havells india (havl in) · 2019. 9. 10. · havells india september 9, 2019 4 innovations might not...

Rating: REDUCE | CMP: Rs661 | TP: Rs566

Havells India (HAVL IN)

Uphill task ahead

Amnish Aggarwal [email protected] | 91-22-66322233

Paarth Gala [email protected] | 91-22-66322242

Havells India

September 9, 2019 2

Contents

Page No.

One stop shop FMEG player 5

Story in charts 6

Lloyd has its task cut out 7

HAVL repositioning Lloyd as ‘mass premium’ brand 7

Distribution – Entering emerging formats 8

Aiming for 75% in-house AC production by FY21 8

High competitive intensity, technology disruption a key challenge 9

Channel check suggests tough going in near term 12

Lloyd: Room Air Conditioners (~75% of sales); Needs to innovate 13

Lloyd LED TV: Little hope of survival? 13

Lloyd: Washing Machines; Might survive but unlikely to score big gains 14

Core Segment growth peaked out in FY19 15

Core segments to ride on BHARAT opportunity 16

Rural electrification, increased power supply to stimulate demand for electrical products 16

HAVL to initiate rural push through mass brand ‘REO’ 17

Switchgears (17% of sales): Immense growth potential, margins at a risk 19

Cables and Wires (32% of sales): Innovations and EHV entry key to growth 20

LED lighting (13% of sales): Poor pricing power and easy Imitations limit margin upside 21

Electrical Consumer Durables (20% of sales): Aiming for the skies 22

Innovation and Differentiation cornerstone of growth strategy 24

HAVL is investing in distribution expansion/ Automation 25

Channel Check takeaways 26

Financials & Valuations 27

Estimate CAGR of 13.3% in Sales over FY19-22 27

Commodity price pressures abating 28

EBIDTA and PAT CAGR of 14.8% and 14.1% over FY19-22 29

Valuations leave little room for an error 31

Annexure: 33

Board of Directors & KMP 33

September 9, 2019 3

Rating: REDUCE| CMP: Rs661 | TP: Rs566

Uphill task ahead

We initiate coverage on HAVL with Reduce rating and a price target of Rs566

(33x Sept21EPS) as current valuations of 42.4xFY21EPS don’t fully price in 1)

poor visibility on scalability in Lloyd across segments and 2) peaked out

sales growth (19.8% in FY19) in Core segments like Switchgear, Cables and

Lighting given slowdown in real estate, poor consumer sentiments and

increasing competition.

Although HAVL is launching innovative products and new ECD categories

(water purifiers, grooming and kitchen appliances), however presence of

brands like Philips, Braun, Wonderchef, Eureka Forbes and Kent will make

sustained market share gains difficult. We believe increasing competitors

focus on premium products in fans and lighting can drag sales growth.

We estimate 13.3% sales CAGR over FY19-22 (11.6% in FY20) which will

enable an EBITDA CAGR of 14.8% led by gains from in-house manufacturing

in Lloyd, benign input costs and peaked out expenses on distribution

expansion and brand building. We estimate PAT growth of 5.2% in FY20 and

a CAGR of 14.1% over FY19-22.

HAVL which got re-rated post sale of Sylvania and Lloyd acquisition currently

trades at 47.7x12 month forward PE which is at a premium of 15% to 5-year

average. We value the stock at 33xSept21 EPS and arrive at a target price of

Rs566. Sharp recovery in consumer demand and significant gains in Lloyd is

a key risk to our call. We initiate coverage with Reduce rating.

Investment Arguments

Lloyd has its task cut out: HAVL is positioning Lloyd as a mass premium

brand and is investing in branding, innovation, distribution (dealer additions,

Modern trade and online), in-house production (75% of RAC by 2021). Lloyd’s

LED TV plans have gone haywire as aggressive pricing by MI (30-40%

discount to LG, Samsung) in a technology intensive product has left very little

room for it to scale up. Lloyd has presence in washing machines and plans to

test launch Refrigerators to complete its portfolio, however significant gains

looks unlikely given entry of new competitors (Voltas Beko, Siemens and

Liebherr) and existing giants like LG, Samsung, Whirlpool and Hitachi.

Core segments growth has peaked out: The core segment growth of 19.8%

in FY19 was led by ECD (27%), Switchgear (18%) and Cables (20.5%) even

as lighting grew by only 10.7% due to price erosion in LED. Although HAVL

has plans to tap the emerging growth opportunity in BHARAT (Tier2/3 towns

and interiors) by push for REO and Standard brands, we expect sustained

pressures led by 1) slowdown in real estate 2) pricing pressure and slow Govt

ordering in lighting 3) poor consumer sentiments and 4) increase in

competition. We believe, our FY20 core segment sales growth of 13.5%

(10.2% excluding ECD) is at risk given 9.1% (3.8% ex ECD) growth in 1Q and

residual growth of 14.8% for core segments (12.0% ex ECD) for 9MFY20.

Havells India (HAVL IN)

September 9, 2019

Company Initiation

Key Financials - Standalone

Y/e Mar FY19 FY20E FY21E FY22E

Sales (Rs. m) 100,576 112,224 127,902 146,230

EBITDA (Rs. m) 11,922 13,302 15,459 18,052

Margin (%) 11.9 11.9 12.1 12.3

PAT (Rs. m) 7,915 8,326 9,762 11,765

EPS (Rs.) 12.7 13.3 15.6 18.8

Gr. (%) 12.9 5.2 17.3 20.6

DPS (Rs.) 4.0 4.5 4.8 5.6

Yield (%) 0.6 0.7 0.7 0.8

RoE (%) 19.8 18.5 19.3 20.5

RoCE (%) 28.9 28.3 29.5 31.3

EV/Sales (x) 4.0 3.5 3.0 2.6

EV/EBITDA (x) 33.7 29.9 25.2 21.1

PE (x) 52.3 49.7 42.4 35.1

P/BV (x) 9.8 8.7 7.7 6.8

Key Data HVEL.BO | HAVL IN

52-W High / Low Rs. 807 / Rs. 550

Sensex / Nifty 36,982 / 10,946

Market Cap Rs. 414 bn/ $ 5,775 m

Shares Outstanding 626m

3M Avg. Daily Value Rs. 2056.26m

Shareholding Pattern (%)

Promoter’s 59.55

Foreign 26.95

Domestic Institution 4.64

Public & Others 8.86

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute 2.2 (7.3) (2.6)

Relative 2.2 (8.2) 0.7

Amnish Aggarwal

[email protected] | 91-22-66322233

Paarth Gala

[email protected] | 91-22-66322242

Havells India

September 9, 2019 4

Innovations might not ensure success in new segments: HAVL’s USP has

been innovation and Premiumisation in key categories like fans, lighting, wires

and switchgear. Given high rate of product imitation and competitors shift

towards premium products in these categories (fans are 55% of ECD), HAVL

is focusing on new innovations like IOT (Internet of things), Bluetooth enabled

fans, façade lighting and emerging segments like water purifiers/heaters,

personal grooming and kitchen appliances. However, success in segments like

water purifiers (service driven), personal grooming and kitchen appliances

would be hard to come by given presence of competitors like Philips and Braun

in Grooming, Eureka Forbes and Kent in water purifiers and Philips and

Wonderchef in kitchen appliances.

Commodity deflation to provide some respite: Key commodity prices –

Copper/Aluminium/Brent Crude have increased at a CAGR of 9%/11%/14%

over FY16-19 thereby impacting gross margins by 340bps over FY16-19.

However, Spot LME Copper prices are down 6%, Spot Aluminium LME prices

down by 13% while Brent Crude prices down 6%. We believe that the major

pressure due to high commodity prices is over and expect moderate expansion

in gross margins hereon. We estimate an increase in gross margins by 40bps

in FY20 and another 30bps in FY21.

Estimate PAT CAGR of 14.1% over FY19-22: We estimate EBITDA CAGR

of 14.8% over FY19-22 led by gains from in-house manufacturing in Lloyd,

benign input costs and peaked out expenses on distribution expansion and

brand building. We estimate flat margins in FY20 but an increase of 20bps each

in FY21 and FY22. We estimate PBT from operations will increase by 9.5% in

FY20 and at a CAGR of 15.3% over FY19-22. PAT growth is estimated at 5.2%

in FY20 and at a CAGR of 14.1% over FY19-22.

Valuations don’t leave any room for error: HAVL saw massive re-rating from

28.3x12 month forward PE post sale of Sylvania to 43x at the time of Lloyd

acquisition to a high of 58.5x in March2019. The re-rating was due to

expectations of HAVL emerging as a key player in consumer electrical with

presence in Switchgears, Cables, Lighting, ECD, Consumer Electronics and

White Goods. HAVL reported PAT CAGR of 15.8% in the past 3 years, not

significantly higher than peers. HAVL currently trades at 47.7x12 month

forward EPS which has moderated from peak of 58.5x but still at a premium of

15% to 5year average PE.

We believe that P/E multiple of HAVL is high looking at future growth estimates

and competitive pressures faced in various product segments. We value the

stock at 33xSept21 EPS and arrive at a target price of Rs566. We initiate

coverage on the stock with Reduce rating.

Havells India

September 9, 2019 5

One stop shop FMEG player

Incorporated in 1983, Havells India Limited (HAVL) is a leading fast moving

electrical goods (FMEG) Company with presence in Industrial & Domestic Circuit

Protection Devices, Cables & Wires, Motors, Fans, Modular Switches, Home and

Kitchen Appliances, Air Conditioners, Electric Water Heaters, Power Capacitors,

Luminaires for Domestic, Commercial and Industrial Applications.

It has Havells and Crabtree, positioned as high-quality, mass premium brands

while Standard caters to mass segment. HAVL has launched REO brand to

cater to economy segment in tier2/3 cities.

Even though HAVL’s acquisition of Sylvania did not work well, it has acquired

Lloyd to enter Consumer electronics (Televisions) and white Goods (AC’s,

washing machines).

HAVL’s 90% products are energy efficient and manufactured in-house across

its 12 state-of-the-art manufacturing plants in India. It has started a unit to

manufacture AC’s in order to reduce costs and improve quality.

HAVL’s works on ethos of customer delight, dealer relationships,

manufacturing efficiencies and employee engagement. It has a sales network

of 6,500 professionals, 10,500+ dealers and over 40 branches in the country.

HAVL’s core business reported a CAGR of 12.4% in sales and 17.2% in EBIT over

FY16-19 while Lloyd sales declined by 1% on comparable basis in FY19. HAVL is

repositioning Lloyd as a mass premium brand, has set up in-house manufacturing

facility and plans to enter refrigerators to complete its portfolio. It is also increasing

presence in EHV cables, Industrial switchgears, water heaters, grooming, water

purifiers and kitchen appliances. We believe Havells is in for tough times given

heightened competition in consumer electronics, white goods, water purifiers and

grooming products. In addition, rising competition in core categories (Premium fans,

lighting and switchgears) will make it difficult to repeat success of past few years.

