MOSL: HAVELLS INDIA (Neutral)-Operating performance exceeds expectations

​Havells India: Operating performance exceeds expectations

(HAVL IN, Mkt Cap USD5.0b, CMP INR542, TP INR570, 5% Upside, Neutral)

• Operating performance impressive led by better-than-estimated margins: Revenue grew 22.4% YoY to INR17.8b (est. of INR19b) in 2QFY18. However, operating profit of INR2.6b (+26.3% YoY) was ahead of our estimate of INR2.2b, led by price hikes in the cables & wires segment, lower ad spend and withdrawal of dealer schemes. PAT of INR1.7b (+17.3% YoY) was above our estimate of INR1.4b.
  
• Core business (ex-Lloyd) growth muted on weak demand and low level of restocking: Core business revenue grew at a muted 4% YoY to INR15.1b (+6.7% YoY, adj. for excise impact on exempted zones), below our estimate of INR15.8b, due to weak demand in construction and industrial segments and lower-than-expected restocking by retailers. Despite muted revenue growth, operating profit increased 17% YoY to INR2.4b and adjusted EBIDTA margin improved 180bp YoY to 15.8%, driven by price hikes taken in the cables & wires segment, low advertising spend (2.3% v/s 3.3% in 2QFY17) and withdrawal of dealer schemes. Net profit improved 9% YoY to INR1.1b.
  
• Lloyd’s consumer business grows 11% YoY: The newly acquired Lloyd business recorded revenue of INR2.7b (+11% YoY). Operating profit stood at INR189m and EBIDTA margin at 7.0%. Cost-control measures led to margin improvement on a QoQ basis (7.0% v/s 4.8% in 1QFY18).