MOSL: HAVELLS INDIA (Buy)-Operating performance ahead of expectations

Havells India: Operating performance ahead of expectations

(HAVL IN, Mkt Cap USD5.3b, CMP INR547, TP INR630, 15% Upside, Buy)

• performance exceeds expectations: Revenue grew 48% YoY to INR25.3b (est. of INR24.8b) in 4QFY18. Operating profit of INR3.6b (+55.8% YoY) was ahead of our estimate of INR3.1b, led by above-estimated performance in Lighting and Lloyd Electrical. Adj. PAT of INR2.3b (+37% YoY) was above our estimate of INR2.1b. For FY18, revenue was at INR81.4b (+33% YoY), operating profit at INR10.5b (+27% YoY) and PAT at INR7.00b (+17% YoY).
• Robust growth in core business (ex-Lloyd): Core business revenue grew 14% YoY to INR19.5b (+18% YoY, adj. for excise impact on exempted zones; est. of INR19.1b), led by growth across segments. Operating profit rose 24% YoY to INR2.9b and EBIDTA margin improved 120bp YoY to 14.6%, driven by margin improvement across product categories.
• Strong performance at Lloyd’s consumer business: The recently acquired Lloyd business recorded revenue of INR5.8b, operating profit of INR724m and EBIDTA margin of 12.4%. Margin improvement was driven by higher volumes, better pricing and cost-rationalization measures.
• Working capital cycle contraction led by higher payable days: Core net working capital cycle contracted to -35 days from 5 days in FY17. In FY18, creditor days were up to 123 from 63 in FY17 due to vendor financing and extended credit cycle provided by Lloyd’s vendors.