MOSL: HAVELLS INDIA (Buy)-Operating performance in line with expectations

Havells India: Operating performance in line with expectations

(HAVL IN,Mkt Cap USD5.1b, CMP INR560, TP INR645, 15% Upside, Buy)

• In-line operating performance: Revenue grew 40% YoY (43% on an LTL basis) to INR26b, ahead of our estimate of INR24.5b. Gross margin expanded 190bp to 37.6%. EBITDA, adjusted for a forex loss of INR85m, stood at INR3.2b (+84% YoY), in line with our estimate. Adspend increased to INR1.16b (4.5% of sales v/s 4% in 1QFY18), while employee costs rose 22% YoY to INR1.9b. Adj. PAT of INR2.2b (+78% YoY) was marginally above our estimate of INR2.1b.
• Robust growth in core business (ex-Lloyd): Core business revenue grew 22% YoY (on an LTL basis) to INR18.9b, led by strong growth across segments (Switchgears +26% YoY; Cables +18% YoY; Consumer Durables +43% YoY; and Lighting (ex EESL) +25% YoY). EBIDTA margin (excl. Lloyd) improved 350bp YoY to 13.5%, driven by margin improvement in the cables and consumer durables segments.
• Strong sales growth at Lloyd: Lloyd Electric recorded revenue of INR7.1b (+14% on LTL basis) and adjusted EBIDTA margin of 9.3%. Adspend stood at INR500m (7.1% of sales). Sales growth was helped by ASP increase on account of energy rating change, pass-through of higher raw material prices, and a higher share of inverters (30% of total).
• Key concall highlights: (a) HAVL witnessed strong growth across categories in 1QFY19, aided by a weak base. (b) Fans market share stood at 15%, with 40%+ share in premium fans. (c) 18% growth in the cables segment is driven by 8% volumes growth. (d) New categories that are growing well include REO, personal grooming, water heaters, pumps and air coolers. (e) Margins in the cables & wires segment are seen in the band of 15-17%.