INSTITUTIONAL EQUITY RESEARCH Consumer Electricalsbackoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Consumer_Electricals... · 2020, eagerly awaited by the channel partners,

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Consumer Electricals Strong winters and inventory push will lead to growth in Q3

INDIA | MIDCAP-ELECTRICALS | Q3FY20 Results Preview

8 January 2020

We see overall yoy revenue growth of 9%. Voltas, Orient Electric, KEI, BJE (consumer business) will outperform while Havells, Finolex and VGRD will underperform index growth. Key highlights Q3 headwinds such as economic slowdown, intense competition, and inventory push

led to pricing pressure and higher stocking by channel partners (mainly for ACs), but lower secondary sales.

In ACs, price cuts (mainly because of Q3 being off-season) resulted in higher stocking by channel partners. AC companies saw higher primary sales in December 2019, but low secondary sales, leading to higher inventory at the channel level.

A strong winter led to very healthy growth in water and room heaters. Channel partners have begun stocking washing machines and fans ahead of the next season.

NBFC-led liquidity issues are hurting channel partners, but consumer financing is driving some growth in primary sales.

With copper prices rising c.10% qoq, companies will hike prices from January 2020. In anticipation, channel partners have stocked up in December 2019, although construction activity remains slow. W&C companies have increased prices in Q4FY20.

Liquidity issues hurt secondary sales of electrical products, but inventory push has resulted in primary sales growth. Cold weather led to strong volume growth in water and room heaters. In fans and ACs, as has been the trend pre-summer, channel partners across India have increased inventory. Leading brands cut fan prices by 2-3% and 5-7% in ACs through incentives and discount schemes, mainly to push inventory and spur sales. Subsequently, to incentivize the channel, companies hiked prices by 2-3% in January 2020. Price play has resulted in double-digit volume growth in fans and ACs. However, lliquidity problems led to lower volume growth for other electrical products in Q3, depressing primary sales. Detailed update on page 2. Lower construction activity and execution led to a drop in volumes for wires and cables (W&C): A large portion of electrical companies in our universe are manufacturers of electrical W&C, in which segment growth reduced due to a drop in construction activity and lower project execution. Also, global copper prices increased c.10% qoq. However, in Q3FY20, W&C companies did not take price hikes, which we believe will translate into some margin pressure; companies will hike prices in Q4FY20. Outlook intact: Consumption fundamentals remain steady. Increasing power availability, improving demographic profile, and increase in housing stock are structural demand drivers. Shrinking presence of the unorganised sector also acts as a stimulus. Additionally, an excellent cash-conversion cycle and expanding product basket bode well for incumbents. In the short term, we see: (1) liquidity issues impacting primary sales, resulting in lower volume growth, (2) intense competition by global and domestic brands putting pressure on pricing – resulting in margins being under pressure, and (3) price cuts and discount schemes leading to stocking by channel partners. We maintain:

Buy on Orient Electric, KEI, Polycab, Finolex Cables, VGRD and BJE

Neutral on Voltas

Sell on Havells

Companies Orient Electric

Reco BUY CMP, Rs 193 Target Price, Rs 216

Bajaj Electricals Ltd Reco BUY

CMP, Rs 356 Target Price, Rs 450

V-Guard Industries Ltd Reco BUY CMP, Rs 209

Target Price, Rs 252 KEI Industries

Reco BUY CMP, Rs 489 Target Price, Rs 616

Finolex Cables Reco BUY

CMP, Rs 389 Target Price, Rs 442

Havells Ltd Reco SELL CMP, Rs 629

Target Price, Rs 568 Voltas Ltd

Reco NEUTRAL CMP, Rs 650 Target Price, Rs 673

Polycab India Ltd. Reco BUY CMP, Rs 969

Target Price, Rs 913

PC: Q3FY20 Results Preview

Rs mn Revenue EBITDA PAT

Orient Electric 4,769 319 120

Bajaj Electricals 13,230 397 -60

V-Guard Inds 6,576 699 520

KEI Inds 12,688 1,334 647

Finolex Cables 7,519 1,031 856

Havells Ltd 24,985 2,972 2,013

Voltas 17,546 1,323 1,362

Polycab India 22,105 2,432 1,550

Source: PhillipCapital India Research Est

Deepak Agarwal, Research Analyst (+ 9122 6246 4112) [email protected]

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

MIDCAP-ELECTRICALS Q3FY20 RESULTS PREVIEW

Companies to watch – Q3FY20 expectations Voltas: Q3 inventory push with offseason price (company has taken price cuts)

resulted in strong volume growth in Q3. We expect UCP growth of c.35%. In Beko, increase in penetration from tier-2 and tier-3 markets aided growth.

Orient Electric: Premium products continue to see strong sales, resulting in market share gains. In Electrical Consumer Durables (ECD), we expect 15% growth yoy, mainly driven by premium fans and water heaters. In lighting & switches (L&S), improving product mix and increasing penetration will lead to a growth of 10% yoy, although in lighting, prices remain under pressure.

KEI: Increasing penetration in house wires will lead to strong growth in B2C. Healthy order book in B2B cables will drive growth.

Bajaj Electric: Strong distribution network (BJE reached 210,000 touch-points) will result in strong growth of 15% in consumer durables. Due to lower execution and reduction in order book, E&P revenue will decline by 68%. However, since this will improve the working-capital cycle, balance sheet and cash flows will be better, although P&L will take a short-term hit.

Havells (ex. Lloyd): We expect a flat yoy, majorly impacted by lower construction activity. We expect lower volume growth in all segments excluding ECD, which should see a growth of c.8%, driven by strong growth in water heaters and new products (personal grooming etc.). Fans will see double digit-volume growth. Lloyd will take time to stabilise because changes in distribution strategy, high competition, and shift in pricing policy are denting market share. It has taken a price cut of c.5% in December 2019, mainly to push AC volumes. We expect Lloyd’s revenue to fall 8% in Q3 mainly because of channel partners sitting on old inventory of ACs and the LED segment continuously facing high competition from Chinese brands, which is increasing pricing pressure.