Core Portfolio (ex-Lloyd) contribute 82% of sales

Sw itchgears17%

Cable32%

Lighting 13%

ECD20%

Lloyd 18%

Sales Mix - FY19

Source: Company, PL

and 87% of EBIT

Sw itchgears27%

Cable22%Lighting

15%

ECD22%

Lloyd 13%

EBIT Mix - FY19

Source: Company, PL

Havells India

September 9, 2019 6

Story in charts

Revenue CAGR at 13.3% over FY19-22

81

101

112

128

146

32.7%

23.6%

11.6%14.0% 14.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0

20

40

60

80

100

120

140

160

FY18 FY19 FY20E FY21E FY22E

(Rs

bn

)

Revenue from Operations YoY gr. (RHS)

Source: Company, PL

Switchgear have highest EBIT margins

38.5%

16.1%

28.6% 26.8%

17.1%

Switchgears Cable Lighting ECD Lloyd

EBIT Margins - FY19

Source: Company, PL

Soft RM to enable recovery in EBITDA margins

10 12 13 15 18

12.9%

11.9% 11.9%

12.1%

12.3%

11.2%

11.4%

11.6%

11.8%

12.0%

12.2%

12.4%

12.6%

12.8%

13.0%

0

5

10

15

20


(Rs

bn

)

EBITDA Margin (RHS)

Source: Company, PL

PAT growth to recover post FY20

11.2

12.7

13.3

15.6

18.8

17.3%

12.9%

5.2%

17.3%

20.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0.0

5.0

10.0

15.0

20.0


Adj EPS (Rs) YoY gr. (RHS)

Source: Company, PL

Havells has been launching new products at regular intervals

Year Product launches

1977 Rewirable Switches and Changeover Switches

1979 HBC Fuses

1980 High quality Energy Meters

1985 MCBs

1996 MCCB, Cables & Wires

1997 Crabtree wiring accessories

2003 Fans, CFLs, Lighting fixtures

2004 Domestic Switchgear

2005 Premium Fans

2010 Electrical Water Heaters

2012 Copper Flexible Cables (Standard), Crabtree piano switches, XPRO Switchgear, TPW Fans

2013 Domestic Appliances, Pumps

2015 LED Lighting

2016 Air Coolers, home automation and control in Crabtree brand, Solar street lights

2017 Personal grooming products, Water Purifier, Air conditioners, LED TV, washing machines

Source: Company, PL

Havells India

September 9, 2019 7

Lloyd has its task cut out

Havells acquired the consumer durable business of Lloyd Electric & Engineering

(LEEL) which included the Lloyd brand, distribution network and manpower for an

enterprise value of Rs16bn in May 2017. Lloyd ranks amongst top few brands in

Room Air-conditioners (RAC) and has a presence in TVs & Washing Machine

segments. Acquisition of Lloyd marked HAVL’s entry into Rs700bn white goods and

electronics market which is estimated to grow at 15% CAGR in sales. Havells is

undertaking steps like 1) brand building and re-positioning 2) revamp of distribution

network 3) In-house manufacturing and 4) Entry in new product segments to

increase sales and profitability of Lloyd. We believe that Lloyd has its task cut out

to scale up in these segments due to strong brand play, tough competition, rapid

changes in technology and huge MNC dominance.

HAVL repositioning Lloyd as ‘mass premium’ brand

Lloyd had a positioning of a mass/economy brand targeting lower end of the

consumer pyramid in respective categories and competing with the likes of

Videocon, Haier, ONIDA, and Electrolux in Air conditioners and Sansui, ONIDA,

and Intex etc. in LED TV. This is in sharp contrast to Havells, which is positioned

as a premium brand across segments of Fans, Electric Wires, Lighting and

Switchgears. So HAVL is repositioning Lloyd as a mass premium brand led by

brand building, distribution revamp and quality enhancement.

High A&P spends to reposition Lloyd as “mass premium” brand

1%

3%

1%

3%

3%

3%

4%

5%

7%

1.1

% 2%

1%

3%

3% 3

%

5%

6%

7%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Voltas Blue Star Whirlpool Hitachi DaikinIndia*

HAVL LG India* SamsungIndia*

Lloyd

FY18 FY19

Source: Company, PL *FY17-FY18

HAVL has started investing in advertising and brand building. Lloyd’s

advertising spends at 6.9% of sales is significantly higher than Havells (3.1%).

Lloyd has recently named Deepika Padukone and Ranveer Singh, as its brand

ambassadors to increase resonance with – young, versatile and new age

couples to improve its brand impression.

Lloyd has considerably reduced the price gap with other players like Voltas,

Daikin and Blue Star etc. from 15-20% to 5-7%

Lloyd is focusing on providing technology-rich offerings like Grande AC, U Led

TV and adopting Internet of Things (IoT) in its product portfolio.

Havells India

September 9, 2019 8

Distribution – Entering emerging formats

Lloyd’s had a diversified & multi-level distribution network spread across 10,000

touch-points including distributors, large dealers & retailers. Lloyd has a stronger

presence in Tier II & Tier III towns in comparison to Tier 1 and metro cities. In

addition, Lloyd had very limited presence in modern retail stores and online formats.

HAVL has undertaken several initiatives to increase product visibility and

distribution reach.

HAVL focuses on building long term dealer relationships by brand building,

innovative schemes to increase profitability and business expansion to other

Havells products. It is now extending incentives to Lloyd dealers at par with

HAVL distribution.

HAVL is undertaking dealer expansion and migration to premium channel as a

key strategic initiative. Lloyd is aiming for 15% addition in dealers every year,

although it is also reducing some dealers in low priced channels.

As against ZERO presence in online platforms, Lloyd AC is now available on

leading online platforms like Flipkart, Amazon and Croma etc.

Lloyd is increasing presence in modern trade (30-35% of industry sales in

metros and Tier1 towns) and is now available in Reliance Digital, Tata Croma,

Vivek’s and Sargam. However, Lloyd is yet to penetrate in Vijay Sales due to

higher margin expectations of this retail chain

Lloyd is expanding its EBO - Lloyd Galaxy, from current level of ~80 which will

improve the touch points, but more importantly, brand visibility

The distribution strategy is showing impact as Lloyd products are now available in

~75% of the total retail universe. Modern retail and Online retail now contribute 20%

of revenues against 7-8% prior to acquisition. However, exit from low price channels

will continue to impact sales in the near term, as new channels have not been able

to fully compensate for the loss of sales in Lloyd’s traditional channels.

Aiming for 75% in-house AC production by FY21

While HAVL manufactures over 90% of its core segment products in-house, Lloyd

relies heavily on Chinese imports (80%). This exposes it to currency fluctuations

and custom duty changes as intense competition makes it difficult to pass on these

costs thereby impacting margins. With a view to reduce dependence on imports &

better control over quality Lloyd has started production at newly setup RAC plant:

The plant has a capacity of 0.6mn (expandable to 0.9mn) and set up at a total

cost of Rs3.5bn

The plant is integrated with in-house components, automated with robotics.

The plant will result into reducing the import dependence to 30-40% from current

80%. Lloyd is looking at 75% in-house production by FY21.

Havells India

September 9, 2019 9

High import content impacted margins due to depreciating INR

64

64

65

64

67

70

72

71

70

4.8%

7.0%

2.9%

12.4%

9.3%

3.3%

1.7%

3.4%

1.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

60

62

64

66

68

70

72

74

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

Q1F

Y20

USD/INR EBITDA Margin % (RHS)

Source: Company, PL

Lloyd does not have any plan to have in-house production of washing machines

and LED TV’s. With Lloyd’s margins currently below the industry average, focus on

brand building, in-house manufacturing and increasing distribution reach will enable

margin expansion from current levels of 5.3%.

High competitive intensity, technology disruption a key challenge

Lloyd has plans to offer complete portfolio of Whitegoods/ Electronics to the

consumers. Lloyd’s is looking to consolidate its position in the whitegoods segment

by increasing share in RAC (room AC) and washing machines and enter new

segments like Refrigerator. It aims to increase its presence in TV’s where it has

negligible share. Lloyd plans to test launch refrigerators in the coming months.

However, we believe that achieving sustained gains remain a challenge considering

high competitive intensity in these segments.

Fierce competition from Global Giants: Unlike the domestic competition

faced by HAVL in core segments like fans, cables, lighting and small durables,

it will now be competing against international giants such as Hitachi, Daikin,

Samsung, LG, Panasonic & Sony in these segments. These MNCs have deep

pockets to invest in R&D and Technology development, branding, distribution

and marketing, which Havells will find it hard to match.

New Entrants: The industry is also witnessing entry of new players (including

MNCs) given the huge growth potential of Indian market, rising disposable

income and low penetration levels.

High Discounts: White goods and electronics market is characterized by

intense price based competition, price discounts and exchange schemes.

The consumer durables industry faces technology disruptions and

obsolescence which results in steady price erosions and meaningful changes

in consumption pattern of consumers.

Presence of MNC with technology

backed product pipeline, strong

brands and deep pockets make it

difficult for Havells to make a major

success out of Lloyd acquisition

Havells India

September 9, 2019 10

Televisions – low probability of success: We believe Lloyd has very low

chances of making success in Televisions as competition, technology change and

pricing will make it difficult for Lloyd to make any dent in the category:

From CRTs to OLED, televisions have witnessed fast technology

advancements. Televisions have come a long way from CRT in nineties to PIP,

Surround Sound, Flat screen, Plasma, LCD, LED and now OLED. Change in

technology has made redundant several large CPT players. Brands like Texla,

Weston, Televista, BPL, Binnatone, Salora etc. have vanished and market is

dominated by LG, Samsung, Sony, Panasonic etc. from MNC stable.

Lloyd was eyeing to fill the mid-priced void left by the exit of Videocon brands

(Videocon, Sansui & Phillips), however entry of MI and consequent reduction

in LED TV prices has pushed it on the back foot. We note that MI’s aggressive

pricing has forced industry to cut prices by 25-30%. MI, VU currently have

32inch offering between Rs10.5-14000 and 43 inch between Rs22-28000.

Lloyd has products priced around Rs16900 and 37500, thus competing with

LG, Samsung etc. So the market has got demarcated between a MI, VU and

Haier on one hand and LG, Samsung and Lloyd on the other.

Although Lloyds had started aggressive advertising with two celebrity brand

ambassadors, MI has filled in the void which Lloyd was planning to cater to. This

has done a major blow to plans of Lloyd and Televisions will remain just as a part

of portfolio with little probability of scale up in this business.

Xiaomi’s aggressive pricing kicked off deep discounting in LED

LED Smart TV (Rs) 32-inch 43-inch 49-inch 55-inch

LG 17,999 33,779 43,000 62,999

Samsung 19,999 36,999 42,999 59,999

Lloyd 16,869 37,499 45,000 56,999

Haier 13,700 27,900 39,999 54,999

MI 12,499 21,999 29,999 47,999

VU 12,980 23,855 26,300 44,430

Source: PL

Rapid technological obsolescence witnessed in the television industry in last few decades

Source: LG, PL

MI’s aggressively priced launch has

forced players to cut prices by 25-

30% and spoiled little chance which

Lloyd had in LED TV market

Havells India


Air conditioners: For Room Air Conditioners the biggest technological change has

been the advent of inverter compressors which provide more comfort and are

energy efficient. Unlike the fixed speed AC, an AC with inverter technology will run

continuously but will draw only that much power that is required to keep the

temperature stable at the desired level.

