NEUTRAL Seasonality blip - 4QFY19 - HDFC sec... · Havells India. NEUTRAL . securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters. Seasonality

RESULTS REVIEW 4QFY19 30 MAY 2019

Havells India NEUTRAL

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

Seasonality blip Havells 4Q performance was weak owing to extended winter and liquidity crunch in the trade. We believe the slowdown is short-lived (led by stable government, hot summer 2019 and recovery in trade liquidity) and Havells will resume its outperformance. We maintain our NEUTRAL stance as we believe most of the near-term positives are priced-in. We value at 36x on Mar-21 EPS, arriving at a TP of Rs 743.

HIGHLIGHTS OF THE QUARTER Net revenues grew by 9% (35% in previous 4 qtrs.) vs.

exp of 17%. Core biz was up by 14% (18% in 4QFY18; 24% in previous 4 qtrs.). Core biz growth moderated on account of (a) Impending elections (curtailed B2B spend), (b) Liquidity crunch and (c) Extended winter.

Switchgears/Cables/Lighting/ECD/Lloyd grew by 11/17/7/9/-9% respectively. Lighting was impacted by lower project orders, while ECD was impacted by late onset of summer (fans). We believe both these segments will bounce back shortly.

Lloyd’s performance was muted in FY19 (2% comparable growth) owing to weak RAC industry offtake. During the year, co. took steps in the right direction which will pay-off in the medium term i.e. (a) Commissioned RAC plant (benefit to accrue next season), (b) Focused on R&D (more product features)

and (c) Repositioned brand towards premium segment. Contribution margins for cables expanded by 40bps,

while for Switchgears/Lighting/ECD/Lloyd declined by 67/509/100/698 bps owing to delay in price hikes and modest volume growth.

GM declined by 85bps to 37.1% (vs. exp of -26bps). Employee/other expenses grew by 35/11% resulting in 10% decline in EBITDA.

In FY19, Havells focused on new launches which were supported by up-front investments at a time when commodity prices were volatile. As a result, EBITDAM declined by 100bps. We expect this to reverse over FY20-21E and therefore build 170bps EBITDAM expansion during this period.

STANCE In FY19, Havells attained great success in its ECD segment (up 30% despite a base of 21% in FY18) which consistently led to revenue beat. However, EBITDA growth was challenged (14%). In FY20, we expect the co. to continue to scale its new launches, improve Lloyd’s performance and benefit from higher B2B spend. We also expect segment margins to revive (FY17-FY18 band) resulting in robust EBITDA growth. We don’t expect a re-rating in the stock (high implied valuation for ECD) and believe most near term positives are factored in the stock.

Financial Summary (Standalone) YE March (Rs mn) 4QFY19 4QFY18 YoY (%) 3QFY19 QoQ (%) FY17 FY18 FY19P FY20E FY21E Net Revenues 27,519 25,349 8.6 25,184 9.3 61,353 81,386 100,576 117,097 135,728 EBITDA 3,229 3,577 (9.7) 2,946 9.6 8,241 10,493 11,922 15,476 18,358 APAT 2,068 2,319 (10.8) 1,957 5.7 5,967 7,036 7,916 10,688 12,916 Diluted EPS (Rs) 3.3 3.7 (10.9) 3.1 5.7 9.5 11.3 12.7 17.1 20.6 P/E (x) 76.8 65.1 57.9 42.9 35.5 EV / EBITDA (x) 53.3 42.3 37.3 28.4 23.6 Core RoCE (%) 35.5 33.9 27.7 32.3 36.9

Source: Company, HDFC sec Inst Research

INDUSTRY APPLIANCES CMP (as on 29 May 2019) Rs 733 Target Price Rs 743 Nifty 11,861 Sensex 39,502 KEY STOCK DATA Bloomberg HAVL IN No. of Shares (mn) 625 MCap (Rs bn) / ($ mn) 457/6,547 6m avg traded value (Rs mn) 944 STOCK PERFORMANCE (%) 52 Week high / low Rs 783/520 3M 6M 12M Absolute (%) 2.2 6.0 33.2 Relative (%) (8.0) (3.2) 20.2 SHAREHOLDING PATTERN (%) Dec-18 Mar-19 Promoters 59.55 59.55 FIs & Local MFs 4.71 4.30 FPIs 26.54 27.28 Public & Others 9.20 8.87 Pledged Shares (% of total shares) - -