Key takeaways from our channel checks

Subdued construction, infrastructure, and real-estate activity continues to impact the demand for wires and cables.

Channel partners talked about increasing competition in consumer durables segments, which has led to price cuts in most product categories.

Pricing actions by RAC companies have led to strong primary sales in the quarter.

Extreme winter conditions during the end of the quarter have led to higher sales of water heaters and geysers.

Sales backed by consumer financing by NBFCs and credit-card companies is aiding growth and defying overall slowdown in the economy.

For 3 Star 1.5 ton Inverter AC

Brand June’19 Sept’19 Dec’19 QoQ YTD %

Voltas 39,190 37,100 34,000 -8% -13%

Blue Star 44,990 39,500 37,994 -4% -16%

Lloyd 41,990 39,000 35,700 -8% -15%

Whirlpool 36,990 35,990 33,500 -7% -9%

Samsung 43,000 39,300 37,490 -5% -13%

Daikin 38,990 38,000 37,490 -1% -4%

Carrier 42,990 40,490 39,000 -4% -9%

Mitsubishi* 52,500 52,200 52,300 0% 0%

Fujitsu /O General 57,200 56,990 53,200 -7% -7%

Hitachi 41,690 40,300 37,994 -6% -9%

LG

44,000 37,490 -15% -15%

IFB

40,900 40,900 0% 0%

Amstrad* 32,000 31,000 -3% -3%




Housing wire price trend (1.5mm thickness)

Rs/m Mar'19 May'19 Sept'19 Dec'19 YTD %

KEI Industries 17.3 16.8 16.8 16.8 -3%

RR Kabel 16.9 16.4 16.4 16.4 -3%

Finolex 16.0 15.5 15.5 15.5 -3%

Polycab 17.6 17.1 17.1 17.1 -3%

Havells 19.2 18.6 18.6 18.6 -3%

V- Guard 20.2 19.2 19.2 19.2 -5%


Key events – during 3Q Company Name Date Event

Bajaj Electricals

Nov 15, 2019 ICRA downgrades Bajaj Electricals credit rating considering the significant decline in profitability of EPC business.

Dec 19, 2019 Mr Rajesh Naik joined, Ex- Lighting head, Crompton Consumer.

Jan 06, 2020 Board meeting to consider raising of funds by issue of equity shares and convertible securities.

Finolex Cables Nov 21, 2019 Finolex Cables launches electrical accessories range: door bell, extension box, spike guard, angle holders and

batten holders.

Polycab

Oct 09, 2019 Inauguration of its first experience centre in Pune.

Dec 04, 2019 Management announced plans to set up 100 experience centres in key cities by 2021. Company will have 25

centres by march 2020.

Orient Electric Ltd Dec 04,2019 Orient Electric appoints Salil Kapoor, ex-COO UPBG Division, Voltas Ltd. to lead home appliances vertical in the

company

Havells Ltd Oct 16, 2019 Havells introduced ST^Dx, smart range of MCB and distribution boards.

Nov 07, 2019 Havells introduces 'Freshia' range of air-purifiers, with 9-stage filtration process.

Crompton Dec 03, 2019 Private equity investors, Temasek and Advent International, sell their 51.14 mn shares of worth Rs 12bn.

Whirlpool Dec 17, 2019 Whirlpool India MD Sunil D'Souza resigns, Vishal Bhola, Global Vice President, Water Division of Unilever to

succeed.

Johnson Controls Hitachi

Oct 04, 2019 JC-Hitachi sets up global development centre in Kadi, Gujarat.

Dec 20, 2019 Johnson Control Hitachi launches its new skill development centre, to impart skills in AC repairing to rural youths

in Andhra Pradesh.

Blue Star Oct 16, 2019 Blue Star launches its new ad campaign 'Owned by Virat, Loved by Virat' which features Virat Kohli.

Nov 20, 2019 Blue Star launches new room air conditioners with in-built air purifiers. Source: PhillipCapital India Research, Channel checks

Key takeaways for companies from channel checks

Voltas o Continuing pricing pressure arising from increased competition has led to

price cuts by many AC companies. o Lower inventory and discounted price in the off-season, has made the

channel stock for the season at lower costs. This led to strong primary sales in Q3.

o Newer channel partners have been added by the company, which has also led to strong growth in primary sales.

o Maintained its leadership in almost all regions of the country. o Beko has reduced the prices of its front-load washing machines by c.24%.

From being positioned among premium players, it is now close mid-premium brands.

o The current share of direct cool and frost free refrigerators in rural markets is of 70:30.

o The launch of direct cool refrigerators are expected in the month of Jan-Feb, 2020, eagerly awaited by the channel partners, as Voltas’ brand recognition and these refrigerators’ price point are expected to lead to significant sales growth.

Orient Electric

o OEL’s consistent efforts in innovation, product development and in advertisement and marketing are being appreciated by the channel.

o Its recent launch in lighting series, iLove LED bulbs, received favourable feedback from the channel.

Price difference between Voltas’ window, fixed speed, and inverter ACs

Voltas (1.5 Ton, 3 Star) June'19 Sept'19 Dec'19

Window 25,600 25,192 24,900 Split (Fxd Speed) 33,200 33,200 32,800 Split (Inverter) 38,100 34,990 34,000



o In Fans, ‘Aero’ series has gained traction and is being appreciated by the consumers for its aesthetics and better performance.

o In the quarter, Fans sales were driven by replacement demand during festival season. Sales arising from real estate activity remain subdued.

o Orient fans are recognized as energy-efficient fans; it continued its leadership in premium category fans.

o The channel believes, Orient is prepared for the new BEE ratings coming in the first half of the year.

o Extreme winter season in major parts of north India has led to higher sales of room heaters and geysers.

o In the non-south markets, the company is aggressively increasing its presence through the modern trade channel.