Inverter technology whilst consuming lesser power enables stable temperature at desired level

Source: PL

Adoption to invertor technology has been very fast as the price differential

between a fixed speed and invertor AC has declined from 20-25% earlier to

less than 15% now. This has led to their share in sales rising to 40-50%.

Given that there are a few players who manufacture AC compressor, the basic

technology changes are relatively less. However, most players continue to

provide add on features like smart remote, internet of things etc. to create

product differentiation.

As AC’s running cost over the life of product is several times the cost of

acquisition, the consumer focus is more on energy efficiency.

We believe Lloyd has fair chance of increasing growth in AC segment given huge

underpenetration and limited product differentiation. Given the current competitive

situation in the market, reduction in costs from in-house production and its

translation to end consumer will be key to scale up in AC segment.

Refrigerator – another hard nut to crack: Lloyd eventually plans to increase

presence in the white goods market by test launch of Refrigerator, sometime next

year by out sourcing the product. Although refrigerator technology is fairly stable,

strong branding by players like Whirlpool, Samsung, LG, Hitachi, Haier and entry

of players like Voltas Beko, Bosch, Liebherr etc. will make success and profitable

existence a daunting task for Havells.

Invertor AC’s are transforming the

industry and now account for 40-50%

of sales

Havells India


Channel check suggests tough going in near term

Our channel check suggests mixed feedback about the Lloyd brand and its revamp

attempts by Havells. Key takeaways are:

Lloyd has reduced the price differential with Voltas and Blue Star etc. to 5-7%

in order to improve the brand perception. Thus the prices have come in line

with Voltas, Blue Star etc.

Lloyd needs to improve product quality & features in its bid to successfully

revamp Lloyd as a mass premium brand, only changed pricing will not work.

Lloyd has entered and increased shelf space in large format retail stores, it

needs to add EBO stores to improve its footprint in non-metro regions.

Revenues/EBITDA to grow 6.9%/4.4% over FY19-22

Particulars (Rs mn) FY18 FY19 FY20E FY21E FY22E

Net Revenue 14,141 18,555 19,112 20,812 22,672

YoY growth % 31.2% 3.0% 8.9% 8.9%

Contribution 2,683 3,176 3,154 3,434 3,741

% of sales 19.0% 17.1% 16.5% 16.5% 16.5%

YoY growth % 18.4% -0.7% 8.9% 8.9%

Add: Depreciation 184 204 372 423 447

Less: Advertisement & sales promotion 973 1,279 1,425 1,551 1,676

% of sales 6.9% 6.9% 7.5% 7.5% 7.4%

Less: Other SG&A 768 1,115 1,208 1,317 1,390

% of sales 5.4% 6.0% 6.3% 6.3% 6.1%

EBITDA 1,126 986 892 990 1,121

Margin % 8.0% 5.3% 4.7% 4.8% 4.9%

YoY growth % -12.4% -9.5% 10.9% 13.3%

Less:

Depreciation 184 204 372 423 447

Finance Cost 0 3 4 2 1

Forex (gain)/loss -156 -35 0 0 0

Add: Other Income 0 0 7 16 22

PBT 1,098 814 524 581 695

Margin % 7.8% 4.4% 2.7% 2.8% 3.1%

YoY growth % -25.9% -35.6% 11.0% 19.7%

Source: Company, PL

We estimate tepid sales growth for Lloyd in FY20 and some pick up in FY21. We

estimate sustained pressure on profitability due to higher distribution and brand

investments and competitive pressures. We expect PBT for FY20 to decline by

35.6%. We have cautious to negative stance on Lloyds in the medium term.

Although Lloyd has reduced price

differential in AC, no perceptible

quality change is visible

Havells India


Lloyd: Room Air Conditioners (~75% of sales); Needs to innovate

Lloyd faces tough competition from market leader Voltas & incumbent MNCs

Product Market size (Rs bn) Lloyd's share (%) Market Position Competitors, Market Share (%) Category Penetration Level

Room Air Conditioners 120 13% #3-4 Voltas, LG, Daikin 5%

Source: Company, PL

Lloyd is in the midst of repositioning itself from a “mass” to “mass premium brand”

Source: Company, PL

Competitive Landscape: Highly competitive

HAVL is the 3-4th largest player in the Room Air Conditioner

market with a share of ~13%. Voltas remains market leader with

~24% market share followed by LG. There has been an increased

shift towards inverter ACs as consumers are now preferring

energy efficient models. RAC market is crowded by >20 players

given strong growth potential. We believe rising disposable

income rising necessity of AC in tropical conditions will enable 12-

13% volume CAGR over next 5 years. However, increasing

competitive intensity & input costs (custom duty, INR

depreciation) will prevent any margin expansion.

Strategy: Distribution expansion & In-house production

HAVL is in the midst of repositioning Lloyd from a mass to mass

premium brand by reducing the price gap and introducing new

features. It has roped in Bollywood’s power couple in a bid to

connect with the younger audience. Going ahead focus shall be

on innovation & IoT “smart” products. With its ~Rs5bn RAC facility

now operational in Rajasthan, Lloyd is expecting lower costs, and

better quality control. It is looking at expanding distribution in LFS

and online to gain share.

Lloyd LED TV: Little hope of survival?

In an industry fraught with technological disruption (latest from Xiaomi), Lloyd has negligible presence


LED TV 300 3% - Samsung, LG, Sony 60%

Source: Company, PL

Lloyd is striving to make place in mass premium segment; however, faces an uphill task

Source: Company, PL

Havells India


Competitive Landscape: Xiaomi entry hits Industry

Indian Flat Panel Display (FPD) TV industry is highly competitive

with LG, Samsung & Sony holding nearly 65% of market share.

Lloyd has a negligible presence with 3% market share. The LED

TV industry which was battling with entry of mid-tier players

Micromax, VU & private labels, has been hit by huge discounting

by Xiaomi. The risk of technological obsolescence remains high

as has been visible with phase out of CRT, Plasma and LCD in a

span of 10 years.

Strategy: Unlikely to remain a focus area

HAVL was looking at providing complete portfolio and to fill in the

vacuum created by the exit of Videocon brands (Videocon,

Phillips). However aggressive entry of Xiaomi (35% smart TV

share since launch) and price erosion has significantly impacted

players like Lloyd. Lloyd will continue to import/locally source TVs

and has little chance of scaling up in this category.

Lloyd: Washing Machines; Might survive but unlikely to score big gains

Dominated by MNCs, Lloyd has next to zero presence; will continue as filler product


Washing Machines 70 - - LG, Samsung, Whirlpool 10%

Source: Company, PL

Currently, Lloyd imports its entire bouquet of Washing Machine.

Source: Company, PL

Competitive Landscape: MNC domination

Indian Washing Machine (WM) market is highly competitive with

LG, Samsung & Whirlpool holding combined market share of

68.9%. With IFB, Godrej, Haier & Hitachi being the other

prominent players. Lloyd has a negligible presence in the market.

Increasing product awareness, affordable pricing & innovative

products has aided the strong growth of WM. Semi-automatic is

the more popular category in India when compared to Fully-

automatic machines.

Strategy/Outlook: Just a Part of white goods portfolio

Lloyd largely imports its entire bouquet of Front Load, Top Load,

and Semi-Automatic washing machines since it has a negligible

presence in the space. Lower amount of technology play makes

the chances of success better than TV segment. However, once

it reaches a reasonable scale, Lloyd plans to set up a

manufacturing facility as it can give it better control over quality.

Havells India


Core Segment growth peaked out in FY19

HAVL’s core business comprises of Cables, Switchgear, ECD and Lighting. This

segment of business is 82% of sales and has grown at a CAGR of 12.4% over

FY16-19. The core business grew at 9.3% over FY15-18 but by 19.8% in FY19 led

by ECD (27%), Switchgear (18%) and Cables (20.5%) even as Lighting grew by

only 10.7% due to price erosion in LED.

Core business growth was led by increasing distribution, new launches in ECD like

water heaters, water purifiers and grooming products etc. HAVL also started

expanding its distribution in tier 2/3 cities and launched REO brand to capitalise on

demand following electrification and improving availability of power. HAVL also

benefitted from housing growth as it has strong presence in housing segment in

switchgear and cables.

HAVL created a clear brand architecture whereby Havells was positioned as a

premium brand, REO at the bottom and Standard as a mid- market brand. Cables

prices for these brands were at a discount of 5-15% than Havells. The discounting

for switchgears/switches has been 5-45%. However, lighting and select durables

will be sold under Havells brand only.

Cables growth acceleration will be a function of gains in EHV segment.

Switchgear sales will be reflective of urban housing, margins are a risk

ECD faces tough competition in new segments

HAVL is not playing pricing game in lighting, however industry pricing needs to be

watched out for.

EBIT margins are a key risk

Switchgears (Rs mn) FY18 FY19 FY20E FY21E FY22E

Revenue 14,245 16,802 17,642 19,936 22,727

YoY growth % -2.9% 18.0% 5.0% 13.0% 14.0%

EBIT 5,572 6,464 6,704 7,576 8,636

Margin 39.1% 38.5% 38.0% 38.0% 38.0%

YoY growth % -0.7% 16.0% 3.7% 13.0% 14.0%

Source: Company, PL

Expect steady growth to continue

Cables & Wires (Rs mn) FY18 FY19 FY20E FY21E FY22E

Revenue 26,834 32,346 36,389 41,302 47,084

YoY growth % 0.3% 20.5% 12.5% 13.5% 14.0%

EBIT 4,380 5,217 5,822 6,608 7,533

Margin 16.3% 16.1% 16.0% 16.0% 16.0%

YoY growth % 34.5% 19.1% 11.6% 13.5% 14.0%

Source: Company, PL

Will margins bounce back?

Lighting & Fixtures (Rs mn) FY18 FY19 FY20E FY21E FY22E

Revenue 11,687 12,934 14,357 15,936 17,848

YoY growth % 14.3% 10.7% 11.0% 11.0% 12.0%

EBIT 3,356 3,694 4,092 4,542 5,087

Margin 28.7% 28.6% 28.5% 28.5% 28.5%

YoY growth % 26.6% 10.0% 10.8% 11.0% 12.0%

Source: Company, PL

Strong Revenue CAGR of 21.7% over FY19-22

ECD (Rs mn) FY18 FY19 FY20E FY21E FY22E

Revenue 15,696 19,939 24,724 29,916 35,899

YoY growth % 10.5% 27.0% 24.0% 21.0% 20.0%

EBIT 4,202 5,349 6,675 8,077 9,693

Margin 26.8% 26.8% 27.0% 27.0% 27.0%

YoY growth % 20.3% 27.3% 24.8% 21.0% 20.0%

Source: Company, PL

19.8% sales growth in core business

in FY19 was like a one off and is

unlikely to be repeated

Havells India


Core segments to ride on BHARAT opportunity

With the NDA government pushing for better electricity supply to household across

states, especially rural India, the demand for electrical products like wires, cables,

switch, fans etc. is expected to grow. HAVL is gearing up to capitalize on this

sustained growth opportunity in Bharat (rural India and small towns).

