Motilal Oswal 's research report on Havells India
While revenue decline of 45% YoY was in line with our expectations, aggressive cost rationalization measures led to a strong beat in earnings. Ad spends stood at INR60m (0.4% of sales) in 1QFY21 v/s INR1.4b (5% of sales) in 1QFY20. Employee costs were also lower by 27% YoY on account of certain voluntary actions, which should normalize from 2QFY21. As demand recovers, we expect the large part of these cost elements to scale back. Havells’ core portfolio witnessed 4% YoY growth in June, while Lloyd was up 8% YoY. Overall, demand for B2C products grew by 12% YoY in Jun’20, a key positive. However, the outlook remains hazy due to the local lockdowns; hence, the management appears cautious on extrapolating the June run-rate to the coming quarters. The results of peers suggest that with a demand level of 80–85% v/s last year in July, Havells is likely witnessing market share gains across key categories. Factoring cost savings in 1QFY21, we increase our FY21/FY22 EPS estimates by 14%/4%. Our FY20–22E revenue/EBITDA/adj. PAT CAGR stands at 7%/12%/7%.
The deterioration in working capital was disappointing, but this should normalize in the coming quarters. Maintain Neutral, with TP of INR560 (earlier: INR515) as we await a better entry point.
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