Havells Q1 Result Review - Net Profit Missed On Lower Margin; Rebound Likely In H2: Systematix
Lloyd, sustains strong growth momentum but losses continue.
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Systematix Research Report
Havells India Ltd.’s ~6% profit after tax miss in Q1 FY24 was driven by weak Ebit margins in Lloyd (-4.5%), lighting (14.3%, down 209 basis points YoY), electrical consumer durable (10.9%, down 220 bps YoY) and others (3.5%, down 184 bps YoY), despite the 7% beat in revenue (up 14% YoY, Lloyd up 20%, cables up 24%) versus our estimate.
Demand in April and May was quite soft, prior to recovery in June. Management is hopeful consumer sentiment would revive and boost revenue and margins in H2.
A rebound in the fans category (15% BLDC portfolio) and easing raw material prices should aid margins; management aims for 13-15% Ebitda margin in the core business.
Lloyd focused on market share (revenue up 20% YoY at Rs 13.1 billion) over margins (Rs 608 million Ebit loss in 1Q; Rs 2.2 billion loss in FY23) and maintained its top three status as an room air conditioner player.
After having doubled its RAC capacity to two million units, Havells now plans to export white-label products to global brands to achieve a quick breakeven.
We maintain our estimates post 1Q and estimate 13%/28%/32% compound annual growth rate in revenue/Ebitda/profit after tax over FY23-25E (16%/9%/10% CAGR in over FY18-23).
Robust operating cash flow will likely be utilised to fund future capex and help generate strong 22% return on equity and 46% return on invested capital in FY25E.
While we remain upbeat on Havells’ healthy long-term prospects, at 45 times FY25E price/earning the stock seems fairly valued, which is why we reiterate our 'Hold' rating, with a revised target price of Rs 1,341, based on 45 times FY25E price/earning (earlier Rs 1,359 at 45 times FY25E).
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