PL Stock Report: Havells India (HAVL IN) - Q2FY24 Result Update – Slowdown in B2C business, outlook positive - Accumulate

Havells India (HAVL IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs1,363 | TP: Rs1,538

Q2FY24 Result Update – Slowdown in B2C business, outlook positive

Quick Pointers:

§ Domestic wire & ECD business impacted with softness in consumer demand.

§ Lloyd growth momentum continues (up 18.5% YoY), losses too.

Havells India’s (HAVL IN) reported slowdown in revenue growth mainly with decline in ECD segment (-5.2% YoY), flat lighting business (-0.5% YoY) and lower growth in Cables business (+8.1% YoY) due to muted consumer sentiment, shift in festival demand from Q2 to Q3, YoY price deflation in LED impacting consumer lighting revenues and slowdown in domestic wire business. Operating margin impacted from 1) seasonally weak demand & low value growth, 2) price erosion in lighting segment even after double digit volume growth, 3) unabsorbed higher manufacturing overheads and 4) continued losses in Lloyd. In H2FY24, lighting business is expected to report healthy growth similar to volume as price deflation bottom-out.

We believe Lloyd along with ECD, W&C is well placed to grow on account of positive outlook for upcoming festival season, pick-up in residential demand, declining inflation, commodity price stability and B2B portfolio sustaining steady demand led by infrastructure/construction. We downward revise our FY24 earnings by 2.0% mainly with correction in margins as H2FY24 is expected to see revival in demand & margins and maintain FY25/FY26 estimates. Maintain ‘Accumulate’ rating at a DCF based target price of Rs1,538, which implies 49x Sep’25 EPS.

Revenue grew 6.0%, Adj. PAT grew 33.2%: Revenue grew by 6.0% YoY to Rs39.0bn (PLe ~Rs42bn) due to slowdown in Cables (+8.1% YoY), Lighting (-0.5% YoY) and ECD (-5.2% YoY). There is slowdown in ECD revenue due to muted consumer demand & shift in festival demand from Q2 to Q3 and price erosion in lighting segment has resulted in flat revenue while lighting saw double digit volume growth. Cable business reported ~10% volume growth in Q2FY24. EBITDA grew 30.2% YoY to Rs3.7bn (PLe Rs3.8bn), with EBITDA margins expanded by 180bps YoY to 9.6%. (PLe: 9.1%). In terms of segmental EBIT margin, Cables margin came in at 11.6% (+530bps YoY), Lighting at 14.3% (flat YoY), ECD at 11.6% (flat YoY) and Switchgear at 26.4% (+140bps YoY). Lloyd continues to see losses at Rs745mn vs loss of Rs840mn in Q2FY23. PBT grew by 33.2% YoY to Rs3.4bn. Adj. PAT grew 33.2% YoY to Rs2.5bn (PLe Rs2.6bn). Net working capital days came at 39 (Vs 39 in Q2FY23).

Concall Takeaways: 1) Weak performance in Cables & ECD business due to softness in domestic wire demand and muted consumer sentiment & shift in festival demand, 2) Volume growth for W&C business was ~10% in Q2FY24, Cable (40% rev.) continues to face capacity constraint while growth is better than domestic wire segment, 3) ECD segment expected to do better in H2FY24 with festive demand, 4) Lloyd has sequentially gained market share in RAC segment and RAC grew highest in Q2FY24 vs other products, 5) In Lloyd, there was 50% contribution from RAC in Q2FY24, 6) Deflationary trend in LED lighting business has bottom-out as per management and expected to grow with volume in coming quarter, lighting volume grew by double digit in Q2FY24, 7) Manufacturing overheads remained unabsorbed which led to margin contraction in H1FY24, 8) Capex would remain around Rs6bn in FY24, majorly in W&C capacity enhancement – 25% cable capacity increase & some enhancement in wire capacity as well, 9) Mgmt. expects better H2FY24 in terms of rev. growth and margin comparing H1FY24 on account of positive outlook for the upcoming festival season, pick-up in residential demand, inflation coming down, commodity price stability.

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