Jefferies currently have a Buy rating on Havells with a price target of Rs 1050. Havells reported a strong Q3 FY21, with sales/PBT/PAT growth at +39%/+101%/+75% YoY, a beat to Jefferies. While Consumer and Residential portfolios saw +40% growth, Industrial and Infrastructure segments grew in mid-teens. Havells's operating margins stood at 16% (+420 bps YoY). Lloyd saw notable traction, with sales +70% YoY and contribution margin at 13.2% (+540 bps). Balance sheet stays strong with Net Cash at Rs 18.2 bn. Jefferies currently rates Havells as Buy.

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Revenue:

Q3 FY21 segmental sales split as follows:

1)  Switchgears Rs 4.4 bn (+32% YoY)
2)  Cables Rs 9.1 bn (+27% YoY)
3)  Lighting Rs 3.5 bn (+28% YoY)
4)  ECD Rs 7.8 bn (+46%)
5)  Lloyd at Rs 5.1 bn (+70% YoY)

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Robust growth across segments was mainly driven by expanding distribution, sturdy supply chain and (market share) gains from the unorganized sector.

Contribution Margin:

Q3 FY21 segmental contribution margin as follows:

Switchgears at 42.2% (42.6% in Q3FY20), Cables at 15.2% (17.5%), Lighting at 34.4% (30.3%), Electrical Consumer Durables at 25.6% (26.3%), Lloyd at 13.2% (7.8% in Q3FY20). Contribution margins are derived after deducting material cost, manufacturing variables, direct selling variables and depreciation from the net revenue. Segmental profitability improved YoY, primarily aided by operating leverage.

Balance Sheet:

Havells continues to showcase a robust balance sheet. As of Dec'20, net cash stood at Rs 18.2 bn (Rs 10.9 bn as of Dec'19). The working capital is at an optimum level of 35 days (stable YoY). The operating cash flow as of Q3 FY21, stood at Rs 7.7 bn (Rs 8.2 bn as of Mar'20).

Key Risks:

Broader demand slowdown, subdued traction in Lloyd, raw material volatility, increased competition and pricing pressures

Havells is an electrical company, diversified into appliances and consumer durables. While electrical categories such as cables and wires and switchgears remain its mainstay products, it has entered into appliance and consumer durable categories over the past five to six years, which allays its product concentration risk.

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