Rural electrification, increased power supply to stimulate demand for electrical products

Rural electrification has been one of the key focus area of Govt in the recent years,

more so post 2014. Electricity has reached all 0.6mn villages in India under ‘Deen

Dayal Upadhyaya Gram Jyoti Yojana’ (DDUGJY). The government has also

achieved ~100% last mile connectivity by providing connections to households

under Pradhan Mantri Sahaj Bijli Har Ghar Yojana’ (Saubhagya), except in cases

where people have not shown inclination to get electricity connections.

All Urban/Rural households now have access to electricity supply

44%

55%

86%

100%

88%93%

98% 100%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2011 2017 2019

Rural Urban

Source: Ministry of Power, PL

In addition to electricity reaching the interiors, there has been improvement in

quality of power driven by significant reduction in load shedding and lower voltage

fluctuations, more so in rural India and small towns. We believe that increase in

access and availability will increase demand for essentials like cables, wires,

switches and fans initially. We believe increased supply of electricity coupled with

rising disposable income will increase demand for other basic appliances like mixer

grinder, air coolers and televisions in Phase II. Phase III could see increase in

demand for direct cool refrigerators and eventually room air conditioners.

Phase I

• Wires

• Cables

• Switch

• Fans

Phase II

• Mixer/Grinder

• TV

• Air Cooler

Phase III

• Direct Cool Refrigerator

• Room AC

Havells India


With the electrification drive in the states of Bihar and Jharkhand, the growth in

television households was the highest in these states at 24%, followed by Assam,

Sikkim and North East at 21%. Although electrification will have long term gains,

sharp increase in density of TV’s suggest that bump up in demand for basic goods

like LED bulbs, fans etc. will play out sooner than was expected earlier.

10 states with 24hrs rural power supply

Rural Power Supply (hr/day) May18 Jun-19

Gujarat 24.0 24.0

Himachal Pradesh 24.0 24.0

Kerala 23.0 24.0

Maharashtra 23.3 24.0

Punjab 24.0 24.0

Tamil Nadu 24.0 24.0

Telangana 24.0 24.0

West Bengal 24.0 24.0

Tripura 23.5 24.0

Uttarakhand 23.9 24.0

Madhya Pradesh 23.0 23.5

Andra Pradesh 23.1 23.2

Chattisgarh 23.0 23.0

Manipur 22.5 22.5

Source: National Power Portal, PL

Rural power supply on an upward trajectory

Power Supply (hr/day) May-18 Jun-19

Nagaland 20.0 22.0

Bihar 18.2 21.9

Rajasthan 22.0 21.0

Odisha 19.0 20.1

Assam 19.0 19.0

Karnataka 19.0 18.6

Meghalaya 21.5 18.5

Uttar Pradesh 17.9 18.0

Jharkhand 16.8 17.4

Sikkim 17.0 16.5

Haryana 13.6 16.4

Jammu & Kashmir 14.5 16.0

Mizoram 10.0 14.7

Arunachal Pradesh 14.3 14.3

Source: National Power Portal, PL

HAVL to initiate rural push through mass brand ‘REO’

HAVL has been an urban centric company focusing on premium and mass premium

segment of products. 100% village and household electrification and improved

availability of power has opened up immense growth opportunities in rural India and

small towns. In addition, media reach and internet has created awareness about

quality and brands, which works to the advantage of organised players. HAVL has

taken several strategic steps to capitalise on the growth opportunity in rural India

and small towns (10k-50k population).

Distribution Expansion: HAVL has started a pilot project to expand rural

distribution in UP, Odisha and Rajasthan. Currently it has presence in 1,000

villages and small towns and is looking at increasing reach to 3,000 by 2020.

Rural distribution will be modelled like an FMCG company with a stockist or

super stockist who is supplying to the retailers.

Focus through mass priced REO and Standard brands: Since HAVL has

premium positioning, in a bid to prevent brand dilution, HAVL is entering these

markets through ‘REO’ and ‘Standard’ brand. While Switchgears, Switches,

Wires & Cables (~50% of sales) shall be sold under these brands, Lighting

products will remain under Havells brand only.

REO/Standard products at 5-45% discount to Havells: Cables offered

under REO/Standard brand are priced 5-15% lower than Havells cables.

Similarly, the MCB’s are priced 11-45% lower than Havells. Despite lower

prices, REO and Standard products are not expected to be margin dilutive as

they have lesser features/aesthetics than HAVL brand products.

Havells India


REO-Standard PVC cables at average discount of 5-15% to HAVL

Single Core PVC Cable, (List Price in Rs/90m)

Nominal area of conductor (sq.mm)

Havells REO diff (%) Standard diff (%)

0.75 870 780 -10.3 820 -5.7

1.0 1,160 995 -14.2 1,095 -5.6

1.5 1,725 1,490 -13.6 1,630 -5.5

2.5 2,785 2,410 -13.5 2,630 -5.6

4.0 4,090 3,600 -12.0 3,865 -5.5

6.0 6,150 5,380 -12.5 5,810 -5.5

Source: Company, PL

REO-Standard MCB at average discount of 15-27% to HAVL

Single Pole MCB (List Price in Rs per unit)

Rating Havells REO diff (%) Standard diff (%)

6A-32A 245 137 -44.1 180 -26.5

40A 479 325 -32.2 415 -13.4

63A 526 405 -23.0 465 -11.6

Double Pole MCB (List Price in Rs per unit)


6A-32A 680 540 -20.6 595 -12.5

40A 1,056 750 -29.0 915 -13.4

63A 1,139 900 -21.0 1,000 -12.2

Four Pole MCB (List Price in Rs per unit)


6A-32A 1,532 1,155 -24.6 1,285 -16.1

40A 2,050 1,520 -25.9 1,735 -15.4

63A 2,148 1,695 -21.1 1,840 -14.3

Source: Company, PL

REO-Standard switches at average discount of 8%-40% to HAVL

Switch (List Price in Rs per unit)

Type Havells REO diff (%) Standard diff (%)

1Way Switch 44 30 -31.8 40 -9.1

2Way Switch 102 58 -43.1 97 -4.9

1Way Bell Push 118 63 -46.6 105 -11.0

Mega Bell Push 155 81 -47.7 145 -6.5

Source: Company, PL

Havells India


Switchgears (17% of sales): Immense growth potential, margins at a risk

HAVL is market leader in Rs22bn MCB industry; holds 14-15% market share in premium modular switches

Product Market size (Rs bn) HAVL's share (%) Market Position Peers Organized

Penetration Level

MCB 22 27-28% #1 Legrand, Schneider High

Switches* 22 14-15% #3 Panasonic (Anchor), Legrand Medium

Source: Company, PL *Premium Modular plate switches

Switchgear sales dominated by residential segment (70% of sales)

Residential70%

Non-Residential

30%

Switchgear Sales Mix %

Source: Company, PL

Competitive Landscape: Leader in Residential segment

MCB: HAVL is the largest player with a market share of ~27-28%

followed by Legrand & Schneider. Technology intensive nature of

the product has resulted in high share of organised players

(~90%). Switchgear is a highly urbanised product which is yet to

enter small towns and rural India in a major way, which signifies

huge growth potential in the medium term.

Modular Switches: With a market share of ~14-15% HAVL is the

third largest player after Anchor (Panasonic) & Legrand. Rising

disposable income & growing preference for aesthetically

designed modular switches will enable 11% CAGR of Industry

over FY18-23.

HAVL’s Strategy & Outlook: Long Term growth positive

HAVL’s MCBs have a strong presence in trade channel/dealers

and residential segment contributes ~70% of total revenue.

Havells is expanding in industrial segment and has tied up with

Hyundai. Switchgear demand is impacted due to slowdown in real

estate and construction activity.

Havells is following a multi-brand strategy (Havells, Crabtree,

Standard) to cater to consumers across price segments. In its

semi-urban/ rural push, HAVL is offering switches & switchgears

under the REO brand with value pricing to expand the market.

Switchgear Industry is de-growing since Nov2018 due to slowdown in construction

activity. Liquidity issues and pressure on large builders and contractors is impacting

demand as the product has usage mainly in new construction. HAVL has adopted

a two pronged strategy to increase growth 1) push for Standard and REO branded

switchgear (price discount of ~11-45% than Havells) to cater to affordable housing

segment and 2) expanding super stokists and distributors in small towns. Our

industry and channel checks suggest that consumers don’t mind paying high price

as they seek to fulfill the need of protection from short circuits and fire. We believe

that such a positioning (except cartelization) is unsustainable and entry of new

players in this industry will result in gradual moderation in switchgear contribution

margins from current levels of 38-39% (~25% after proportionately adjusting for its

share in unallocated expenses).

Havells India


Cables and Wires (32% of sales): Innovations and EHV entry key to growth

HAVL is focused on increasing distribution reach, penetrate semi-urban/rural markets through “REO”

Product Market size (Rs bn)* HAVL's share (%) Market Position Competitors, Market

Share (%) Organized Penetration Level

Residential 80 16% #3 Finolex, Polycab Low

Industrial 120 10% #3 Polycab, KEI Medium

Source: Company, PL

Cables & Wires sales split equally between Domestic & Industrial segments; Clever ad campaigns

Domestic50%

Industrial50%

Cables & Wires Sales Mix %

Source: Company, PL

Competitive Landscape: Measured competition

In the ~Rs346bn organized cables & wires market, HAVL is the

third largest player with ~8% market share followed by KEI

industries. Polycab (18%) is the largest player offering a wide

range of products. HAVL has higher share from domestic

segment in comparison to competitors.

Led by government initiatives in power & infrastructure, cables &

wires industry is expected to grow at a CAGR of 15% over FY18-

23 to Rs1033bn. Increase in technological & product

complexities, promotion & branding by leading cable

manufacturers is likely to increase organized share of cables to

74% (66% currently).

Strategy/ Outlook: EHV and branding holds key

HAVL’s plans to expand portfolio and enter new segments (EHV)

as it currently caters to ~58% of overall organized cables & wires

market. HAVL continues to focus on innovation and launched heat

and fire resistant cables (HRFR) in regular product range.

In a bid to penetrate the semi-urban/rural markets, HAVL has

launched wires at a lower price point under the REO brand. The

management is focused on increasing its distribution reach in the

western region where HAVL’s presence is currently weak.