Havells

o Havells stays a strong player in wires and cables. o Overall slowdown in construction activity has resulted in lower volumes. o In switchgears, it has launched new series ST^Dx, smart range of MCB and

distribution boards. o In fans, primary sales declined in October mainly due to higher inventory,

however it grew in November as inventory level normalised after festival season.

o It has increasing its presence in online trade for its ECD, small domestic appliances, personal grooming and kitchen appliances segments, which has resulted in high double-digit growth.

o At the end of the quarter, heaters and geysers saw huge growth in sales as temperature declined in most parts of north India.

o In washing machines, Lloyd continues to operate with lower SKUs. o TV prices remain under pressure due to competition from Chinese brands. o Lloyd has taken a price cut of c.5-6% on its 3-star 1.5-tonne inverter ACs in

November and December due to increasing competitive intensity and off-season discounts.

o Price cuts of c.5-6% in ACs by Lloyd have led to strong primary sales growth. o Havells is also focusing on cost rationalisation, mainly employee costs.

Bajaj Electricals

o Strong distribution network with cross-selling opportunity has resulted in volume growth in the festival season

o Under RREP (Range Reach Expansion Program), Bajaj is continuously increasing its touch points/retailers in tier-2 and 3 cities.

o BJE’s distribution policy and RREP is appreciated by its channel partners. o In fans, November and December saw a decline in secondary sales mainly

due to off-season. Primary sales were also dented as no price cut has been taken by the company yet.

o Channel partners expect price cuts for fans and air-coolers to happen in January / February.

o It launched a new range of water heaters (WH). In few models, it had increased prices by 3% effective October 2019.

o Geysers and room heaters saw huge growth in sales during the end of the quarter mainly on a decline in temperatures in north India.

o BJE is consistently focusing on increasing its presence on online trade and modern retail.

o Nirlep and Morphy Richard's products have gradually gained some traction in modern trade.

Polycab India Ltd

o Continued slowdown in the construction and infrastructure activity has impacted channel partners’ turnover significantly in the last 3 quarters.



o In W&C, lower demand and normal inventory levels capped the prices of wires and no price hike was taken by the company.

o In FMEG, the company leveraged its existing channel and increased its reach to newer regions.

o In fans, the company is positioning itself with mass players; it has a large number of SKUs for the mass category rather than premium categories.

o Pedestal and industrial fans are receiving good feedback from the consumers; hence, it has gained some market share in industrial and pedestal fans category.

o The company launched another experience centre in Pune; the number of its experience centres in India will touch 25 by March 2020. Announced plans to set up 100 experience centres in major cities by 2021.

VGRD

o In W&C, after the floods in Q2, Q3 saw higher demand arising from repairs and refurbishment.

o VGRD continues to increase its product offerings and touch points in the non-south markets.

o Fans saw higher demand during the festival season, but for the remaining quarters, demand was subdued.

o Added newer SKUs in fans. o Recently launched 5-star water heaters; garnered attention among its

channel partners and consumers. o Water heaters saw huge growth during the end of the quarter due to decline

in temperatures in north India. Whirlpool

o Festivals and wedding-related sales resulted in strong growth in Q3FY19. Rural business was significantly driven by the wedding season.

o Our channel checks suggested that in Rajasthan, LG is the market leader with 28% market share, followed by Whirlpool with market share c.24%.

o Rajasthan’s contribution to total sales of washing machines and refrigerators is c.5-7%.

o In the last few years, Samsung, due to its poor distribution network, has lost major market share to Whirlpool and Haier.

o In washing machines, presence of local (imported) brands has impacted the business significantly. These brands are typically 12-15% cheaper than branded players.

o Shift towards fully automatic washing machines is also coming in rural markets.

o E-commerce contribution has significantly increased to 11% from 2% over the last four years.

o Competitive intensity in the consumer durable industry has increased; Godrej Appliances has become aggressive with deep discounting on its lower-end models.

o Haier has started giving tough competition to Whirlpool, as it has a product portfolio with similar quality at competitive prices.

o Its increasing focus towards alternate channels such as online and modern trade has resulted in higher market share in online than offline channels.

o A new washing-machine line commissioned at its Pune plant in December will expand the range of its front-load washing machines.

o As the industry is moving towards more energy efficient appliances, Whirlpool is expanding its range of inverter washing machines and refrigerators.

o In refrigerators, the company launched direct cool refrigerators in the premium category from its Pune plant.



o In small appliances categories such as microwaves and OTGs, a complete change in product portfolio takes place every two months with new launches.

CG Consumer o Fans witnessed growth in the quarter mainly led by replacements/repair

demand during the festive season. o Increasing competition and off-season led to price cuts c.3% in December. o Channel partners expect more price cuts to come in January/February as

most stocking happens in this period. o Crompton continues to be the market leader in the mass segment. o It launches three new models of BLDC motor fans at c.Rs 2,600-2,700. o Brand recognition as a mass category brand is making Crompton difficult to

gain share in the premium segment. o Water heaters saw both higher primary and secondary sales compared to

last year mainly because of lower inventory and intense winter in major parts of the country.

o In lighting, price erosion continued with c.20-25% fall in LED prices for the full year.

Blue Star o Increasing competition in room air conditioners has capped AC prices. Most

companies have taken price cuts, but Blue Star hasn’t taken any price cuts yet.

o It has started focusing on rebuilding the brand. It recently launched a new ad campaign ‘Owned by Virat, loved by Virat’ which features cricketer Virat Kohli.

o Blue Star launched new air conditioners with in-built air purifiers in November 2019.