Source : BSE

Naveen Trivedi [email protected] +91-22-6171-7324

Siddhant Chhabria [email protected] +91-22-6171-7336

HAVELLS INDIA: RESULTS REVIEW 4QFY19

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Quarterly Financials (Havells + Lloyd)

Year to March (Rs mn) 4QFY19 4QFY18 YoY Chg (%) 3QFY19 QoQ Chg

(%) FY19 FY18 YoY Chg (%)

Net Revenue 27,519 25,349 8.6 25,184 9.3 1,00,576 81,386 23.6 Material Expenses 17,308 15,728 10.0 15,751 9.9 62,785 49,808 26.1 Employee Expenses 2,213 1,637 35.2 2,108 5.0 8,324 6,497 28.1 ASP Expenses 1,030 1,046 (1.6) 915 12.5 3,842 3,076 24.9 Other Operating Expenses 3,740 3,361 11.3 3,465 7.9 13,702 11,512 19.0 EBITDA 3,229 3,577 (9.7) 2,946 9.6 11,922 10,493 13.6 Depreciation 391 347 12.5 353 10.6 1,486 1,395 6.5 EBIT 2,838 3,230 (12.1) 2,593 9.5 11,712 10,267 14.1 Other Income 310 257 20.2 331 (6.4) 1,276 1,170 9.0 Interest Cost 61 84 (26.6) 36 72.5 159 240 (33.6) PBT 3,086 3,404 (9.3) 2,888 6.9 11,553 10,028 15.2 Exceptional item - (91) na - na - 119 na PBT after exceptional 3,086 3,313 (6.9) 2,888 11,553 10,147 13.9 Tax 1,018 1,055 (3.6) 931 9.3 3,637 3,022 20.4 RPAT 2,068 2,258 (8.4) 1,957 5.7 7,916 7,125 11.1 Exceptional (net of taxes) - (62) na - na - (90) na APAT 2,068 2,319 (10.8) 1,957 5.7 7,916 7,035 12.5 EPS (adjusted) 3.3 3.7 (10.9) 3.1 5.7 12.7 11.3 12.4 Source: Company, HDFC sec Inst Research Margin Analysis (Havells + Lloyd)

(% of Revenues) 4QFY19 4QFY18 YoY Chg (bps) 3QFY19 QoQ Chg

(bps) FY19 FY18 YoY Chg (bps)

Material Expenses 62.9 62.0 85 62.5 35 62.4 61.2 123 Employee Expenses 8.0 6.5 158 8.4 (33) 8.3 8.0 29 ASP Expenses 3.7 4.1 (38) 3.6 11 3.8 3.8 4 Other Operating Expenses 13.6 13.3 33 13.8 (17) 13.6 14.1 (52) EBITDA Margin (%) 11.7 14.1 (238) 11.7 4 11.9 12.9 (104) Tax Rate (%) 33.0 31.0 197 32.2 74 31.4 30.1 123 APAT Margin (%) 7.5 9.1 (163) 7.8 (25) 7.9 8.6 (77) Source: Company, HDFC sec Inst Research

Havells core business grew by 14% (18% in 4QFY18) in 4QFY19 Lloyd business degrew by 9% owing to extended winter and heavy channel inventory Employee/other expense grew by 35/11% owing to investment in talent and distribution expansion, resulting in EBITDA degrowth of 10%


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Quarterly Performance

Particulars (Rs mn) Havells (Ex-Lloyd) Lloyd Consumer Havells (With Lloyd)

