MOSL: HAVELLS INDIA (Buy)-Strong revenue growth offset by margins contraction
Havells India: Strong revenue growth offset by margins contraction
(HAVL IN, Mkt Cap USD5.0b, CMP INR586, TP INR700, 19% Upside, Buy)
- Operating performance marginally ahead of expectations: HAVL’s revenue grew 23% YoY to INR22b, ahead of our estimate of INR19.6b. Gross margin shrank 400bp YoY to 38.3%. EBITDA, adjusted for forex gain of INR47m, stood at INR2.6b (+1.7% YoY), marginally ahead of our estimate. Ad spend increased to INR0.7b (3.4% of sales v/s 3% in 2QFY18), while employee costs rose 26% YoY to INR2.0b. Adj. PAT of INR1.7b (+3.1% YoY) was marginally above our estimate. For 1HFY19, sales stood at INR47.9b (+31% YoY), EBIDTA at INR5.8b (+43% YoY) and PAT at INR3.9b (+41% YoY).
- Robust growth in core business (ex-Lloyd): Core business revenue grew 28% YoY to INR19.3b, led by strong growth across segments (Switchgears +28% YoY; Cables +35% YoY; Consumer Durables +42% YoY). EBIDTA margin (excl. Lloyd) shrank 290bp YoY to 12.9% due to weak margins in Cables and Switchgears. Growth was supported by demand traction across product categories and a weak base.
- Lloyd’s performance impacted on multiple fronts: Lloyd Electric’s revenue declined 4% YoY to INR2.6b due to the impact from an adverse season and higher channel inventory. EBIDTA margin contracted 370bp YoY to 3.3% on account of negative operative leverage, higher SG&A expense (10.5% of sales v/s 7.8% in 2QFY18) and higher adspend (6.7% of sales v/s 6.2% in 2QFY18). HAVL expects the new plant to be ready in two months, with assembly starting 4QFY19 onward.
Havells India is a Fast Moving Electrical Goods (FMEG) company based in India. Co. is active across a variety of market segments with a wide spectrum of products, including Industrial & Domestic Circuit Protection Devices, Cables & Wires, Motors, Pumps, Fans, Modular Switches, Home Appliances, Electric Water Heaters, Power Capacitors, CFL Lamps, Luminaires for Domestic, Commercial and industrial Applications. Co.'s global brand names include Havells, Crabtree, Sylvania, Concord, Luminance and Standard. Co. maintains a global network consisting of 91 branches & representative offices in over 50 countries. Co.'s manufacturing plants are loacted in India, Europe, Latin America, Africa & China.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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