Havells India's Q1FY19 results (Outperformer) - Robust revenue growth; margins expansion continues

Q1FY19 standalone result highlights

• Adj PAT +37% yoy to Rs1.7bn: on robust revenue growth.
• Revenues +39.5% yoy to Rs26bn: with ex-Lloyd growth at 18.5% yoy (22% LTL growth) to Rs18.9bn led by ECD (+32.8% yoy; low base, continued market share gains in premium fans), switchgears (+19.2% yoy; traction in EWA, motors, exports, B2B led by orders from Hyundai electric) and cables (+17.9% yoy; +8% vol growth, ~10% value growth). Lighting revenues declined 1% yoy due to negligible revenues from EESL (ex-EESL revenues +25% yoy). Lloyd revenues +14% yoy at Rs7.1bn led by value growth in RAC as well as traction in LED TV.
• Margin expansion continues: with ex-Lloyd margins +350bps yoy to 13.5% on higher margins in ECD (+595bps; low base, positive op leverage, higher premium products) and cables (+355bps yoy; low base, cost efficiencies). However, lighting (-194bps yoy to 27.5%; EESL order related claims) and switchgears (-24bps yoy to 38.3%) saw margin contraction. Lloyd margins stood at 19.4% (+462bps yoy; -310bps qoq; qoq decline due to impact of rupee depreciation, adverse mix, higher ad spend). EBITDA +86% yoy to Rs3.2bn.

Conf call highlights: (1) Switchgears saw traction from switches & mild uptick from residential as well; (2) Mkt share in premium fans increased to 40%+, overall fan mkt share at ~15%; (3) ECD seeing traction across categories incl appliances, water purifiers, personal grooming (4) Share of inverters in RAC increased to 30% (vs 8% a year ago) and focus on brand building & expansion in distribution network (increased presence in MBO’s and exclusive outlets); (5) RAC plant with 600k units capacity to come up by 4Q19; (6) FY19 capex to be Rs5bn including Rs3bn for new plants.

Key positives: Strong revenue growth, margin improvement

Key negatives: Muted growth in lighting

Impact on financials: FY19/FY20 EPS upgraded by 4%/2% to Rs13.8/16.8

Valuations & view

Havells has continued its focus on enhancing brand value, new product launches & deep channel engagement. Havells is fortifying its competitive position by focusing on technology, strengthening channel & addressing untapped mkts. Lloyd acquisition is further catapulting Havells into a strong growth segment. A culmination of these factors & shift to organised players will accelerate earnings (23% earnings CAGR over FY18-20E). Hence, valuations are likely to remain rich (33x FY20E). Outperformer.