4QFY19 4QFY18 YoY Chg 4QFY19 4QFY18 YoY Chg 4QFY19 4QFY18 YoY Chg Net Revenue 22,195 19,507 13.8 5,324 5,841 (8.9) 27,519 25,348 8.6 Contribution 5,598 5,100 9.8 798 1,283 (37.8) 6,396 6,383 0.2 Contribution Margin (%) 25.2% 26.1% -92bps 15.0% 22.0% -698bps 23.2% 25.2% -194bps ASP 641 675 (5.0) 389 371 4.9 1,030 1,046 (1.5) (% of sales) 2.9% 3.5% -57bps 7.3% 6.4% 95bps 3.7% 4.1% -38bps Other Expenses 2,243 1,863 20.4 285 244 16.8 2,528 2,107 20.0 (% of sales) 10.1% 9.6% 56bps 5.4% 4.2% 118bps 9.2% 8.3% 87bps EBITDA 3,047 2,853 6.8 182 724 (74.9) 3,229 3,577 (9.7) EBITDA Margin (%) 13.7% 14.6% -90bps 3.4% 12.4% -898bps 11.7% 14.1% -238bps Depreciation/Amortisation 333 291 14.4 58 56 3.6 391 347 12.7 Interest (Inc Forex) 126 104 21.2 95 13 630.8 221 117 88.9 Other income 149 225 (33.8) - - na 149 225 (33.8) PBT 2,873 2,723 5.5 213 681 (68.7) 3,086 3,404 (9.3) Exceptional - 91 na - - na - 91 na PBT after exceptional 2,873 2,632 9.2 213 681 (68.7) 3,086 3,313 (6.9) Tax 1,018 1,055 (3.5) Tax Rate (%) 33.0% 31.8% 114bps PAT 2,068 2,258 (8.4) Exceptional (net of taxes) - 61 na APAT 2,068 2,319 (10.8) NPM (%) 7.5% 9.1% -163bps Source: Company, HDFC sec Inst Research

Havells continues to spend behind brands as the general demand situation improves vs. the last 2 years ASP spend for core business degrew by 5% (2.9% of rev.) as co. held back discretionary spend


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Annual Performance

Particulars (Rs mn) Havells (Ex-Lloyd) Lloyd Consumer Havells (With Lloyd)

FY19 FY18 YoY Chg FY19 FY18 YoY Chg FY19 FY18 YoY Chg Net Revenue 82,020 67,244 22.0 18,555 14,141 31.2 100,575 81,385 23.6 Contribution 20,724 17,510 18.4 3,176 2,684 18.3 23,900 20,194 18.3 Contribution Margin (%) 25.3% 26.0% -77bps 17.1% 19.0% -187bps 23.8% 24.8% -105bps ASP 2,563 2,103 21.9 1,279 973 31.4 3,842 3,076 24.9 (% of sales) 3.1% 3.1% 0bps 6.9% 6.9% 1bps 3.8% 3.8% 4bps Other Expenses 8,504 7,250 17.3 1,115 768 45.2 9,619 8,018 20.0 (% of sales) 10.4% 10.8% -41bps 6.0% 5.4% 58bps 9.6% 9.9% -29bps EBITDA 10,939 9,367 16.8 986 1,126 (12.4) 11,925 10,493 13.6 EBITDA Margin (%) 13.3% 13.9% -59bps 5.3% 8.0% -265bps 11.9% 12.9% -104bps Depreciation/Amortisation 1,282 1,210 6.0 204 184 10.9 1,486 1,394 6.6 Interest (Inc Forex) 348 67 419.7 38 168 (77.4) 386 235 64.3 Other income 1,045 842 24.1 - - - 1,045 842 24.1 PBT 10,740 8,930 20.3 814 1,098 (25.9) 11,554 10,028 15.2 Exceptional - (119) na - - na - (119) na PBT after exceptional 10,740 9,049 18.7 814 1,098 (25.9) 11,554 10,147 13.9 Tax 3,637 3,022 20.4 Tax Rate (%) 31.5% 29.8% 170bps PAT 7,965 7,125 11.1 Exceptional (net of taxes) - 61 na APAT 7,916 7,035 12.1 NPM (%) 7.9% 8.8% -88bps Source: Company, HDFC sec Inst Research

Core business contribution margin declined by 77bps owing to gradual price hikes. We expect the co to return to margin expansion in FY20 Lloyd witnessed a challenging year owing to seasonality factors


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Segmental Quarterly Performance

Year to March (Rs mn) 4QFY19 4QFY18 YoY Chg (%) 3QFY19 QoQ Chg

(%) FY19 FY18 YoY Chg (%)

