ICICI Direct recommended hold rating on Havells India with a target price of Rs 720 in its research report dated July 30, 2019.
ICICI Direct's research report on Havells India
Havells’ muted topline growth at 4% YoY in Q1FY20 was below our estimate mainly due to Lloyd division, which surprised us with revenue de-growth of 8% YoY in the strong season for air conditioners. In addition, the poor demand for switchgear and cable business is largely due to prevailing weakness in the real estate industry and delay in government projects post elections. On the margin front, decline in EBITDA margin by ~200 bps YoY was largely on account of higher employee cost and advertisement expenditure incurred in the Lloyd business. 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 2%, 9% and 4%, 9% for FY20E and FY21E, respectively.
We believe Havells’ Lloyd business is in a transition phase with high investment in people, technology and branding. This, coupled with pricing pressure in the air conditioner business (due to significant competition from MNCs) would likely weigh on overall EBTIDA margin of the company in the near term. We maintain our HOLD rating on the stock and revise our target price lower to Rs 725.
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