MOSL: HAVELLS INDIA (Neutral)-Results meaningfully below estimates

​Havells India: Results meaningfully below estimates

(HAVL IN, Mkt Cap USD4.7b, CMP INR467, TP INR455, 3% Downside, Neutral)

• Operating performance meaningfully below expectations: Revenues grew 26.8% YoY to INR18.5b in 1QFY18, in line with our estimate. Operating profit of INR1.7b (-14% YoY) was meaningfully below our estimate of INR2.5b - this includes INR130m of non-recurring charge for the Lloyd acquisition. PAT of INR1.2b (-16.6% YoY) too missed our estimate of INR1.7b.
• Core business (ex-Lloyd) grows at muted 9% YoY due to GST impact: Although core business revenue of INR17.2b was in line with our estimate, there was a stark difference in the product mix. Barring the cables & wires segment (+19.5% YoY), all other segments witnessed a significant decline in primary off-take by channel partners on account of GST implementation. Operating profit declined 20% YoY to INR1.6b, and adjusted EBIDTA margin shrunk 360bp YoY to 10% due to adverse product mix, higher ad spend (3.5% v/s 3.3% in 1QFY17), delayed pass-through of higher raw material costs and higher employee cost. Net profit declined 22% YoY to INR1.1b.
• Newly acquired Lloyd's consumer business grows 20% YoY: The newly acquired Lloyd business recorded revenue of INR2.7b (+20% YoY). Operating profit stood at INR128m and EBIDTA margin at 4.8%. HAVL had completed the Lloyd acquisition by 8 May 2017, and thus this new business reflects financials of 50 days. Management indicated that Lloyd's quarterly performance has been in line with its initial plans on growth and margins.