HAVL has launched value for money cables for residential usage under the brand

REO which are priced at 10-15% discount to Havells brand. Havells has positioned

products on innovation platform and is looking at increasing distribution reach in tier

2/3 cities and also western India where it is weak. We believe increasing share in

western India would be a tough task given that it is a strong hold of Polycab and

Finolex. We believe Havells needs to venture into high end industrial cables to

increase growth rates. However, rising usage of Busbar trunking in high rise

buildings and Industrial projects is a key risk to the industry, albeit in long term.

Havells India


LED lighting (13% of sales): Poor pricing power and easy Imitations limit margin upside

HAVL enjoys 10-14% market-share in an industry plagued by intense competitive intensity and price erosion

Product Market size (Rs bn)* HAVL's share (%) Market Position Competitors, Market Share (%) Organized Penetration Level

Lighting & Fixtures 65 10-14% #2-4 Philips, Crompton, Bajaj, Wipro Medium

Source: Company, PL

Innovations have limited shelf life in Lighting

Consumer Lighting

49%

Professional Lighting

35%

B2G16%

Lighting Sales mix %

Source: Company, PL

Competitive Landscape: Intense price based competition

With a market share of ~10-14%, HAVL ranks between ~#2-4 in

India’s lighting industry. Phillips (#1), Crompton, Bajaj, Syska &

Wipro are the other large players in the market. LED is now the

dominant lighting technology across all applications as

sustained reduction in prices and Govt push (Ban on fluorescent

lamps and free/subsidised distribution) has resulted in

consumer shift. Innovation, Premiumisation and aesthetics are

key to offer a differentiated value proposition (Eg. Anti-bacterial

bulbs by Crompton) in a market flushed with Chinese imports

and easy product imitations.

Strategy/Outlook: Innovation and Penetration a focus area

HAVL has designed an exhaustive product range keeping in mind

consumer consideration & preference. With a thrust on innovation,

HAVL is looking to set up its 2nd R&D facility in the tech city of

Bangalore (1st being in Noida). In order to ease the negative impact of

price erosion (LED’s) & RM inflation on margins, HAVL is focusing on

innovation & deeper penetration (increase distribution reach). In

consumer lighting (~50% of lighting sales), HAVL is improving primary

& secondary reach while in professional lighting (B2B + B2G) it is

focused on product innovation & use of latest technology.

Lighting segment has been under pressure due to slow Govt orders and pricing

pressures in B2C segment. Rising competition from Chinese products and lack of

product differentiation has been one of key limitations. Havells does not want to

play the volume based push strategy in this business and has been focusing on

increasing presence in the fixtures, battens and decorative lighting. We note that

easy availability and regular launch of new products in fixtures can accelerate

growth as the fixtures segment is dominated mainly by unorganized players.

We believe that pricing power in lighting and fixtures would remain limited given

that the products can be easily imitated and value pricing plays a far important role

than branding. We expect steady sales growth of 11% CAGR; margin recovery will

be slow given highly competitive nature of the industry.

Havells India


Electrical Consumer Durables (20% of sales): Aiming for the skies

Market leader in premium fans; focusing on innovation in a bid to offer differentiated value proposition in ECD

Product Market size (Rs bn)* HAVL's share (%) Market Position Competitors, Market Share (%) Organized Penetration Level

Fans 69 16% #3 Crompton, Orient, Usha High

Water Heaters 14 15% #2 Racold, AO Smith Low

Other Appliances 52 2-3% NA Bajaj, Phillips Low

Source: Company, PL

Water Purifiers, Kitchen appliances and Grooming products added to the portfolio

Source: Company, PL

FANS: Industry eying Premiumisation

Fans account for ~55% of ECD sales for Havells. HAVL is the

third largest player in fans, with dominant leadership in the

premium segment (~25% of market). Crompton leads the overall

market with a share of ~24-25%. Havells redefined fans with its

premium offering in an old and laid back category. However, the

Industry dynamics are changing as all key players like Crompton

and Orient etc. have started focusing on the premium segment

with multiple offerings. We expect steady demand as Rural

electrification and improved power availability is a key trigger.

Strategy/Outlook: REO to drive mass move

Rising competition in the premium segment and huge scope in

tier2/3 cities has forced Havells to 1) consolidate its position in

premium segment through new models/products (Enticer smart

fans, Stealth cruise & Trinity) and 2) increasing offerings under

REO brand in mass segment to capitalise on growth opportunity

in rural India and small towns. Havells is targeting to increase

overall share to 20%. Increasing focus of major players will

expand premium segment, however rising competition can

impact sales growth, pricing and limit scope of margin expansion.

Water Heaters; Competitive Intensity on the rise

HAVL is the second largest player (15% share) in the ~Rs14bn

market where Racold is leader with ~30% share. Crompton and

orient are increasing offerings in this segment which will increase

competition.

Strategy/Outlook: Product Differentiation is key

HAVL launched Adonia water heaters (colour changing LED

technology) in a bid to further expand its market share. The

category offers huge growth potential given presence of large

local/unorganized players and huge scope of innovation and

branding.

Appliances: late entrant

Small appliances market (~Rs52bn) is dominated by Phillips and

Bajaj. HAVL (since 2012) has a negligible presence in the space

with only ~2-3% market share. Other players include Morphy

Richards, Kenstar and USHA. The category has seen entry of

Prestige, Pigeon and Wonderchef and a host of other kitchen

ware brands. Philips clearly dominates the premium segment and

its acquisition of Preethi has consolidated its position in south

India. Philips offers the most comprehensive range of Small

appliances including juicers, air fryers, citrus presses and has

entered air purifiers, garment steamers, Humidifier and small

vacuum cleaners. Wonderchef, riding on the popularity of chef

Sanjeev Kapoor is one of the fast emerging brands in the kitchen

appliance segment and has recorded sales of Rs3bn with a target

of Rs8bn in five years.

Strategy/Outlook: Tough to scale up

HAVL is realigning distribution with increasing availability of its

products through Kitchen Appliance stores and launching

regional specific products. HAVL has entered host of new

products including RO&UV water purifiers (launch in 100 cities),

Juicers, blenders, irons, Mixers, Air Fryers, Toasters and

Tea/Coffee makers etc. HAVL has positioned its products as a

premium offering given that the segment offers huge scope for

upgradation and has limited brand presence of Philips and

Wonderchef at the top. However, given the strong brand

perception of Philips built over decades and personality led

positioning of Wonderchef, it would be a herculean task for

Havells to make a significant dent in this segment. Water

purifier segment seems tough to crack with presence of Eureka

Forbes, Kent, Philips and HUL in this service driven category.

Havells India


Grooming Products; Huge growth potential

Grooming products have a market size of Rs18-20bn and are

growing at a CAGR of 25-30%. Grooming products have been a

stronghold of Philips and Braun with little presence from domestic

players. We believe that the changing consumer attitude towards

personal grooming is increasing demand for female centric

products like Hair Dryers, Hair Epilators etc. Similarly, male

grooming products like Electric shavers, trimmers, body

groomers are finding rising demand with growing need to look

and feel good.

Strategy/Outlook: Tough to crack

Havells is targeting premium positioning in grooming products

and will compete with Philips, Braun (Gillette) and Panasonic

mainly. We note that Havells has priced its products at 10-15%

discount to Philips, however it will have to compete with other

players and domestic brands. Havells needs to create a distinct

positioning to succeed like it had done in fans. However, as

Havells is not a first mover in this, making strong inroads in the

grooming segment will be a long and arduous journey.

Mass premium positioning of products competing with the likes of Philips, Wonderchef

Personal Grooming Products Key Competitors HAVL Positioning

Male Grooming Electric Shaver, Multi Grooming Kit, Beard

Trimmer, Nose & Ear Trimmer, Body Groomer Phillips, Braun, Nova, Syska, Panasonic, Vega Mass Premium

Female Grooming Hair Styling, Hair Dryer, Skin Care, Female

Depilation Phillips, Braun, Vega, Syska, Panasonic Mass Premium

Baby Grooming Baby Hair Clipper Phillips, Panasonic, Yijan, Glendan Mass Premium

Appliances Products Key Competitors HAVL Positioning

Cooking Air Fryer, Induction Cooker, Oven Toaster Griller, Sandwich Maker, Pop Up Toaster,

Electric Cooker

Morphy Richards, KenStar, Wonderchef, Prestige, Phillips

Mass Premium

Food Preparation Juicer Mixer Grinder, Mixer Grinder, Blender,

Food Processor, Juicer Prestige, Preethi, Phillips, Bajaj, Morphy Richards, Kenstar, Wonderchef, Phillips

Mass Premium

Brewing Coffee Maker, Kettle, Tea Maker Wonderchef, Phillips, Morphy Richards Mass Premium

Garment Care Steam Iron, Dry Iron, Garment Steamer Morphy Richards, KenStar, Phillips Mass Premium

Source: xxx

ECD segment contributes ~20%/22% to sales/EBIT of Havells. ECD sales have

grown at a CAGR of 18% in the past 4 years, with tepid growth in 2016 and 2018.

Fans account for ~55% of sales while kitchen appliances and water heaters account

for ~13% each of category sales. Water purifiers and grooming products account

for ~4-5% each. Entry into new products is driving growth of ECD segment. Havells

has been able to increase presence in water heaters. While expanding product

portfolio offers opportunity to grow sales, intense competition in grooming and

kitchen appliances can act as a near term drag. We believe that Havells is trying to

enter multiple segments at the same time, even as some of its competitors have

well defined niches. We remain cautious on the increased aggression into new

product segments.

Havells India


Innovation and Differentiation cornerstone of growth strategy

HAVL started as a switches and fuse company which ventured into new segments

like Fans, Lighting, domestic appliances (water heaters, Water Purifiers, Kitchen

Appliances, Male and female grooming). It has also entered into technology-based

product extensions in new categories like LED lighting and home automation. HAVL

is using advanced data analytics and technology to develop products to fill need

gaps. HAVL’s R&D Centre is focused on developing intelligent, eco-friendly and

energy efficient products. Havells plans to increase the R&D spend from current

0.8% to 2% which will be instrumental in new product development. HAVL’s

aggressive push for innovation and new launches is reflected in:

IOT-enabled devices including Indoor smart light meeting requirements of HCL

(Human centric light). HAVL is also developing intelligent and connected

products ranging from smart home lighting, air conditioners, fans and water

heaters which can be controlled from remote location including voice

assistance platforms to provide ease of control through voice command.

High-end automation solutions for new homes and retrofits for existing homes.

‘Bluetooth’ enabled fans, ‘QR codes’ in products to tackle counterfeit,

interactive lighting solutions among others.

Smart and connected appliances such as Adonia and Droid water heater.

Technological tie-up with Hyundai for Magnetic Contractors

The results are visible as Lighting & ECD recorded sales CAGR of 15% and 21%

respectively over the last decade. We expect these initiatives to enable 21.7%/11%

growth in ECD/Lighting over FY19-22E

Innovative product launches: Fast cooling RAC, energy efficient fans & IoT enabled water heater

Source: Company, PL

Trim LED clip-on; product expansion in kitchen appliances

Source: Company, PL

Havells India


HAVL is investing in distribution expansion/ Automation

HAVL has been making significant investments to improve the depth and quality of

marketing and distribution. Continuous investment in the cutting-edge technology

and innovation has helped HAVL to stay ahead in the highly competitive landscape.

