ICICI Direct recommended hold rating on Havells India with a target price of Rs 630 in its research report dated July 29, 2020.
ICICI Direct's research report on Havells India
Havells’ consumer segments (~70% of sales) saw a notable recovery post easing of restrictions but performance of industrial/institutions segments (~30% of sales) were challenging due to lockdowns. The company posted ~60% recovery in May 2020 while sales in June 2020 increased 4% YoY led by strong demand recovery in consumer business, which grew 12% YoY during the same month. Growth in June was largely attributable to pent up demand, strong supply chain and market share gains in the consumer facing business. The unorganised/regional players have lost market share due to supply constraints coupled with labour related issues. On the cost front, decline in gross margin by partially arrested by saving in advertisement cost and employee cost during the period. As a result, EBITDA margins were at 8.8% better than our estimate of 4% during Q1FY21. The company has availed its credit lines to raise debt of about Rs 870 crore to fund short term working capital requirements, leading to Rs 17 crore of interest cost during Q1FY21. Finally, PAT came in at Rs 63 crore much ahead of our estimate of Rs 19 crore in Q1. We maintain our positive stance on the stock given its long term strategy to expand through new production addition into consumer space along with increasing rural reach. We raise our FY21, FY22 earnings estimates by ~2%, 9%, respectively.
We revise our FY21E, FY22E earnings estimates by 2%, 9%, respectively, factoring in Q1FY21 performance and outlook. However, a delay in recovery due to intermediary lockdowns and negative cashflow from operations due to increase in working capital days weigh on valuation. We revise our rating from BUY to HOLD with a target price of Rs 630/share.
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