Haier Appliances o In CY19, net revenue is expected to grow c.35% to Rs 47bn vs. Rs 35bn in

CY18. In CY18, revenue grew by 50%. It expects revenues to reach Rs 6bn by CY20. AC business grew 55%, washing machine grew 85% and ref 26% till now, over last year).

o Major business is driven by ref, which contributes 40% to the topline (c. 50-55% including deep freezers).

o Washing machine sales grew as it took price cuts of c.10-12%. o Haier is aggressively trying to become the #3 player in refrigerator markets

such as Rajasthan, Gujarat, and Maharashtra. Currently Haier is the #4 player after LG, Samsung and Whirlpool. In the next 5-6 years, it aspires to become #1 in most of its categories.

o Quality at competitive prices is driving Haier’s revenue. Its new manufacturing unit for refrigerators, washing machines, and ACs is expected to double sales in two years.

o Total touch points of Haier Appliances in India are c.20,000 (including dealers and sub-dealers).

o Haier wants to follow Whirlpool’s distribution strategy in increasing its touch points all over the country.

o Bottom-mounted refrigerators (BMR) has helped the company gain significant market share.

o Haier’s strategy is to maintain prices at 10-12% cheaper than brands such as LG and Samsung and 5-6% cheaper than Whirlpool. However, in the premium category of side-by-side refrigerators, Haier is priced at Rs 65,000, which is 30-35% cheaper than LG, Samsung, and Hitachi.

Croma o Home appliances category grew 13% yoy, while digital goods grew 8% yoy.



o Days of sales in the festive season started shrinking; customers can wait for the off-season for discounts.

o Small ticket size sales have shifted to online platforms, while for larger ticket sizes, consumers mostly prefer brick and mortar platforms.

o To avoid conflicts between channels, brands are placing different SKUs online.

o Cash backs boost sales. Most consumer-finance companies were aggressively offering cash backs.

o Cash transactions constitute c.22% of total transactions; rest are non-cash. o In non-cash transactions, i.e., credit cards, debit cards, 48% transactions

were where customers opted for EMIs. Last year, it was around 33-35%. o Online players are becoming less aggressive than their discounting levels in

the past.

o Haier is actively working on its modern and general trade distribution strategy and is quite successful in realigning itself to the Indian consumer. New players, mostly Chinese and Korean companies, are aggressively trying to get into the Indian home appliances market. TCL has started approaching it for its washing machines and refrigerators. Hi-sense is also trying to enter the Indian market.

Electricals (our coverage) in 2QFY20 – growth trends

Source: Company, PhillipCapital India Research Note: #Segmental EBIT *Voltas & BJE company level PAT

PC coverage Q3FY20 performance (Rs mn) Q3FY20 Q3FY19 yoy growth (%) Q2FY20 qoq growth (%)

Revenue 1,04,934 96,505 8.7% 97,150 8.0%

EBITDA* 11,037 12,230 -9.7% 9,914 11.3%

PAT 7,009 7,466 -6.1% 7,140 -1.8%

Note: Excluding CG Consumer, *Company level EBITDA

Source: Company, PhillipCapital India Research

-1%

9%

17%

0%

15%

11%

18%

13%

-5%

0%

5%

10%

15%

20%

Revenue growth (%)

1% -24%

13%

-6%

56%

-4% 14% 18%

-71%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80% EBITDA growth (%)

3%

-21%

13% 13% 34% 54%

-109%

2%

-60%

-40%

-20%

0%

20%

40%

60%

80% PAT growth (%)



W&C company margins and copper-price movement

Copper prices trend over the last eight years (USD/mt)

Source: Company, Bloomberg, PhillipCapital India Research

Copper price trend Copper Prices 3QFY19 2QFY20 3QFY20 YoY QoQ

High 6,302 6,065 6,219 -1% 3% Average 6,158 5,829 5,915 -4% 1% Low 5,956 5,610 5,643 -5% 1%

Source: Bloomberg

Valuation summary

___EPS (Rs)___ EPS Growth (%) ___PE (X)___ EV/EBITDA (X) ___ROE (%)___ CAGR Reco TP* %

FY20e FY21e FY20e FY21e FY20e FY21e FY20e FY21e FY20e FY21e EPS (%) (RS) Upside*

Orient Electric

5.5 7.7 68% 41% 35.2 25.0 19.5 14.8 33.0 35.6 54% BUY 216 12%

Bajaj Electricals Ltd

2.8 15.7 -83% 462% 127.7 22.7 17.9 11.3 11.5 15.6 -42% BUY 450 26%

V-Guard Inds

5.3 6.8 36% 29% 39.6 30.7 27.9 21.6 2.7 13.6 32% BUY 252 21%

KEI Industries

34.8 44.6 51% 28% 14.0 12.7 9.2 7.7 25.4 24.4 34% BUY 616 26%

Finolex Cables

24.8 27.6 10% 12% 15.7 11.0 8.4 6.9 26.3 25.5 39% BUY 442 14%

Havells Ltd

12.6 18.6 0% 48% 49.9 33.8 28.3 23.4 17.7 23.1 0% SELL 568 -10%

Voltas Ltd.

14.8 17.5 31% 18% 34.6 29.9 25.5 22.9 14.3 14.8 0% NEU 673 4%

Polycab India Ltd.

45.8 52.1 90% 14% 21.2 18.6 12.6 11.0 18.0 17.3 0% BUY 913 -6%

Source: Company, PhillipCapital India Research Estimates

4000

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6000

7000

8000

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11000

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

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-17

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LME COPPER 3 Month rolling forward

5500

6000

6500

7000

7500

Mar

-18

Jun

-18

Sep

-18

Dec

-18

Mar

-19

Jun

-19

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-19

LME COPPER 3 Month rolling forward



Earnings Estimates –Q3FY20

(Rs mn) Dec-19E Sep-19 qoq (%) Dec-18 yoy (%) Key expectations

Voltas

Revenues 17,546 14,219 23.4% 14,918 17.6% Inventory push with offseason price (company has taken some price cut)

resulted in strong volume growth in Q3. We expect UCP growth of

c.35%. In Beko, increase in penetration in tier 2 and 3 markets will aid

growth. In EMP, lower execution and higher base will result in lower

growth of 8% yoy

Lower execution in EMP may lead to lower margin. We expect MEP

margin of 7.3% vs. 7.9% yoy.