HAVL has always viewed IT as an enabler and of strategic advantage in order to

gain market share, connect deeper with customers and increase efficiency &

profitability. HAVL is looking at increasing the use of technology with several online

and mobile based applications to bring customers and partners closer:

HAVL has a strong domestic presence across 45 cities with nearly 6,500 sales

professionals. Now it has access to 2,283 towns with population exceeding

25,000 which represent 50% of such towns in India.

HAVL has 10,500+ dealers and has opened 500 Galaxy stores which offer

HAVL products under one roof. HAVL sales team undertakes 7,000 channel

partners and 75,000 retailer visits/month.

HAVL has nurtured strong relationship with dealers by brand building, efficient

service network, innovative schemes and expansion in portfolio from wires to

switchgear, lighting and ECD. This has provided strong stickiness to the dealer

and distributor network for the company.

E-Sampark – A retailer app that supports direct communication between HAVL

and its retailers. Digitised consumption and redemption of loyalty programme

and will help save significant manpower and cost previously incurred to help

manage the loyalty programme.

M-Konnect App – It is a dealer APP which enables placement of orders,

update on products, promotions, schemes, claim settlement and resolution of

concerns. 80% of orders are now booked from mobile application.

Distribution Management System – It Works as mini ERP system to

distributors, providing benefits like real time monitoring of receivables, tracking

of targets, faster settlement of secondary schemes & better inventory

management.

Enterprise Data Warehouse - It is the Centralised data repository that stores

transactional data. EDW is designed for decision-support, analytical reporting,

ad-hoc queries and data mining thereby converting enterprise wide data into

business insights for quick decision making.

HAVL is now working on advanced analytics in air conditioners which will

enable them to predict service need, push notifications to service staff and

consumers, allocate resources in advance, reducing downtime and providing

a personalised and friction-free consumer experience.

These initiatives have helped the company delight its customers, achieve better

channel partner relationship and improve engagement with employees. The

investments in the artificial intelligence, natural language processing, IOT and IIOT

ensures that the company is building future ready products and services.

E-Sampark Mobile App

M-Konnect Mobile App

Havells India


Channel Check takeaways

SBU structure in place: HAVL has put in place a strong SBU structure with

each business unit being headed largely by ex-telecom guys. In addition to this,

there exists focused teams for each sub-category within a business unit.

Lloyd – Making sustainable gains a tough ask: Although Lloyd is re-

branding itself through extensive ad-campaigns, it continues to lag in terms of

product quality and features. In order to be able to make any meaningful

inroads in this highly competitive category (dominated by Samsung, LG,

Hitachi, Daikin etc.) Lloyd needs to improve its product offering and ensure

right placement of products.

ECD - HAVL leading the premiumisation drive: In the ECD segment,

especially in Kitchen Appliances and Personal grooming, incumbents like

Phillips aren’t really aggressively focusing on innovation. HAVL is driving

innovation and Premiumisation across the category. However, any aggression

by players like Philips, Kenstar etc. negatively impact HAVL.

Switchgears margins at peak: With real estate marking slowing down,

HAVL’s switchgear’s sales growth has moderated. HAVL has launched mass

quality switchgears under the “REO” brand to cater to tier II/III markets.

Increasing wallet share with channel partners through new launches:

Although, HAVL products are priced at a premium, the channel partners remain

extremely happy with the built, quality, innovation & after sale service offered.

Leveraging this goodwill created over the years, new launches are more easily

accepted by channel partners thereby increasing HAVL’s wallet share with

them. HAVL’s retail loyalty program is also well-appreciated by channel.

Distribution channel expansion: Although Lloyd is now present in most

Large Format Retail stores (except Vijay Sales), lack of full product category

display has limited shelf space gains.

Exclusive Havells Galaxy and Lloyd outlets

Source: Company, PL

Lloyd needs to improve product

quality and features in order to make

inroads in white goods

Although Havells is leading new

launches and innovation in Kitchen

appliances and grooming, any

aggression by Philips and other

incumbents can impact its growth

Havells India


Financials & Valuations

Estimate CAGR of 13.3% in Sales over FY19-22

We expect Sales CAGR of 13.3% over FY19-22. We believe delayed recovery in

real estate can impact switchgear/ cables, Govt ordering can impact growth rates

in lighting and poor consumer sentiment in ECD beyond 1HFY20.

Switchgear: While real estate slowdown is expected to impact Switchgears in

FY20, expect recovery to enable mid- teens sales growth thereafter.

Cables: We estimate a steady 13.3% sales CAGR for cables over FY19-22

led by entry in EHV segment under Havells and mass market push through

REO.

Lighting: We estimate a steady 11.3% sales CAGR in lighting which factors in

lower pricing pressures in LED and gains in fixtures segment.

ECD: We estimate 21.7% sales CAGR in ECD segment led by emerging

categories like water heaters, Coolers and Kitchen appliances and moderate

success in new categories like grooming products and water purifiers.

Lloyds: We estimate 6.9% Sales CAGR as poor show in FY20 will drag the

numbers. RAC will lead growth with double digit sales CAGR, however TV and

Washing machines will report low to mid-single growth.

Core portfolio (Ex-Lloyd) contribute 82% of revenues

Sw itchgears17%

Cable32%

Lighting & Fixtures

13%

Electrical Consumer

Durables20%

Lloyd18%

Sales Mix - FY19

Source: Company, PL

ECD to lead revenue growth, Lloyd to remain a drag

Revenues (Rs mn) FY18 FY19 FY20E FY21E FY22E

Switchgears 14,245 16,802 17,642 19,936 22,727

YoY gr. -2.9% 18.0% 5.0% 13.0% 14.0%

Cable 26,834 32,346 36,389 41,302 47,084

YoY gr. 0.3% 20.5% 12.5% 13.5% 14.0%

Lighting & Fixtures 11,687 12,934 14,357 15,936 17,848

YoY gr. 14.3% 10.7% 11.0% 11.0% 12.0%

Electric Consumer Durables 15,696 19,939 24,724 29,916 35,899

YoY gr. 10.5% 27.0% 24.0% 21.0% 20.0%

Lloyd Consumer 14,141 18,556 19,112 20,812 22,672

YoY gr. - 31.2% 3.0% 8.9% 8.9%

Total 82,603 1,00,576 1,12,224 1,27,902 1,46,230

YoY gr. 25.4% 21.8% 11.6% 14.0% 14.3%

Source: Company, PL

Havells India


Commodity price pressures abating

HAVL has been impacted by sharp commodity price inflation over the past few

years. Key commodity prices – Copper/Aluminium/Brent Crude have increased at

a CAGR of 9%/11%/14% over FY16-19 thereby impacting gross margins by 340bps

over FY16-19. However, commodity price pressure has abated since the beginning

of FY20. Spot LME Copper prices are down 6%, Spot Aluminium LME 13% while

Brent Crude prices are down 6%. However, the ensuing trade wars & INR/USD

rates will determine the trend in the prices of key inputs like Copper, Aluminium,

Paints & Plastics. We believe that the major pressure due to high commodity prices

is over and expect moderate expansion in gross margins hereon. Despite focus on

non- premium segments under the REO brand in core categories and low margins

in Lloyd, we estimate an increase in gross margins by 40bps in FY20 and another

30bps in FY21.

LME copper prices down 6% since April-19

2,00,000

2,50,000

3,00,000

3,50,000

4,00,000

4,50,000

5,00,000

5,50,000

May-

16

Jul-16

Sep-1

6N

ov-

16Ja

n-1

7M

ar-

17

May-

17

Jul-17

Sep-1

7N

ov-

17Ja

n-1

8M

ar-

18

May-

18

Jul-18

Sep-1

8N

ov-

18Ja

n-1

9M

ar-

19

May-

19

Jul-19

Sep-1

9

Copper Spot (INR/MT)

Source: PL

LME aluminum prices down 13% since April-19

60,000

80,000

1,00,000

1,20,000

1,40,000

1,60,000

1,80,000

May-

16

Jul-16

Sep-1

6N

ov-

16Ja

n-1

7M

ar-

17

May-

17

Jul-17

Sep-1

7N

ov-

17Ja

n-1

8M

ar-

18

May-

18

Jul-18

Sep-1

8N

ov-

18Ja

n-1

9M

ar-

19

May-

19

Jul-19

Sep-1

9

Aluminium Spot (INR/MT)

Source: PL

Brent crude prices continue to remain soft

-

20.00

40.00

60.00

80.00

100.00

25-F

eb-1

6

25-A

pr-

16

25-J

un-1

6

25-A

ug-1

6

25-O

ct-

16

25-D

ec-1

6

25-F

eb-1

7

25-A

pr-

17

25-J

un-1

7

25-A

ug-1

7

25-O

ct-

17

25-D

ec-1

7

25-F

eb-1

8

25-A

pr-

18

25-J

un-1

8

25-A

ug-1

8

25-O

ct-

18

25-D

ec-1

8

25-F

eb-1

9

25-A

pr-

19

25-J

un-1

9

25-A

ug-1

9

Brent Crude (US$/barrel)

Source: PL

Havells India


EBIDTA and PAT CAGR of 14.8% and 14.1% over FY19-22

We estimate EBITDA CAGR of 14.8% over FY19-22 led by gains from in-house

manufacturing in Lloyd, benign input costs and peaked out expenses on distribution

expansion and brand building. We estimate flat margins in FY20 but an increase of

20bps in FY21 and 20bps in FY22. We estimate PBT from operations will increase

by 9.5% in FY20 and at a CAGR of 15.3% over FY19-22. PAT growth is estimated

at 5.2% in FY20 and at a CAGR of 14.1% over FY19-22.

