Q1FY20 Update

Institutional Equities
Recommendation Sell
Havells India Ltd
CMP as of 30 July 2019 (Rs) 636 Havells India reported revenue growth of 4.5% YoY to Rs.27119.7mn (-8.4% ACMIIL Est)
led by flattish and muted growth in Switchgears, Cabel and lighting segment while
Target Price (Rs) 609 LIoyd segment decreased by 8% YoY.
Potential Return -4% During the quarter, EBITDA declined by 11.7% YoY to Rs.2756.5mn whereas margin
declined 186 bps YoY to 10.2% (vs 12.0%) on account of lowers profitability from Lloyd
Stock Details
business & product mix.
Electrical PAT for the quarter decreased by 17.3% YoY to Rs.1739.1mn (-30.9%% ACMIIL Est.) while
Sector
equipments
the margin declined 169bps YoY to 6.4% on account of lower OPM.
Bloomberg Code HAVL IN
Segment Performance
Reuters Code HVEL.NS
Switchgears segment:- During the quarter, Switchgears segment reported flat revenue
52 week high/low 807/550
growth YoY to Rs.3775.2mn, on account of subdued and slow progress in realty, projects
No of shares (O/S) mn 625.8 business and liquidity issue while Segment EBIT margin marginally declined by 28bps
YoY to 39.5% (vs 39.7%)
Market Cap (Rs mn) 4,02,954
Cables segment:- TThis segment reported a muted revenue growth of 3.8% YoY to
Daily Average Volume Rs.7785.2mn led by delay in government projects due to General election. Segment
14,04,820
(BSE+NSE) - 1 year
reported EBIT margins of 16.5% decreased by 50 bps YoY to 16.5% (vs 17.0%)
Sensex/Nifty 37,397/11,085 Lighting and Fixture:- Segment reported subdued revenue growth of 8.6% YoY to
Shareholding Pattern (%) Rs.2804.3mn on back of delay in orders from the government due to the election, but
EBIT margin improved by 133bps to 28.9%.
Jun-19 Mar-19 Dec-18
Electrical Consumer durable:- Segment reported strong growth of 23.7% YoY to
Promoters 59.5 59.6 59.6 Rs.6235mn, on account of high growth from SDA, Water Heater, Water Purifier and Air
MFs 2.6 3.9 4.4 Coolers business. While EBIT margin during the quarter declined by 48bps YoY to 27.7%
FPIs 27.0 27.3 26.5
on the back of the product mix.
LIoyd Consumer:- During the quarter, Lloyd consumer segment reported a de-growth
Others 11.0 9.3 9.5
of 8% YoY to Rs.6520mn led by a steep decline in the sale of LED panels. Segment EBIT
Total 100.0 100.0 100.0 margin declined by 326bps YoY to 16.1%.
Price Performance
130 Outlook & Valuation:
120
110
We remain optimistic about Havells’ business growth as it has been successful in
100 scaling up across its segments and creating brand power.
90
80 We believe much of growth is likely to driven by new product launches and an increase
Jul -18

Jan -19
Aug-18

Jun -19

Jul -19
Oct-18

Feb-19
Nov-18

Apr-19
Mar-19

May-19
Sep-18

Dec-18

in dealership network. We further envisage that acquisition of Lloyd has enabled the
SENSEX Havells NIFTY company to improve its margin in future on the back of the start of AC Plant by Q1FY21.
In current market scenario like liquidity crunch, weak consumer sentiment and thus
Data Source: ACE Equity slowdown in demand etc, we expect the company to report a muted top-line/EBITDA/
Rebased to a scale of 100 PAT growth of 8.6% / 3.0% / 2.8% YoY in FY19 while EBITDA/PAT margin is expected to
decrease by 60bps/40bps YoY to 11.2% / 7.5% over same period respectively
We expect over FY19-FY21E, the company top line /EBITDA/PAT to grow 11.7%/12.4%/12.5%
CAGR on account of improvement in the domestic macro environment and consumer
demand in FY21E
We further expect the company EBITDA / PAT margin improve 76bps/53bps YoY in FY21E.
But remains flat compared to FY19.
At CMP of Rs.665, the company is currently trading at 48.9x/39.7x of FY20E/FY21E PE
Multiple.
We maintain our earnings multiple of 38x on account of improvement in the macro
environment and consumer sentiment in FY21E. We value the company at 38x on FY21E
Analyst: EPS of Rs 16 post which we arrive at a target of Rs.609, We Assign a SELL rating on
Analyst
the stock.
Rakesh Roy
Rakesh Roy
E: instresearch@acm.co.in
E: instresearch@acm.co.in
D : (022)
D : (022) – 2858 3731
– 2858 3735
B : (022)
B : (022) – 2858 3333
– 2858 3333