EBITDA 1,323 1,059 24.9% 1,157 14.3%

EBITDA margin (%) 7.5 7.4 7.8

PAT 1,362 1,226 11.1% 1,206 12.9%

EPS(Rs) 4.1 3.7 11.1% 3.6 12.9%

Finolex Cables

Revenues 7,519 7,158 5.1% 7,496 0.3% In electrical cables, increase in commodity prices (c.+10% qoq) resulted

in volume growth (PC estimate: c.5%). In communication cables, we 15%

decline yoy mainly because of lower orders from government and

private companies

Lower execution in EMP may lead to lower margins. We expect MEP

margins of 7.3% vs. 7.9%.

EBITDA 1,031 844 22.2% 1,096 -5.9%

EBITDA margin (%) 13.7 11.8 14.6

PAT 856 1,231 -30.4% 759 12.8%

EPS(Rs) 6 8 -30.4% 5 12.8%

Orient Electric

Revenues 4,769 4,347 9.7% 4,204 13.4% In fans, moving up in the value chain, stocking for a season (as off

season prices, resulted in growth. In ECD, strong season for water

heaters resulted in overall growth of 15%. Lighting & Switchgears will

see a growth of 10%, increasing penetration and new launches.

Premium products continue to witness strong attraction resulting in

market share gains, though pressure in LED prices continues.

Higher advertisement and tight control on costs will lead to OPM

improvement.

We are expect the same tax rate for Q3FY20 (a higher tax rate).

EBITDA 319 219 46.0% 270 18.3%


PAT 120 49 143.9% 118 2.0%

EPS(Rs) 1 0 143.9% 1 2.0%

Bajaj Electricals

Revenues 13,230 10,918 21.2% 21,618 -38.8% Strong distribution network (BJE reached 210,000 touch points) and

cross-selling opportunity will result in strong growth of 15% in consumer

durables. E&P (revenue of Rs 4.5bn, -68% yoy) fell due to lower

execution and reduction in order book.

Loss in E&P will dent overall margins. In CD, we are expecting margins of

6.1% vs. 7.3%.

EBITDA 397 238 66.8% 1,378 -71.2%


PAT (60) (330) -81.9% 639 -109.4%

EPS(Rs) (1) (3) -81.9% 6 -109.4%

KEI

Revenues 12,688 12,302 3.1% 10,875 16.7% Higher revenue from EHV and B2C will lead to growth.

Improving product mix and tight control on costs will result in better

margins qoq. Increase in copper prices resulted in some pressure in yoy

margin.

EBITDA 1,334 1,222 9.1% 1,177 13.3%

EBITDA margin (%) 10.5 9.9 10.8

PAT 647 762 -15.1% 484 33.6%

EPS(Rs) 8 10 -15.1% 6 33.6%

V-Guard Industries

Revenues 6,434 6,193 3.9% 5,943 8.3% Strong season for heating products like water heater. In the non-south

market, increasing penetration resulted in growth, although liquidity

crunch is capping growth. We expect the south to grow c. 6% and non-

south by c.17%.

Lower base, lower advertisement cost yoy and tight control on other

costs will improve margins yoy.

EBITDA 653 776 -15.9% 450 45.2%

EBITDA margin (%) 10.1 12.5 7.6

PAT 485 573 -15.3% 337 44.0%

EPS(Rs) 1 1 -15.3% 1 43.6%

Havells

Revenues 24,985 22,303 12.0% 25,184 -0.8% Havells S.A. to report flat yoy growth, majorly hit by lower growth in

C&W, switches, and lighting. Only ECD has seen growth, mainly driven

by strong season for heaters and new products. We expect margin of

13.5% in 3Q on lower employee costs.

In Lloyd, we expect a market share loss with heavy competition by

global and domestic brands. Price cuts in ACs pushed volumes in Dec

2019.

EBITDA 2,972 2,341 27.0% 2,946 0.9%

EBITDA margin (%) 11.9 10.5 11.7

PAT 2,013 1,814 11.0% 1,957 2.9%

EPS(Rs) 3 3 11.0% 3 2.9%

Polycab

Revenues 22,105 22,419 -1.4% 20,280 9.0% Strong growth from exports, increasing presence in FMEG segment will

lead to growth

Copper prices and higher advertisement cost may impact margins

Reduction in debt and lower tax rate

EBITDA 2,432 2,717 -10.5% 3,205 -24.1%

EBITDA margin (%) 11.0 12.1 15.8

PAT 1,550 1,938 -20.0% 1,965 -21.1%

EPS(Rs) 11 14 -20.0% 14 -21.1%

Source: Company, Phillip Capital India Research Estimates



Rating Methodology Weratestockonabsolutereturnbasis.Ourtargetpriceforthestockshasaninvestmenthorizonofoneyear.WehavedifferentthresholdforlargemarketcapitalisationstockandMid/smallmarketcapitalisationstock.ThecategorisationofstockbasedonmarketcapitalisationisaspertheSEBIrequirement.

Largecapstocks Rating Criteria Definition

BUY >=+10% Targetpriceisequaltoormorethan10%ofcurrentmarketprice

NEUTRAL -10%>to<+10% Targetpriceislessthan+10%butmorethan-10%

SELL <=-10% Targetpriceislessthanorequalto-10%.

MidcapandSmallcapstocks Rating Criteria Definition

BUY >=+15% Targetpriceisequaltoormorethan15%ofcurrentmarketprice

NEUTRAL -15%>to<+15% Targetpriceislessthan+15%butmorethan-15%

SELL <=-15% Targetpriceislessthanorequalto-15%.

