Havells India Share price: Buy rating on Havells India with price target of Rs 1190 - know key risks

Jefferies hosted Havells India in India Housing Summit. Business operations are resuming, though with some caution. Havells India strategy is to deepen product reach, with focus on B2C (75-80% of mix). Gradual revival signs are also visible in B2B now. Alternate distribution channels, E-Commerce and Rural, are gaining traction. Havells India is expanding capacities in Lloyd - Durables (Rs 3.2 bn capex). Jefferies view Havells as a quality franchise, with a robust Balance sheet. Havells India share price yestrday closed at Rs 1176, up Rs 30 or 2.6%.

Havells India Committed to Capital Expenditure:

Havells primarily embarks on in-house manufacturing (90% now). Havells India plans to further invest Rs 0.65 bn towards a new facility for washing machines in Rajasthan, with an annual capacity of 0.3mn units. Also, Havells plans a new facility for ACs at Andhra Pradesh, entailing a capex of Rs 2.5 bn and capacity of 0.56 mn units. Expected period for commissioning of the AC facility would be 12-18 months and it could be financed via internal accruals / terms loans. Havells India Balance sheet stays strong, even amid disruption, net cash at Rs 18.2 bn as of Dec'20 (Rs 10.9 bn as of Dec'19).

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Lloyd's Revamp:

Lloyd has been delivering strong sales & margin growth YoY over the past 3-4 quarters. A government order in Oct'20, prohibiting AC imports, augurs well.

Key revamp steps in Lloyd are:

1)      Upgradation to Mass-Premium category (entailing price increases)
2)      Expansion of product portfolio, with launches of new categories and variants (recent launch of Refrigerators)
3)       strengthen distribution (10K retail points now)
4)      Capacity expansion, with focus on enhancing in house production. Lloyd's current AC capacity at Rajasthan stands at 0.9mn units p.a, with existing capacity utilization at 90%.

Cost Pressures; Price Hikes:

Recent sharp increase in commodity costs could be passed on via price hikes, albeit gradually. Havells India has taken price hikes across multiple categories in Oct-Dec quarter, eg: Domestic Wires saw price hikes of +15%, switchgears 5-7% and industrial components (eg: Motors) +10%.

Havells India Outlook ; Buy:

Over FY20-24e, Jefferies pencils Havells India's sales/PAT at +10%/20% CAGR, aided by Lloyd revamp, share gains, new launches and distribution benefits. Jefferies have a Buy rating on Havells with a price target of Rs 1190.

Havells India Key risks:

Demand slowdown, tepid traction in Lloyd, rising input costs, pricing pressure