MOSL: HAVELLS INDIA (Buy)-Operating performance marginally below expectations

Havells India: Operating performance marginally below expectations

(HAVL IN, Mkt Cap USD5.3b, CMP INR552, TP INR640, 15% Upside, Buy)

• Performance impacted by weakness in Cables & Wires: Revenue grew 30.5% YoY to INR19.7b (est. of INR20.3b) in 3QFY18. Operating profit of INR2.6b (+37.5% YoY) too was below our estimate of INR2.8b. Revenue came in below estimate due to a miss in the Cables & Wires segment. Adj. PAT of INR1.7b (+29.4% YoY) was marginally below our estimate of INR1.8b.
• Core business (ex-Lloyd) witnesses robust growth across segments, barring Cables & Wires: Core business revenue grew 11% YoY to INR16.7b (+14% YoY, adjusted for excise impact on exempted zones), below our estimate of INR17.2b, due to a weak performance from Cables & Wires (+3% YoY). Operating profit rose 33% YoY to INR2.5b and EBIDTA margin improved 250bp YoY to 15.2%, driven by a) margin improvement across product categories, as demonetization-related schemes were discontinued, b) price hikes taken to compensate for higher raw material cost and c) low ad spend (3.2% v/s 3.5% in 3QFY17).
• Lloyd’s consumer business grows 16% YoY: The recently acquired Lloyd business recorded revenue of INR2.9b (+16% YoY). Operating profit stood at INR480m and EBIDTA margin at 2.9%. Margin shrunk to 3% led by a) inventory (old-EER stock) pushed to dealers at lower prices prior to implementation of new norms and b) higher advertising costs at 9% of sales.