables & Wires (flat YoY) was muted on account of sluggish housing and industrial demand. Lighting & fixtures demonstrated 9% YoY revenue growth, led by 22% growth in lighting (ex-CFL). Havells’ core EBITDA stood at INR 2.1 bn (14.5% EBITDA margin) compared to INR 1.9 bn (14.1% margin) in 2QFY16. Contribution margin improved across all segments. PAT stood at INR 1.4 bn, up 21% YoY.

Going forward, attractive macro triggers such as expected growth in housing demand, higher discretionary spending related to payouts of Seventh Pay Commission and healthy monsoons auger well with company’s growth prospects. Over FY16-19E, we expect Havells’ revenue to grow at 13% CAGR with 120 bps margin improvement, entailing 19-20% CAGR earnings growth. Robust return ratios (RoE >20%; RoCE >30%) and debt-free balance sheet enhance fundamental strength. Improved profitability with optimum working capital could result in notable FCFF of INR 4.7 bn by FY19E. Maintain BUY rating with TP of INR 478 (36x Sept-18E EPS).