ICICI Direct recommended hold rating on Havells India with a target price of Rs 800 in its research report dated May 30, 2019.
ICICI Direct's research report on Havells India
Havells’ Q4FY19 topline growth at ~9% YoY (I-direct estimate: 15%) was largely impacted by liquidity crunch, extended winters and impending general elections. Lloyd business revenue declined ~9% YoY to Rs 532 crore while lighting and ECD business growth were subdued at 7% and 9%, respectively. Lower demand coupled with intense competition has restricted the company from passing on inflationary pressure, resulting in a slight contraction in gross margin. Also, higher fixed cost dented EBITDA margin (down ~240 bps) higher than our estimate. Though the management guided for a recovery in EBITDA margin in FY20E, we believe it would be below its five year average margin of ~13%. We cut our revenue, earning estimate to 3%, 9% and 2%, 1.7% for FY20Eand FY21E, respectively.
Havells, a strong brand in the ECD segment, faced challenges in the Lloyd business where margin remained subdued due to bad weather and high competition. This would weigh on overall EBITDA margins, going forward, which would likely remain lower compared to its five year historical EBITDA margin. Despite being on a strong footing, we believe that at the current market price the stock discounts all near term positives. We downgrade our rating from BUY to HOLD and maintain our target price at Rs 800.
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