DisclosuresandDisclaimers PhillipCapital(India)Pvt.Ltd.hasthreeindependentequityresearchgroups:InstitutionalEquities,InstitutionalEquityDerivatives,andPrivateClientGroup.ThisreporthasbeenpreparedbyInstitutionalEquitiesGroup.Theviewsandopinionsexpressedinthisdocumentmay,maynotmatch,ormaybecontraryattimeswiththeviews,estimates,rating,andtargetpriceoftheotherequityresearchgroupsofPhillipCapital(India)Pvt.Ltd.

ThisreportisissuedbyPhillipCapital(India)Pvt.Ltd.,whichisregulatedbytheSEBI.PhillipCapital(India)Pvt.Ltd.isasubsidiaryofPhillip(Mauritius)Pvt.Ltd.Referencesto"PCIPL"inthisreportshallmeanPhillipCapital(India)Pvt.Ltdunlessotherwisestated.ThisreportispreparedanddistributedbyPCIPLforinformationpurposesonly,andneithertheinformationcontainedherein,noranyopinionexpressedshouldbeconstruedordeemedtobeconstruedassolicitationorasofferingadviceforthepurposesofthepurchaseorsaleofanysecurity,investment,orderivatives.TheinformationandopinionscontainedinthereportwereconsideredbyPCIPLtobevalidwhenpublished.ThereportalsocontainsinformationprovidedtoPCIPLbythirdparties.Thesourceofsuchinformationwillusuallybedisclosedinthereport.WhilstPCIPLhastakenallreasonablestepstoensurethatthisinformationiscorrect,PCIPLdoesnotofferanywarrantyastotheaccuracyorcompletenessofsuchinformation.AnypersonplacingrelianceonthereporttoundertaketradingdoessoentirelyathisorherownriskandPCIPLdoesnotacceptanyliabilityasaresult.SecuritiesandDerivativesmarketsmaybesubjecttorapidandunexpectedpricemovementsandpastperformanceisnotnecessarilyanindicationoffutureperformance.

Thisreportdoesnotregardthespecificinvestmentobjectives,financialsituation,andtheparticularneedsofanyspecificpersonwhomayreceivethisreport.Investorsmustundertakeindependentanalysiswiththeirownlegal,tax,andfinancialadvisorsandreachtheirownconclusionsregardingtheappropriatenessofinvestinginanysecuritiesorinvestmentstrategiesdiscussedorrecommendedinthisreportandshouldunderstandthatstatementsregardingfutureprospectsmaynotberealised.Undernocircumstancescanitbeusedorconsideredasanoffertosellorasasolicitationofanyoffertobuyorsellthesecuritiesmentionedwithinit.Theinformationcontainedintheresearchreportsmayhavebeentakenfromtradeandstatisticalservicesandothersources,whichPCILbelieveisreliable.PhillipCapital(India)Pvt.Ltd.oranyofitsgroup/associate/affiliatecompaniesdonotguaranteethatsuchinformationisaccurateorcompleteanditshouldnotberelieduponassuch.Anyopinionsexpressedreflectjudgmentsatthisdateandaresubjecttochangewithoutnotice.

Important:Thesedisclosuresanddisclaimersmustbereadinconjunctionwiththeresearchreportofwhichitformspart.Receiptanduseoftheresearchreportissubjecttoallaspectsofthesedisclosuresanddisclaimers.Additionalinformationabouttheissuersandsecuritiesdiscussedinthisresearchreportisavailableonrequest.

Certifications:Theresearchanalyst(s)whopreparedthisresearchreportherebycertifiesthattheviewsexpressedinthisresearchreportaccuratelyreflecttheresearchanalyst’spersonalviewsaboutallofthesubjectissuersand/orsecurities,thattheanalyst(s)havenoknownconflictofinterestandnopartoftheresearchanalyst’scompensationwas,is,orwillbe,directlyorindirectly,relatedtothespecificviewsorrecommendationscontainedinthisresearchreport.

AdditionalDisclosuresofInterest: UnlessspecificallymentionedinPointNo.9below: 1. TheResearchAnalyst(s),PCIL,oritsassociatesorrelativesoftheResearchAnalystdoesnothaveanyfinancialinterestinthecompany(ies)coveredinthisreport. 2. TheResearchAnalyst,PCILoritsassociatesorrelativesoftheResearchAnalystaffiliatescollectivelydonotholdmorethan1%ofthesecuritiesofthecompany(ies)cov

eredinthisreportasoftheendofthemonthimmediatelyprecedingthedistributionoftheresearchreport. 3. TheResearchAnalyst,his/herassociate,his/herrelative,andPCIL,donothaveanyothermaterialconflictofinterestatthetimeofpublicationofthisresearchreport. 4. TheResearchAnalyst,PCIL,anditsassociateshavenotreceivedcompensationforinvestmentbankingormerchantbankingorbrokerageservicesorforanyotherpro

ductsorservicesfromthecompany(ies)coveredinthisreport,inthepasttwelvemonths. 5. TheResearchAnalyst,PCILoritsassociateshavenotmanagedorco-

managedintheprevioustwelvemonths,aprivateorpublicofferingofsecuritiesforthecompany(ies)coveredinthisreport. 6. PCILoritsassociateshavenotreceivedcompensationorotherbenefitsfromthecompany(ies)coveredinthisreportorfromanythirdparty,inconnectionwiththeres

earchreport. 7. TheResearchAnalysthasnotservedasanOfficer,Director,oremployeeofthecompany(ies)coveredintheResearchreport. 8. TheResearchAnalystandPCILhasnotbeenengagedinmarketmakingactivityforthecompany(ies)coveredintheResearchreport. 9. DetailsofPCIL,ResearchAnalystanditsassociatespertainingtothecompaniescoveredintheResearchreport:

Sr.no. Particulars Yes/No

1 Whethercompensationhasbeenreceivedfromthecompany(ies)coveredintheResearchreportinthepast12monthsforinvestmentbankingtransactionbyPCIL No

