Hold Havells India; target of Rs 370: Axis Direct

Axis Direct's research report on Havells India

Havells' (HAVL) Q2FY17 revenue (net of excise) was Rs 14.5 bn (up 9% YoY) – below our/street expectation of 12%/15%. This was led by strong growth in electric consumer durables, while demand in switchgears, cables and lighting was subdued on sluggish demand in housing/infra. Contribution margin improved across segments to 25.4% (+230 bps YoY) on better product mix and discontinuation of brand royalty payment (benefit of 70 bps); this was partly offset by higher advertising(+60 bps YoY to 3.3% of sales) and employee expense(+180 bps YoY), which is likely to remain elevated as HAVL realigns its organization structure. PAT at Rs 1.4 bn (est: Rs 1.5 bn) up 22% YoY.

Consistent with last quarter’s commentary, the management maintained that demand recovery continues to be inconsistent and patchy with growth mainly coming from tier 2/3 towns; tier 1 cities still playing laggard. Tier 1 and metros account for more than 70% of HAVL’s distribution network.

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