Brokerage sees 14% upside on Havells India, recommends ‘buy’ on margin outlook; do you own?

The brokerage house sees a potential upside of 14 per cent on Havells India with a 12 M target price of ₹1,453 due to the company’s constant focus on value creation, improving margins, and sustained growth of dealer network with robust returns in the past few years. On July 5, the counter saw a traded volume of 5,51,843 shares with a traded value of ₹7,099.41 lakhs, according to NSE data.

According to LKP Securities, Havells remains focused on ensuring its presence across the value chain due to the following reasons:
-Increased presence in e-commerce
-Deeper penetration into India through the Rural Vistaar programme and Utsav stores
-Increased participation in B2B projects
-Expanded footprint in international markets

Despite expectation of softness in near-term demand owing to unseasonal rains and weak summer intensity, the brokerage is firm on Havells’ long-term growth strategy through continuous portfolio and distribution expansion and brand-building initiatives. 

Among peers, Havells India enjoys the highest margins in many product categories and generates healthy free cash flow despite high capex (unlike most peers, the company has opted for in-house production), according to the brokerage firm.

Also Read: Havells India is not completely out of the woods yet; demand prospects blurry

‘’We believe the margin has hit a trough and will continue to improve from here on, given (1) softening commodity inflation; (2) an increase in the premium mix (fans: 30 per cent vs 17 per cent five years back) and lowering losses in Lloyd. We recommend BUY with a TP of ₹1,453,” said LKP Securities in its rsearch report on July 5.

According to LKP Securities, Havells has devised a comprehensive strategy to maximise value creation by focusing on brand, omnichannel, innovation, digitisation, and talent. 

Apart from strengthening its tie-ups with multi-brand outlets, regional retailers, and modern formats, the company has increased its presence on new age digital platforms like the e-commerce marketplace and the company managed O2O portal. The company’s dealer network grew at 13 per cent compound annual growth rate (CAGR) between FY19 and FY23 from 10,500 to 17,000.

Havells has sustained its R&D spend by investing ₹1.6 billion in FY23 (1 per cent of FY23 revenue; ₹5.5 billion invested over the last five years). It is making progress in R&D transformation, focusing on consumer centricity, critical technology ownership and innovation leadership. It had earlier announced that it would increase R&D spending to 2 per cent of revenue. 

Some of the key highlights on the technological front include in-house design and development of electronic controllers/ drivers for ACs and LED lights; introduction of IoT- enabled products in AC, fans, water heaters, switches, air purifiers and lights categories; in-house IoT platform, OTA (Over-The-Air updates) and predictive analysis in products.

The share of new products, which contributed 17 per cent of total revenue till last year, is expected to increase as the innovation pipeline remains strong, said LKP Securities. During the year, Havells launched products such as LED Glamtubes and Havells studio Meditate air purifiers.

During the January-March quarter of fiscal 2022-23, Havells reported a rise of 1.4 per cent in consolidated net profit to ₹358 crore, against a net profit of ₹353 crore in the year-ago period. 

The consolidated revenue from operations rose by 9.8 per cent to ₹4,859.21 crore for the quarter under as compared to ₹4,426.26 crore in the year ago period. The company’s board has recommend a final Dividend of ₹4.50 per equity share of Re 1/- each for the financial year 2022-23.

Updated: 05 Jul 2023, 11:24 PM IST