Switchgear margins have peaked out

EBIT (Rs mn) FY18 FY19 FY20E FY21E FY22E

Switchgears 5,572 6,464 6,704 7,576 8,636

Margin 39.1% 38.5% 38.0% 38.0% 38.0%

YoY gr. -0.7% 16.0% 3.7% 13.0% 14.0%

Cable 4,380 5,217 5,822 6,608 7,533

Margin 16.3% 16.1% 16.0% 16.0% 16.0%

YoY gr. 34.5% 19.1% 11.6% 13.5% 14.0%

Lighting & Fixtures 3,356 3,694 4,092 4,542 5,087

Margin 28.7% 28.6% 28.5% 28.5% 28.5%

YoY gr. 26.6% 10.0% 10.8% 11.0% 12.0%

Electric Consumer Durables 4,202 5,349 6,675 8,077 9,693

Margin 26.8% 26.8% 27.0% 27.0% 27.0%

YoY gr. 20.3% 27.3% 24.8% 21.0% 20.0%

Lloyd Consumer 2,683 3,176 3,154 3,434 3,741

Margin 19.0% 17.1% 16.5% 16.5% 16.5%

YoY gr. 18.4% -0.7% 8.9% 8.9%

Source: Company, PL

Revenue/PAT to grow at CAGR of 13.3%/14.8% over FY19-22E

Particulars (Rs mn) FY18 FY19 FY20E FY21E FY22E

Revenue from Operations 81,386 1,00,576 1,12,224 1,27,902 1,46,230

YoY gr. 32.7% 23.6% 11.6% 14.0% 14.3%

Gross Profit 31,578 37,791 42,666 48,973 56,168

Margin 38.8% 37.6% 38.0% 38.3% 38.4%

Other Expenses 21,085 25,869 29,351 33,442 37,884

% of sales 25.9% 25.7% 26.2% 26.1% 25.9%

EBITDA 10,493 11,922 13,315 15,531 18,283

Margin 12.9% 11.9% 11.9% 12.1% 12.5%

YoY gr. 27.3% 13.6% 11.7% 16.6% 17.7%

Other Income 1,170 1,276 1,251 1,528 2,006

Depreciation 1,395 1,486 1,858 2,117 2,234

EBIT 10,268 11,712 12,708 14,942 18,054

Margin 12.6% 11.6% 11.3% 11.7% 12.3%

YoY gr. 22.4% 14.1% 9.3% 17.0% 20.2%

Interest 240 159 188 77 47

PBT 10,028 11,553 12,520 14,865 18,008

Tax 3,022 3,637 4,257 5,129 6,213

Adj PAT 7,006 7,915 8,263 9,737 11,795

Margin 8.6% 7.9% 7.4% 7.6% 8.1%

Exceptional item 119 0 0 0 0

Reported PAT 7,125 7,915 8,263 9,737 11,795

Adj EPS (Rs) 11.2 12.7 13.2 15.6 18.9

YoY gr. 17.3% 12.9% 4.4% 17.8% 21.2%

Source: Company, PL

Havells India


Quarterly snapshot: 1Q sales up just 4.5% and PAT declined 17.3%, 2Q unlikely to show respite

Particulars (Rs mn) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20E 3Q20E 4Q20E

Revenue from Operations 25,963 21,910 25,184 27,519 27,120 24,438 28,633 32,034

YoY gr. 39.5% 23.3% 28.1% 8.6% 4.5% 11.5% 13.7% 16.4%

Gross Profit 9,755 8,391 7,522 10,211 10,131 9,164 10,881 12,490

Margin 37.6% 38.3% 29.9% 37.1% 37.4% 37.5% 38.0% 39.0%

Other Expenses 6,632 5,766 4,577 6,982 7,375 6,232 7,158 8,600

% of sales 25.5% 26.3% 18.2% 25.4% 27.2% 25.5% 25.0% 26.8%

EBITDA 3,123 2,625 2,946 3,229 2,757 2,933 3,722 3,890

Margin 12.0% 12.0% 11.7% 11.7% 10.2% 12.0% 13.0% 12.1%

YoY gr. 81.1% 2.2% 12.3% -9.7% -11.7% 11.7% 26.4% 20.5%

Other Income 292 343 331 310 397 300 300 362

Depreciation 350 391 353 391 469 465 465 460

EBIT 3,064 2,577 2,923 3,147 2,684 2,768 3,558 3,792

Margin 11.8% 11.8% 11.6% 11.4% 9.9% 11.3% 12.4% 11.8%

YoY gr. 76.5% 2.8% 15.2% -9.7% -12.4% 7.4% 21.7% 20.5%

Interest 26 37 36 61 47 35 35 70

PBT 3,039 2,540 2,888 3,086 2,637 2,733 3,523 3,722

Tax 935 754 931 1,018 898 902 1,163 1,327

Adj PAT 2,104 1,786 1,957 2,068 1,739 1,831 2,360 2,396

YoY gr. 73.3% 4.4% 12.9% -11.9% -17.3% 2.5% 20.6% 15.8%

Source: Company, PL

Quarterly snapshot: Lloyd drags sales and margins in 1Q20, trend to continue

Particulars (Rs mn) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20E 3Q20E 4Q20E

Revenue

Switchgears 3,758 4,231 4,162 4,651 3,775 4,316 4,370 5,181

YoY gr. 5.6% 28.3% 20.9% 17.9% 0.5% 2.0% 5.0% 11.4%

Cable 7,499 7,665 8,203 8,979 7,785 8,240 9,434 10,931

YoY gr. 4.2% 34.6% 31.1% 16.8% 3.8% 7.5% 15.0% 21.7%

Lighting & Fixtures 2,583 2,856 3,695 3,800 2,804 3,170 4,139 4,244

YoY gr. -5.1% -0.4% 28.7% 17.7% 8.6% 11.0% 12.0% 11.7%

Electric Consumer Durables 5,042 4,579 5,552 4,765 6,235 5,953 6,940 5,595

YoY gr. 37.2% 42.4% 33.5% 2.6% 23.7% 30.0% 25.0% 17.4%

Lloyd Consumer 7,081 2,579 3,572 5,324 6,520 2,759 3,750 6,083

YoY gr. 165.0% -4.4% 21.9% -8.8% -7.9% 7.0% 5.0% 14.3%

Total 25,963 21,910 25,184 27,519 27,120 24,438 28,633 32,034

YoY gr. 31.0% 23.3% 28.1% 8.6% 4.5% 11.5% 13.7% 16.4%

EBIT

Switchgears 1,493 1,628 1,631 1,712 1,489 1,597 1,661 1,957

Margin 39.7% 38.5% 39.2% 36.8% 39.5% 37.0% 38.0% 37.8%

YoY gr. 14.3% 19.5% 18.2% 12.4% -0.2% -1.9% 1.8% 14.3%

Cable 1,279 1,070 1,294 1,575 1,288 1,318 1,509 1,707

Margin 17.0% 14.0% 15.8% 17.5% 16.5% 16.0% 16.0% 15.6%

YoY gr. 48.8% -5.6% 20.9% 19.5% 0.7% 23.2% 16.7% 8.4%

Lighting & Fixtures 711 847 1,089 1,047 809 872 1,138 1,272

Margin 27.5% 29.6% 29.5% 27.6% 28.9% 27.5% 27.5% 30.0%

YoY gr. -7.1% 9.3% 33.1% 4.9% 13.8% 3.0% 4.5% 21.5%

Electric Consumer Durables 1,423 1,250 1,412 1,265 1,729 1,548 1,874 1,525

Margin 28.2% 27.3% 25.4% 26.5% 27.7% 26.0% 27.0% 27.2%

YoY gr. 74.3% 39.8% 14.8% 0.3% 21.6% 23.9% 32.7% 20.5%

Lloyd Consumer 1,370 476 531 798 1,049 428 600 1,077

Margin 19.4% 18.5% 14.9% 15.0% 16.1% 15.5% 16.0% 17.7%

YoY gr. 248.1% -9.6% 10.7% -37.8% -23.4% -10.2% 12.9% 34.9%

Source: Company, PL

Havells India


Valuations leave little room for an error

HAVL saw massive re-rating from 28.3x 12 month forward PE post sale of Sylvania

to 43x at the time of Lloyd acquisition and made a high of 58.5x in March 2019. The

re-rating was due to emergence of HAVL as the emerging company in consumer

durables which caters to entire spectrum of products ranging from switchgears,

Cables, Lighting, ECD, consumer electronics and white goods. HAVL reported PAT

CAGR of 15.8% in the past 3 years which is not significantly higher than other

industry players. we estimate HAVL to report PAT growth of 5.2% in FY20 and

14.1% CAGR over FY19-22. HAVL currently trades at 47.7x 12 month forward EPS

which has moderated from peak of 58.5x but is still at a 15% premium to average

multiple of last 5 years.

We believe that P/E multiple of HAVL is high looking at future growth estimates and

competitive pressures faced in various product segments. We value the stock at

33x Sept21 EPS and arrive at a target price of Rs566. We initiate coverage on the

stock with Reduce rating. Sharp recovery in consumer demand and significant

gains in Lloyd is a key risk to our call.

HAVL trades at a premium to its peers

Name Sales growth (%) PAT growth (%) RoE (%) P/E (x)

FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E

Havells 23.6 11.6 14.0 11.1 5.2 17.3 19.8 18.5 19.3 52.3 49.7 42.4

Crompton Consumer 9.8 12.6 12.3 24.3 11.1 20.7 39.6 35.9 34.3 38.8 32.5 26.9

Voltas 11.2 10.1 11.4 -11.3 -3.6 39.2 13.0 12.5 14.5 40.1 39.1 30.5

Finolex Cables 9.3 8.7 12.4 -3.9 9.1 14.9 14.9 14.4 14.7 16.4 15.0 13.1

Polycab 17.9 13.6 12.4 39.6 14.7 12.0 19.2 16.8 16.3 17.2 15.7 13.4

Orient Electric 16.7 19.7 14.9 8.2 47.4 27.7 24.3 29.0 29.8 46.5 31.6 24.8

V-Guard 11.0 14.0 14.3 24.4 29.1 21.5 20.0 21.6 22.3 57.0 44.1 36.3

KEI 22.2 17.4 15.9 25.8 26.2 24.0 26.3 24.8 24.0 20.4 16.1 13.0

Bajaj Electricals 41.5 -6.8 5.7 99.8 -4.2 37.1 16.5 14.8 17.2 23.0 24.2 17.1

Blue Star 12.6 11.5 13.4 30.0 15.8 23.3 22.8 23.4 25.3 37.2 32.4 26.1

Whirlpool of India 12.3 14.9 14.2 16.1 22.0 18.0 20.7 21.2 21.2 51.4 42.2 35.8

Johnson Controls Hitachi 2.6 16.8 18.0 -14.2 53.1 29.9 15.0 19.5 21.0 50.1 32.7 25.2

Source: Company, PL

1 year forward PE trending towards average

Source: PL

47.7

58.5

41.3

40.5

28.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Ap

r-1

5

Au

g-1

5

Dec

-15

Ap

r-1

6

Au

g-1

6

Dec

-16

Ap

r-1

7

Au

g-1

7

Dec

-17

Ap

r-1

8

Au

g-1

8

Dec

-18

Ap

r-1

9

Au

g-1

9

P/E (x) Peak(x) Avg(x) Median(x) Min(x)

Havells India


ROE to gradually recover over FY20

19.2

20.019.8

18.5

19.3

20.5

17.5

18.0

18.5

19.0

19.5

20.0

20.5

21.0

FY17 FY18 FY19 FY20E FY21E FY22E

RoE (%)

Source: Company, PL

RoCE to improve over FY19-22E

26.1

28.228.9

28.3

29.5

31.3

23.0

24.0

25.0

26.0

27.0

28.0

29.0

30.0

31.0

32.0

FY17 FY18 FY19 FY20E FY21E FY22E

RoCE (%)

Source: Company, PL

Free Cash flows to increase post Lloyd capex

-5

0

7

11 14

-10

-5

-

5

10

15


(Rs

bn

)