Segmental Revenues Cables and Wires 8,979 7,689 16.8 8,203 9.5 32,346 26,001 24.0 Electrical Consumer Durables 5,049 4,646 8.7 5,552 (9.1) 19,938 15,602 30.0 Switch Gears 4,368 3,946 10.7 4,162 4.9 16,802 14,077 21.0 Lighting & Fixtures 3,296 3,068 7.4 3,189 3.3 11,902 10,240 16.0 Lloyd Consumer Division 5,324 5,841 (8.9) 3,572 na 18,556 14,141 *2% Others 504 159 217.0 506 (0.4) 1,032 1,325 (22.0) Total 27,519 25,349 8.6 25,184 9.3 100,576 81,386 24.0 Segmental Contribution Cables and Wires 1,575 1,318 19.5 1,294 21.7 5,218 4,380 19.1 Consumer Durables 1,320 1,262 4.7 1,412 (6.5) 5,349 4,201 27.3 Switch Gears 1,656 1,523 8.8 1,631 1.6 6,464 5,572 16.0 Lighting & Fixtures 886 981 (9.7) 960 (7.7) 3,403 3,120 9.1 Lloyd Consumer Division 798 1,283 na 531 na 3,175 2,684 18.3 Others 161 17 847.1 129 na 291 236 23.3 Total 6,396 6,383 0.2 5,957 7.4 23,900 20,193 18.4 Less: (a) Interest Cost & Bank Charges 61 84 (26.6) 36 72.5 159 240 (33.6) (b) Other Un-allocable Expenses 3,249 2,987 8.8 3,033 7.1 12,188 9,807 24.3 PBT 3,086 3,313 (6.9) 2,888 6.9 11,553 10,147 13.9 Capital Employed Cables and Wires 2,854 2,289 24.7 3,355 (14.9) 2,854 2,289 24.7 Electrical Consumer Durables 3,009 1,205 149.7 2,274 32.3 3,009 1,205 149.7 Switch Gears 3,750 3,328 12.7 3,588 4.5 3,750 3,328 12.7 Lighting & Fixtures 3,517 2,508 40.2 3,012 16.8 3,517 2,508 40.2 Lloyd Consumer Division 21,273 15,484 37.4 22,037 (3.5) 21,273 15,484 37.4 Total 34,402 24,815 38.6 34,266 38.6 34,402 24,815 38.6 Unallocable Capital Employed 8,023 12,577 (36.2) 6,118 31.1 8,023 12,577 (36.2) Total Capital Employed 42,425 37,391 13.5 40,384 5.1 42,425 37,391 13.5 Source: Company, HDFC sec Inst Research Note: Contribution margins are derived after deducting material cost, manufacturing variables, direct selling variables and depreciation from the net revenue| *Lloyd’s growth in FY19 is based on comparable growth (Lloyd was partial in FY18 with Havells)

Cables and wires revenue growth was largely volume led Havells continued to gain share in Fans (~15% market share in total fans market and >40% market share in premium segment)


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Segmental Contribution Margin

(% of Revenues) 4QFY19 4QFY18 YoY Chg (bps) 3QFY19 QoQ Chg

(bps) FY19 FY18 YoY Chg (bps)

Cables and Wires 17.5 17.1 40 15.8 176 16.1 16.8 (72) Electrical Consumer Durables 26.2 27.2 (100) 25.4 72 26.8 26.9 (10) Switch Gears 37.9 38.6 (67) 39.2 (127) 38.5 39.6 (111) Lighting & Fixtures 26.9 32.0 (509) 30.1 (322) 28.6 30.5 (188) Lloyd Consumer Division 15.0 22.0 (698) 14.9 12 17.1 19.0 (187) Others 31.9 10.7 2,125 na na 28.5 17.8 1,068 Total 23.2 25.2 (194) 23.7 (41) 23.8 24.8 (105) Source: Company, HDFC sec Inst Research Net Revenue Gross Margin

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Lighting contribution margin declined by 509bps due to unfavorable product mix ECD segment witnessed 100bps decline in margins owing to unfavorable mix (fans was impacted) and delay in price hikes Lloyd was acquired during mid 1QFY18 and hence revenue growth from 1QFY18 to 1QFY19 was driven inorganically

(15.0)

