ICICI Direct recommended Hold rating on Havells India with a target price of Rs 720 in its research report dated October 24, 2019.
ICICI Direct's research report on Havells India
Havells’ performance remained muted during Q2FY20, below our estimate mainly due to ~30% decline in revenue of the Lloyd business. Under Lloyd, while the AC business remain flat YoY, the LED panel business recorded a sharp price correction of up to 25% in Q2FY20 due to lower demand and intense competition. The management has reiterated that low spending in infrastructure and industrial activities has hurt demand for industrial products categories (like industrial cable & switchgear segments). A sharp decline in profitability of Lloyd business (in addition to higher fixed associated with new facility operating at low utilisation) has impacted overall EBITDA margin of the company. Though the management guided for a recovery in EBITDA margin from H2FY20E onwards, we believe it would be below its five year average margin of ~13%. We cut our revenue, earning estimate by 6% and 7%, respectively, for FY20E and believe a possible recovery would start from FY21E onwards.
While Havells’ industrial product business was impacted by a slowdown in capex, the consumer facing business witnessed pressure on the pricing front, resulting in lower EBITDA margin. We maintain our target price and HOLD rating on the stock considering Havell’s strong balance sheet.
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