2 WhetherResearchAnalyst,PCILoritsassociatesorrelativesoftheResearchAnalystaffiliatescollectivelyholdmorethan1%ofthecompany(ies)coveredintheResearchreport No

3 WhethercompensationhasbeenreceivedbyPCILoritsassociatesfromthecompany(ies)coveredintheResearchreport No

4 PCILoritsaffiliateshavemanagedorco-managedintheprevioustwelvemonthsaprivateorpublicofferingofsecuritiesforthecompany(ies)coveredintheResearchreport No



5 ResearchAnalyst,hisassociate,PCILoritsassociateshavereceivedcompensationforinvestmentbankingormerchantbankingorbrokerageservicesorforanyotherproductsorservicesfromthecompany(ies)coveredintheResearchreport,inthelasttwelvemonths No

Independence:PhillipCapital(India)Pvt.Ltd.hasnothadaninvestmentbankingrelationshipwith,andhasnotreceivedanycompensationforinvestmentbankingservicesfrom,thesubjectissuersinthepasttwelve(12)months,andPhillipCapital(India)Pvt.Ltddoesnotanticipatereceivingorintendtoseekcompensationforinvestmentbankingservicesfromthesubjectissuersinthenextthree(3)months.PhillipCapital(India)Pvt.Ltdisnotamarketmakerinthesecuritiesmentionedinthisresearchreport,althoughit,oritsaffiliates/employees,mayhavepositionsin,purchaseorsell,orbemateriallyinterestedinanyofthesecuritiescoveredinthereport.

SuitabilityandRisks:Thisresearchreportisforinformationalpurposesonlyandisnottailoredtothespecificinvestmentobjectives,financialsituationorparticularrequirementsofanyindividualrecipienthereof.Certainsecuritiesmaygiverisetosubstantialrisksandmaynotbesuitableforcertaininvestors.Eachinvestormustmakeitsowndeterminationastotheappropriatenessofanysecuritiesreferredtointhisresearchreportbaseduponthelegal,taxandaccountingconsiderationsapplicabletosuchinvestoranditsowninvestmentobjectivesorstrategy,itsfinancialsituationanditsinvestingexperience.Thevalueofanysecuritymaybepositivelyoradverselyaffectedbychangesinforeignexchangeorinterestrates,aswellasbyotherfinancial,economic,orpoliticalfactors.Pastperformanceisnotnecessarilyindicativeoffutureperformanceorresults.

Sources,CompletenessandAccuracy:ThematerialhereinisbaseduponinformationobtainedfromsourcesthatPCIPLandtheresearchanalystbelievetobereliable,butneitherPCIPLnortheresearchanalystrepresentsorguaranteesthattheinformationcontainedhereinisaccurateorcompleteanditshouldnotberelieduponassuch.Opinionsexpressedhereinarecurrentopinionsasofthedateappearingonthismaterial,andaresubjecttochangewithoutnotice.Furthermore,PCIPLisundernoobligationtoupdateorkeeptheinformationcurrent.Withoutlimitinganyoftheforegoing,innoeventshallPCIL,anyofitsaffiliates/employeesoranythirdpartyinvolvedin,orrelatedtocomputingorcompilingtheinformationhaveanyliabilityforanydamagesofanykindincludingbutnotlimitedtoanydirectorconsequentiallossordamage,howeverarising,fromtheuseofthisdocument.

Copyright:ThecopyrightinthisresearchreportbelongsexclusivelytoPCIPL.Allrightsarereserved.Anyunauthoriseduseordisclosureisprohibited.Noreprintingorreproduction,inwholeorinpart,ispermittedwithoutthePCIPL’spriorconsent,exceptthatarecipientmayreprintitforinternalcirculationonlyandonlyifitisreprintedinitsentirety.

Caution:Riskoflossintrading/investmentcanbesubstantialandevenmorethantheamount/margingivenbyyou.Investmentinsecuritiesmarketaresubjecttomarketrisks,youarerequestedtoreadalltherelateddocumentscarefullybeforeinvesting.Youshouldcarefullyconsiderwhethertrading/investmentisappropriateforyouinlightofyourexperience,objectives,financialresourcesandotherrelevantcircumstances.PhillipCapitalandanyofitsemployees,directors,associates,groupentities,oraffiliatesshallnotbeliableforlosses,ifany,incurredbyyou.Youarefurthercautionedthattrading/investmentsinfinancialmarketsaresubjecttomarketrisksandareadvisedtoseekindependentthirdpartytrading/investmentadviceoutsidePhillipCapital/group/associates/affiliates/directors/employeesbeforeandduringyourtrading/investment.Thereisnoguarantee/assuranceastoreturnsorprofitsorcapitalprotectionorappreciation.PhillipCapitalandanyofitsemployees,directors,associates,and/oremployees,directors,associatesofPhillipCapital’sgroupentitiesoraffiliatesisnotinducingyoufortrading/investinginthefinancialmarket(s).Trading/Investmentdecisionisyoursoleresponsibility.YoumustalsoreadtheRiskDisclosureDocumentandDo’sandDon’tsbeforeinvesting.

Kindlynotethatpastperformanceisnotnecessarilyaguidetofutureperformance.

ForDetailedDisclaimer:Pleasevisitourwebsitewww.phillipcapital.in IMPORTANTDISCLOSURESFORU.S.PERSONS ThisresearchreportisaproductofPhillipCapital(India)Pvt.Ltd.whichistheemployeroftheresearchanalyst(s)whohaspreparedtheresearchreport.PhillipCapital(India)PvtLtd.isauthorizedtoengageinsecuritiesactivitiesinIndia.PHILLIPCAPisnotaregisteredbroker-dealerintheUnitedStatesand,therefore,isnotsubjecttoU.S.rulesregardingthepreparationofresearchreportsandtheindependenceofresearchanalysts.Thisresearchreportisprovidedfordistributionto“majorU.S.institutionalinvestors”inrelianceontheexemptionfromregistrationprovidedbyRule15a-6oftheU.S.SecuritiesExchangeActof1934,asamended(the“ExchangeAct”).IftherecipientofthisreportisnotaMajorInstitutionalInvestorasspecifiedabove,thenitshouldnotactuponthisreportandreturnthesametothesender.Further,thisreportmaynotbecopied,duplicatedand/ortransmittedonwardtoanyU.S.person,whichisnotaMajorInstitutionalInvestor.