-

15.0

30.0

45.0

60.0

-

7,000

14,000

21,000

28,000

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

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2Q F

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3Q F

Y18

4Q F

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1Q F

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2Q F

Y19

3Q F

Y19

4Q F

Y19

Net Revenue YoY Growth - RHSRs mn %

(1.0)4.0 9.0 14.0 19.0 24.0 29.0 34.0 39.0 44.0

-

2,500

5,000

7,500

10,000

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

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4Q F

Y17

1Q F

Y18

2Q F

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3Q F

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4Q F

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Gross Profit Gross Margin (%) - RHSRs mn %


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Employee Expenses ASP Expenses

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research EBITDA APAT

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Employee expense continues to rise as Havells expands its distribution network and aggressively launches new products

3.0

4.5

6.0

7.5

9.0

-

450

900

1,350

1,800

2,250

2,700

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

Employee Expense % of Sales - RHSRs mn

0.5

1.5

2.5

3.5

4.5

-

300

600

900

1,200

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

ASP Expense % of Sales - RHSRs mn

10.0

11.5

13.0

14.5

16.0

-

900

1,800

2,700

3,600

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

EBITDA EBITDA Margin (%) - RHSRs mn

6.0

7.5

9.0

10.5

12.0

-

600

1,200

1,800

2,400

1Q F

Y16

2Q F

Y16

3Q F

Y16

4Q F

Y16

1Q F

Y17

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

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3Q F

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APAT NPM (%) - RHSRs mn


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Segmental Analysis Cable & Wires 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3Q FY19 4QFY19 Sales (Rs mn) 5,329 5,592 6,092 6,780 6,363 5,693 6,256 7,689 7,499 7,665 8,203 8,979 Sales Gr. (%)* 4.9 0.2 17.7 12.5 19.4 2.0 3.0 13.0 18.0 34.6 31.1 16.8 Sales Mix (%) 36.3 38.5 40.5 39.6 34.2 32.0 31.8 30.3 28.9 35.0 32.6 32.6 Contribution Gr. (%) 4.9 0.2 17.7 12.5 19.4 2.0 3.0 13.0 18.0 34.6 31.1 16.8 Contribution Margin (%) 13.5 14.2 14.3 12.9 13.5 19.9 17.1 17.1 17.0 14.0 15.8 17.5 Contribution Margin Chg -61bps 63bps 14bps -194bps 0bps 573bps 284bps 423bps 355bps -594bps -133bps 40bps Contribution Mix (%) 19.7 21.5 23.7 21.9 20.7 24.2 21.5 20.6 20.4 20.3 21.7 24.6 Note: Sales growth/margin expansion for 1QFY16 to 4QFY16 are calculated based on OLD AS *Like-to-like revenue growth 2QFY18-1QFY19 Elec. Consumer Durables 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3Q FY19 4QFY19 Sales (Rs mn) 3,514 3,085 3,296 3,888 3,583 3,215 4,158 4,646 4,759 4,579 5,552 5,049 Sales Gr. (%)* 21.1 22.2 17.8 28.0 2.0 11.0 33.0 29.0 43.0 42.4 33.5 8.7 Sales Mix (%) 23.9 21.2 21.9 22.7 19.3 18.1 21.2 18.3 18.3 20.9 22.0 18.3 Contribution Gr. (%) 24.9 48.1 11.3 11.1 (10.6) 8.9 51.9 32.6 67.5 39.8 14.8 4.7 Contribution Margin (%) 26.0 26.6 24.6 24.5 22.8 27.8 29.6 27.2 28.7 27.3 25.4 26.2 Contribution Margin Chg 81bps 465bps -143bps -374bps -320bps 121bps 502bps 269bps 595bps -52bps -414bps -100bps Contribution Mix (%) 24.9 22.2 22.1 23.8 19.7 19.1 24.7 19.8 21.8 23.7 23.7 20.6 Note: Sales growth/margin expansion for 1QFY16 to 4QFY16 are calculated based on OLD AS *Like-to-like revenue growth 2QFY18-1QFY19