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Q1FY20 Update
Institutional Equities
Actual Versus Estimates Table (Standalone)
Particulars (Rs mn) Q1FY19 Q4FY19 Q1FY20E YoY QoQ Q1FY20E Variance
Net Sales 25,963.4 27,518.6 27,119.7 4.5% -1.4% 29,593.9 -8.4%
Expenditure 22,840.9 24,290.1 24,363.2 6.7% 0.3% 25,776.3 -5.5%
EBITDA 3,122.5 3,228.5 2,756.5 -11.7% -14.6% 3,817.6 -27.8%
EBITDA Margin 12.0% 11.7% 10.2% (-186)bps (-157)bps 12.9% (-274)bps
Depreciation 350.4 390.7 469.1 33.9% 20.1% 413.4 13.5%
EBIT 2,772.1 2,837.8 2,287.4 -17.5% -19.4% 3,404.2 -32.8%
EBIT Margin 10.7% 10.3% 8.4% (-224)bps (-188)bps 11.5% (-307)bps
Interest 25.5 61.4 47.2 85.1% -23.1% 29.6 59.5%
Other income 292.2 309.5 397.0 35.9% 28.3% 325.5 22.0%
PBT 3,038.8 3,085.9 2,637.2 -13.2% -14.5% 3,700.2 -28.7%
Tax 934.8 1,017.6 898.1 -3.9% -11.7% 1,184.1 -24.2%
Tax Rate 30.8% 33.0% 34.1% 329bps 108bps 32.0% 206bps
PAT 2,104.0 2,068.3 1,739.1 -17.3% -15.9% 2,516.1 -30.9%
PAT Margin 8.1% 7.5% 6.4% (-169)bps (-110)bps 8.5% (-209bps)
EPS (Rs) 3.4 3.3 2.8 -17.3% -15.9% 4.0 -30.9%
Data Source: ACMIIL Institutional Research, Company

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Q1FY20 Update
Institutional Equities
FINANCIAL STATEMENTS
Income Statement (Standalone)
Particulars (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Net Sales 52,387 53,783 61,353 81,386 1,00,576 1,09,200 1,25,580
YoY Growth 11.0% 2.7% 14.1% 32.7% 23.6% 8.6% 15.0%
EBITDA 6,991 7,549 8,241 10,493 11,922 12,275 15,070
EBITDA Margin 13.3% 14.0% 13.4% 12.9% 11.9% 11.2% 12.0%
Depreciation 875 1,049 1,196 1,395 1,486 1,693 1,946
EBIT 6,116 6,500 7,045 9,098 10,436 10,582 13,123
Interest 176 127 122 240 159 211 251
Other income 443 694 1,343 1,170 1,276 1,507 1,758
Exceptional items - 2,024 (578) 119 - - -
PBT 6,463 9,090 7,688 10,147 11,553 11,878 14,630
Tax 1,813 1,970 2,298 3,022 3,637 3,740 4,608
Tax Rate 28.1% 21.7% 29.9% 29.8% 31.5% 31.5% 31.5%
PAT 4,649 7,085 5,363 7,096 7,915 8,138 10,022
PAT Margin 8.9% 13.2% 8.7% 8.7% 7.9% 7.5% 8.0%
EPS (Rs) 7.5 11.4 8.6 11.4 12.7 13.0 16.0
Data Source: ACMIIL Institutional Research, Company

Balance Sheet (Standalone)

Particulars (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Share capital 624 625 625 625 626 626 626
Reserves & Surplus 23,134 28,912 32,111 36,766 41,799 47,089 53,603
Net worth 23,758 29,537 32,736 37,392 42,425 47,715 54,229
Long term debt 417 - - 810 405 - -
Short term debt - - 1,981 270 - - -
Total Debt 417 - 1,981 1,080 405 - -
Payables 3,945 4,363 6,296 16,340 15,594 17,048 19,438
Others 8,368 6,990 8,588 10,603 13,367 13,724 15,391
Total Liabilities 36,489 40,890 49,600 65,414 71,790 78,487 89,058

Net Block 10,073 12,086 12,777 24,987 28,230 31,537 33,986

Cash and cash equivalents 5,223 13,652 19,375 15,262 12,848 15,160 19,377
Inventories 6,897 7,844 9,284 16,217 19,170 20,959 23,896
Debtors 1,325 1,576 2,285 3,254 4,048 4,488 5,161
Other current assets 219 639 744 1,352 1,568 983 1,130
Current assets 14,076 23,772 31,911 36,327 38,108 42,064 50,039
Others 12,339 5,032 4,912 4,099 5,452 4,886 5,033
Total Assets 36,489 40,890 49,600 65,414 71,790 78,487 89,058
Data Source: ACMIIL Institutional Research, Company