AnyU.S.recipientofthisresearchreportwishingtoeffectanytransactiontobuyorsellsecuritiesorrelatedfinancialinstrumentsbasedontheinformationprovidedinthisresearchreportshoulddosoonlythroughRosenblattSecuritiesInc,40WallStreet59thFloor,NewYorkNY10005,aregisteredbrokerdealerintheUnitedStates.UndernocircumstancesshouldanyrecipientofthisresearchreporteffectanytransactiontobuyorsellsecuritiesorrelatedfinancialinstrumentsthroughPHILLIPCAP.RosenblattSecuritiesInc.acceptsresponsibilityforthecontentsofthisresearchreport,subjecttothetermssetoutbelow,totheextentthatitisdeliveredtoaU.S.personotherthanamajorU.S.institutionalinvestor.

TheanalystwhosenameappearsinthisresearchreportisnotregisteredorqualifiedasaresearchanalystwiththeFinancialIndustryRegulatoryAuthority(“FINRA”)andmaynotbeanassociatedpersonofRosenblattSecuritiesInc.and,therefore,maynotbesubjecttoapplicablerestrictionsunderFINRARulesoncommunicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount. OwnershipandMaterialConflictsofInterest RosenblattSecuritiesInc.oritsaffiliatesdoesnot‘beneficiallyown,’asdeterminedinaccordancewithSection13(d)oftheExchangeAct,1%ormoreofanyoftheequitysecuritiesmentionedinthereport.RosenblattSecuritiesInc,itsaffiliatesand/ortheirrespectiveofficers,directorsoremployeesmayhaveinterests,orlongorshortpositions,andmayatanytimemakepurchasesorsalesasaprincipaloragentofthesecuritiesreferredtoherein.RosenblattSecuritiesInc.isnotawareofanymaterialconflictofinterestasofthedateofthispublication CompensationandInvestmentBankingActivities RosenblattSecuritiesInc.oranyaffiliatehasnotmanagedorco-managedapublicofferingofsecuritiesforthesubjectcompanyinthepast12months,norreceivedcompensationforinvestmentbankingservicesfromthesubjectcompanyinthepast12months,neitherdoesitoranyaffiliateexpecttoreceive,orintendstoseekcompensationforinvestmentbankingservicesfromthesubjectcompanyinthenext3months. AdditionalDisclosures Thisresearchreportisfordistributiononlyundersuchcircumstancesasmaybepermittedbyapplicablelaw.Thisresearchreporthasnoregardtothespecificinvestmentobjectives,financialsituationorparticularneedsofanyspecificrecipient,evenifsentonlytoasinglerecipient.Thisresearchreportisnotguaranteedtobeacompletestatementorsummaryofanysecurities,markets,reportsordevelopmentsreferredtointhisresearchreport.NeitherPHILLIPCAPnoranyofitsdirectors,officers,employeesoragentsshallhaveanyliability,howeverarising,foranyerror,inaccuracyorincompletenessoffactoropinioninthisresearchreportorlackofcareinthisresearchreport’spreparationorpublication,oranylossesordamageswhichmayarisefromtheuseofthisresearchreport.

PHILLIPCAPmayrelyoninformationbarriers,suchas“ChineseWalls”tocontroltheflowofinformationwithintheareas,units,divisions,groups,oraffiliatesofPHILLIPCAP.

http://www.phillipcapital.in/



Investinginanynon-U.S.securitiesorrelatedfinancialinstruments(includingADRs)discussedinthisresearchreportmaypresentcertainrisks.Thesecuritiesofnon-U.S.issuersmaynotberegisteredwith,orbesubjecttotheregulationsof,theU.S.SecuritiesandExchangeCommission.Informationonsuchnon-U.S.securitiesorrelatedfinancialinstrumentsmaybelimited.ForeigncompaniesmaynotbesubjecttoauditandreportingstandardsandregulatoryrequirementscomparabletothoseineffectwithintheUnitedStates.

ThevalueofanyinvestmentorincomefromanysecuritiesorrelatedfinancialinstrumentsdiscussedinthisresearchreportdenominatedinacurrencyotherthanU.S.dollarsissubjecttoexchangeratefluctuationsthatmayhaveapositiveoradverseeffectonthevalueoforincomefromsuchsecuritiesorrelatedfinancialinstruments.

Pastperformanceisnotnecessarilyaguidetofutureperformanceandnorepresentationorwarranty,expressorimplied,ismadebyPHILLIPCAPwithrespecttofutureperformance.Incomefrominvestmentsmayfluctuate.Thepriceorvalueoftheinvestmentstowhichthisresearchreportrelates,eitherdirectlyorindirectly,mayfallorriseagainsttheinterestofinvestors.Anyrecommendationoropinioncontainedinthisresearchreportmaybecomeoutdatedasaconsequenceofchangesintheenvironmentinwhichtheissuerofthesecuritiesunderanalysisoperates,inadditiontochangesintheestimatesandforecasts,assumptionsandvaluationmethodologyusedherein.

Nopartofthecontentofthisresearchreportmaybecopied,forwardedorduplicatedinanyformorbyanymeanswithoutthepriorwrittenconsentofPHILLIPCAPandPHILLIPCAPacceptsnoliabilitywhatsoeverfortheactionsofthirdpartiesinthisrespect.

PhillipCapital(India)Pvt.Ltd. Registeredoffice:18thfloor,UrmiEstate,GanpatraoKadamMarg,LowerParel(West),Mumbai–400013,India.

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