Free Cash Flow

Source: Company, PL

Net cash per share to improve

14,1

82

11,9

03

15,7

58

23,5

94

33,1

41

23 19

25

38

53

-

10

20

30

40

50

60

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000


Net Cash (Rs mn) Net Cash / Share (Rs)

Source: Company, PL

Negative working capital cycle sustains

-13

-15

-8

-10-11

-18

-16

-14

-12

-10

-8

-6

-4

-2

0


Net Working Capital days

Source: Company, PL

Dividend payout ratio to be maintained at 42-44%

43.1

%

42.8

%

42.9

%

43.2

%

43.2

%

3.5 4.0

4.54.75

5.6

-

1.0

2.0

3.0

4.0

5.0

6.0

35.0%

36.0%

37.0%

38.0%

39.0%

40.0%

41.0%

42.0%

43.0%

44.0%


Dividend Payout Ratio DPS (Rs) (RHS)

Source: Company, PL

Havells India


Annexure:

Board of Directors & KMP

Key managerial posts held by family members

Name Management Role

Family Member Representation on Board of Directors

Anil Rai Gupta Chairman & Managing Director Yes

Rajesh Kumar Gupta Whole-time Director (Finance), Group CFO Yes

Ameet Kumar Gupta Whole-time Director Yes

Surjit Kumar Gupta Non-Independent, Non-Executive Director

Other Board of Directors

Puneet Bhatia Non-Independent, Non-Executive Director

T V Mohandas Pal Non-Independent, Non-Executive Director

Upendra Kumar Sinha Independent Director

Dr Adarsh Kishore Independent Director

Surender Kumar Tuteja Independent Director

Jalaj Ashwin Dani Independent Director

Pratima Ram Independent Director

Vellayan Subblah Independent Director

Vijay Kumar Chopra Independent Director

Source: Company, PL

Auditors list

Name

S R Batliboi & Co LLP Statutory Auditors

KPMG Internal Auditors

M/s Sanjay Gupta & Associates Cost Auditors

M/s MZ & Associates Secretarial Auditors

Source: Company, PL

Havells India


Financials

Income Statement (Rs m)


Net Revenues 100,576 112,224 127,902 146,230

YoY gr. (%) 23.6 11.6 14.0 14.3

Cost of Goods Sold 62,786 69,558 78,929 90,062

Gross Profit 37,791 42,666 48,973 56,168

Margin (%) 37.6 38.0 38.3 38.4

Employee Cost 8,324 9,651 10,872 12,283

Other Expenses 8,477 9,501 10,939 12,525

EBITDA 11,922 13,302 15,459 18,052

YoY gr. (%) 13.6 11.6 16.2 16.8

Margin (%) 11.9 11.9 12.1 12.3

Depreciation and Amortization 1,486 1,858 2,117 2,234

EBIT 10,436 11,443 13,342 15,818

Margin (%) 10.4 10.2 10.4 10.8

Net Interest 159 188 77 47

Other Income 1,276 1,359 1,639 2,190

Profit Before Tax 11,553 12,615 14,904 17,961

Margin (%) 11.5 11.2 11.7 12.3

Total Tax 3,637 4,289 5,142 6,197

Effective tax rate (%) 31.5 34.0 34.5 34.5

Profit after tax 7,915 8,326 9,762 11,765

Minority interest - - - -

Share Profit from Associate - - - -

Adjusted PAT 7,915 8,326 9,762 11,765

YoY gr. (%) 13.0 5.2 17.3 20.5

Margin (%) 7.9 7.4 7.6 8.0

Extra Ord. Income / (Exp) - - - -

Reported PAT 7,915 8,326 9,762 11,765

YoY gr. (%) 11.1 5.2 17.3 20.5

Margin (%) 7.9 7.4 7.6 8.0

Other Comprehensive Income - - - -

Total Comprehensive Income 7,915 8,326 9,762 11,765

Equity Shares O/s (m) 625 625 625 625

EPS (Rs) 12.7 13.3 15.6 18.8

Source: Company Data, PL Research

Balance Sheet Abstract (Rs m)


Non-Current Assets

Gross Block 34,173 39,173 41,173 42,673

Tangibles 21,951 26,951 28,951 30,451

Intangibles 12,222 12,222 12,222 12,222

Acc: Dep / Amortization 8,270 10,128 12,245 14,479

Tangibles 7,645 9,259 11,132 13,122

Intangibles 624 869 1,113 1,358

Net fixed assets 25,903 29,045 28,928 28,194

Tangibles 14,306 17,692 17,819 17,330

Intangibles 11,597 11,353 11,109 10,864

Capital Work In Progress 2,327 2,000 1,500 1,500

Goodwill 3,105 3,105 3,105 3,105

Non-Current Investments 885 902 914 837

Net Deferred tax assets (3,217) (3,721) (4,317) (5,036)

Other Non-Current Assets 1,462 1,766 1,680 1,724

Current Assets

Investments - - - -

Inventories 19,170 19,370 21,726 24,438

Trade receivables 4,048 4,520 5,081 5,769

Cash & Bank Balance 12,848 16,063 23,799 33,246

Other Current Assets 1,475 1,627 1,919 2,193

Total Assets 71,791 79,007 89,306 101,716

Equity

Equity Share Capital 625 625 625 625

Other Equity 41,800 46,738 52,925 60,476

Total Networth 42,425 47,364 53,551 61,102

Non-Current Liabilities

Long Term borrowings 405 305 205 105

Provisions 324 382 448 512

Other non current liabilities 203 203 203 203

Current Liabilities

ST Debt / Current of LT Debt - - - -

Trade payables 15,594 16,694 18,943 21,615

Other current liabilities 9,614 10,338 11,639 13,143

Total Equity & Liabilities 71,791 79,007 89,306 101,716


Havells India


Cash Flow (Rs m)

Y/e Mar FY19 FY20E FY21E FY22E Year

PBT 11,553 12,615 14,904 17,961

Add. Depreciation 1,486 1,858 2,117 2,234

Add. Interest 159 188 77 47

Less Financial Other Income 1,276 1,359 1,639 2,190

Add. Other (852) 232 737 816

Op. profit before WC changes 12,345 14,893 17,835 21,058

Net Changes-WC (4,752) 896 108 249

Direct tax (2,468) (4,289) (5,142) (6,197)

Net cash from Op. activities 5,125 11,499 12,801 15,110

Capital expenditures (5,009) (4,673) (1,500) (1,500)

Interest / Dividend Income 876 - - -

Others 5,914 - - -

Net Cash from Invt. activities 1,782 (4,673) (1,500) (1,500)

Issue of share cap. / premium 180 - - 0

Debt changes (135) (100) (100) (100)

Dividend paid (3,016) (3,387) (3,576) (4,213)

Interest paid (132) (188) (77) (47)

Others - - - -

Net cash from Fin. activities (3,103) (3,675) (3,752) (4,360)

Net change in cash 3,803 3,151 7,549 9,250

Free Cash Flow 117 6,826 11,301 13,610


Quarterly Financials (Rs m)

Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20

Net Revenue 21,910 25,184 27,519 27,120

YoY gr. (%) 23.3 28.1 8.6 4.5

Raw Material Expenses 13,519 15,751 17,308 16,989

Gross Profit 8,391 9,434 10,211 10,131

Margin (%) 38.3 37.5 37.1 37.4

EBITDA 2,625 2,946 3,229 2,757

YoY gr. (%) 2.2 12.3 (9.7) (11.7)

Margin (%) 12.0 11.7 11.7 10.2

Depreciation / Depletion 391 353 391 469

EBIT 2,234 2,593 2,838 2,287

Margin (%) 10.2 10.3 10.3 8.4

Net Interest 37 36 61 47

Other Income 343 331 310 397

Profit before Tax 2,540 2,888 3,086 2,637

Margin (%) 11.6 11.5 11.2 9.7

Total Tax 754 931 1,018 898

Effective tax rate (%) 29.7 32.2 33.0 34.1

Profit after Tax 1,786 1,957 2,068 1,739

Minority interest - - - -

Share Profit from Associates - - - -

Adjusted PAT 1,786 1,957 2,068 1,739

YoY gr. (%) 4.4 12.9 (11.9) (17.3)

Margin (%) 8.2 7.8 7.5 6.4

Extra Ord. Income / (Exp) - - - -

Reported PAT 1,786 1,957 2,068 1,739

YoY gr. (%) 4.4 0.7 (8.4) (17.3)

Margin (%) 8.2 7.8 7.5 6.4

Other Comprehensive Income - - - -

Total Comprehensive Income 1,786 1,957 2,068 1,739

Avg. Shares O/s (m) 626 626 626 626

EPS (Rs) 2.9 3.1 3.3 2.8


Key Financial Metrics


Per Share(Rs)

EPS 12.7 13.3 15.6 18.8

CEPS 15.0 16.3 19.0 22.4

BVPS 67.8 75.7 85.6 97.7

FCF 0.2 10.9 18.1 21.8

DPS 4.0 4.5 4.8 5.6

Return Ratio(%)

RoCE 28.9 28.3 29.5 31.3

ROIC 25.8 25.9 32.5 42.8

RoE 19.8 18.5 19.3 20.5

Balance Sheet

Net Debt : Equity (x) (0.3) (0.3) (0.4) (0.5)

Net Working Capital (Days) 28 23 22 21

Valuation(x)

PER 52.3 49.7 42.4 35.1

P/B 9.8 8.7 7.7 6.8

P/CEPS 44.0 40.6 34.8 29.5

EV/EBITDA 33.7 29.9 25.2 21.1

EV/Sales 4.0 3.5 3.0 2.6

Dividend Yield (%) 0.6 0.7 0.7 0.8


Havells India


Notes:

Havells India


Price Chart

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)

1 Asian Paints Accumulate 1,522 1,479

2 Avenue Supermarts Hold 1,338 1,359

3 Britannia Industries Accumulate 3,068 2,602

4 Colgate Palmolive Reduce 1,159 1,275

5 Crompton Greaves Consumer Electricals BUY 297 225

6 Dabur India Hold 437 429

7 Emami Accumulate 386 310

8 Future Retail BUY 512 395

9 GlaxoSmithKline Consumer Healthcare Hold 7,972 7,473

10 Hindustan Unilever Accumulate 1,816 1,690

11 ITC BUY 367 265

12 Jubilant FoodWorks BUY 1,459 1,153

13 Kansai Nerolac Paints Accumulate 479 434

14 Marico Hold 357 363

15 Nestle India Hold 10,900 12,004

16 Pidilite Industries Accumulate 1,301 1,290

17 Titan Company BUY 1,173 1,047

18 Voltas Hold 609 601

PL’s Recommendation Nomenclature

Buy : >15%

Accumulate : 5% to 15%

Hold : +5% to -5%

Reduce : -5% to -15%

Sell : < -15%

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

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Havells India


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havells india (havl in) · 2019. 9. 10. · havells india september 9, 2019 4 innovations might not...

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