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Q1FY20 Update
Institutional Equities

Cash Flow (Standalone)

Particulars (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20E FY21E
PAT 4,649 7,085 5,363 7,096 7,915 8,138 10,022
Depreciation 875 1,049 1,196 1,395 1,486 1,693 1,946
Inc/Dec in working capital 399 (911) 1,323 2,556 (3,996) 141 (1,102)
Others 81 (1,979) (104) 29 (279) 139 270
CF from Operating activity 6,004 5,243 7,778 11,077 5,125 10,110 11,137
Inc/Dec in Fixed assets & CWIP (1,689) (1,728) (2,397) (15,888) (5,009) (5,000) (4,395)
Inc/Dec in investments (1,292) (291) (108) - - - -
Others (3,107) 1,263 230 5,871 6,790 - -
CF from Investment activity (6,088) (756) (2,275) (10,017) 1,782 (5,000) (4,395)
Inc/Dec in share capital 1 0 0 0 0 - -
Inc/Dec in debt (1,154) (434) 1,533 (901) (135) (405) -
Dividends paid (1,460) (4,511) (2,256) (2,632) (3,016) (2,848) (3,508)
Others (72) (20) (1) (51) 47 456 983
CF from Financing activity (2,686) (4,965) (724) (3,583) (3,103) (2,797) (2,525)
Inc/Dec in cash (2,769) (478) 4,780 (2,524) 3,803 2,313 4,217
Opening balance 3,997 1,238 13,650 5,550 3,012 12,848 15,160
Closing balance 1,238 768 19,375 3,012 6,781 15,160 19,377
Data Source: ACMIIL Institutional Research, Company

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Q1FY20 Update
Institutional Equities
Ratios
Particulars FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Profitability ratios
RoE 19.6% 24.0% 16.4% 19.0% 18.7% 17.1% 18.5%
RoCE 25.3% 22.0% 20.3% 23.6% 24.4% 22.2% 24.2%
RoA 12.7% 17.3% 10.8% 10.8% 11.0% 10.4% 11.3%

Valuation ratios
P/E 41.0 28.1 60.3 56.0 50.3 48.9 39.7
P/BV 8.0 7.6 8.9 10.6 9.4 8.3 7.3
EV/EBITDA 26.5 25.0 33.4 36.6 32.3 31.2 25.1
EV/Sales 3.6 3.5 4.4 4.7 3.8 3.5 3.0

Per share
EPS (Rs) 7.5 11.4 8.6 11.4 12.7 13.0 16.0
DPS (Rs) 3.0 6.0 3.5 4.0 4.5 4.6 5.6
Book value (Rs) 38.1 47.3 52.4 59.8 67.8 76.3 86.7

Capital structure ratios

D/E (x) 0.0 0.0 0.1 0.0 0.0 0.0 0.0
Current ratio (x) 1.2 2.3 2.3 1.5 1.5 1.6 1.6
Quick ratio (x) 0.6 1.5 1.7 0.8 0.8 0.8 0.8

Turnover ratios
Fixed asset turnover (x) 5 4 5 3 4 3 4
Debtor days 9 11 14 15 15 15 15
Inventory days 55 62 64 83 79 79 79
Payable days 32 34 43 84 64 64 64
Data Source: ACMIIL Institutional Research, Company

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Q1FY20 Update
Institutional Equities
Notes:

Institutional Equities: Our Rating Scale

Rajat Vohra Buy: Expected return greater than 20% within the next 12-18 months.

Head-Institutional Equities Accumulate: Expected return greater than 10% but less than 20% within the next 12-18 months.
Hold: Expected return of upto 10% within the next 12-18 months.
D: +91 22 2858 3734 Reduce: Expected return of upto (-) 10% within the next 12-18 months.
B: +91 22 2858 3333 Sell: Expected return of over (-) 10% within the next 12-18 months.
E: rajat.vohra@acm.co.in Information pertaining to Asit C. Mehta Investment Interrmediates Limited (ACMIIL):
ACMIIL is a SEBI registered Stock Broker, Merchant Banker and Depository Participant. It is also a AMFI registered Mutual Fund Distribu-
Dealing tor. It does not have any disciplinary history. Its associate/group companies are Asit C. Mehta Commodity Services Limited, Asit C.
E: instdealing@acm.co.in Mehta Realty Services Pvt. Ltd, Asit C. Mehta Forex Pvt. Ltd, Nucleus IT Enabled Services , Asit C. Mehta Financial Services Limited (all
providing services other than stock broking and merchant banking).

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