YES Securities' research report on Havells India
Havells reported better than estimated numbers on the back of faster recovery in its B2C business. Recovery was witnessed across all segments in June. Overall revenues were higher by 4% yoy in June led by 12% increase in B2C business. B2B business remained muted in June compared to B2C business. May business recovered to 60% of LY levels. Management indicated that faster recovery was due to pent-up demand and market share gains from unorganized market. Availability of material and robust supply chain were the drivers in gaining market share. Growth momentum continued till 1st half of July, however post that it has slowed down as more markets are beginning to get impacted by rising Covid cases leading to lockdowns. Margin surprise was largely due to a sharp decline in employee costs (27.7% yoy) and A&P costs (-96% yoy). Gross margins were under pressure. Except Llyods, all the segments reported a sharp contraction in EBIT margins. Llyods performance was inline with expectations and is on its revival path. We believe growth momentum would slow down from Q2 FY20 as consumer offtake reduces post the pent up demand witnessed in most of its product categories in Q1. Unorganised segment too would gradually bounceback and would regain some of its lost market share. Higher exposure to construction linked products for Havells would curtail revenue rebound going ahead.
The stock is currently trading at 48.3x FY22E P/E, higher than its 5-year average of 42x. We value the stock at 40x FY22E earnings and arrive at a target price of Rs493, maintaining our SELL recommendation on the stock.
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