Switchgears 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3Q FY19 4QFY19 Sales (Rs mn) 3,529 3,474 3,309 3,753 3,389 3,299 3,443 3,946 4,041 4,231 4,162 4,368 Sales Gr. (%)* 20.2 5.0 2.0 15.9 (4.0) 1.0 11.0 12.0 26.0 28.3 20.9 10.7 Sales Mix (%) 24.0 23.9 22.0 21.9 18.2 18.6 17.5 15.6 15.6 19.3 16.5 15.9 Contribution Gr. (%) 27.6 10.2 (0.9) 12.2 (8.9) (5.7) 6.9 5.7 18.5 19.5 18.2 - Contribution Margin (%) 40.7 41.6 39.0 38.4 38.6 41.3 40.1 38.6 38.3 38.5 39.2 37.9 Contribution Margin Chg 234bps 198bps -116bps -127bps -209bps -27bps 107bps 20bps -25bps -283bps -89bps -67bps Contribution Mix (%) 39.2 39.2 35.2 36.0 31.6 29.0 27.7 23.9 24.7 30.9 27.4 25.9 Note: Sales growth/margin expansion for 1QFY16 to 4QFY16 are calculated based on OLD AS *Like-to-like revenue growth 2QFY18-1QFY19

Lighting & Fixtures 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3Q FY19 4QFY19 Sales (Rs mn) 2,306 2,371 2,363 2,680 2,053 2,419 2,700 3,068 2,573 2,844 3,189 3,296 Sales Gr. (%)* 43.5 22.0 13.3 16.8 (11.0) 21.0 21.0 20.0 25.0 18.0 18.1 7.4 Sales Mix (%) 15.7 16.3 15.7 15.7 11.0 13.6 13.7 12.1 9.9 13.0 12.7 12.0 Contribution Gr. (%) 72.4 36.2 28.3 28.8 4.8 18.1 11.0 34.2 14.3 13.7 24.2 (9.7) Contribution Margin (%) 25.7 26.6 29.5 27.3 30.2 30.8 28.6 32.0 27.6 29.8 30.1 26.9 Contribution Margin Chg 430bps 279bps 344bps 255bps 456bps 418bps -83bps 471bps -265bps -103bps 147bps -509bps Contribution Mix (%) 16.2 17.1 19.0 18.3 15.0 15.9 15.5 15.4 11.3 16.1 16.1 13.9 Note: Sales growth/margin expansion for 1QFY16 to 4QFY16 are calculated based on OLD AS *Like-to-like revenue growth 2QFY18-1QFY19

Cables & wires segment growth has been driven by price hike and richer mix in the last 3 quarters. The segment enjoyed a favourable base in 2Q and 3QFY19. 4Q growth was largely volume led Havells ECD segment growth has outperformed core business growth in the last 5 quarters driven by market share gains (premium fans), favorable base, distribution expansion and new product launches Switchgear segment is beginning to benefit from GST rate revision and builders focusing on project completion Lighting & fixtures segment has grown consistently with healthy contribution growth. Lighting growth is ex-EESL business.


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Havells Market Share

Segments Market Size (Rs bn)

Havells' Mkt Share (%) Rank Organized

Penetration Peers

Switchgears - MCB 22 27-28 1 High Legrand, Schneider Switchgears - Switches 22 14-15 3 Medium Panasonic (Anchor), Legrand Cable - Domestic 80 16 3 Low Finolex, Polycab Cable - Industrial 120 10 3 Medium Polycab, KEI Lighting & Fixtures 65 10-14 2-4 Medium Philips, Crompton, Bajaj, Wipro Fans 69 16 3 High Crompton, Orient, Usha Water Heater 14 15 3 Low Racold, AO Smith Other Appliances 52 2-3 na Low Bajaj, Philips Source: Company, HDFC sec Inst Research Business Breakup And Assumptions Particulars (Rs mn) FY17 FY18 FY19P FY20E FY21E Revenue Havells 61,353 67,244 82,020 95,572 110,975 Lloyd Consumer* 18,140 18,556 21,525 24,753 Total 61,353 81,386 100,576 117,097 135,728

YoY Gr. (%) Havells 14.1 11.8 22.0 16.5 16.1 Lloyd Consumer* 11.0 2.3 16.0 15.0 Total 14.1 32.7 23.6 16.4 15.9

EBITDA Havells 8,242 9,367 10,936 13,754 16,254 Lloyd Consumer* 1,451 987 1,722 2,104 Total 8,242 10,493 11,922 15,476 18,358

EBITDA Margin (%) Havells 13.4 13.9 13.3 14.4 14.6 Lloyd Consumer* 8.0 5.3 8.0 8.5 Total 13.4 12.9 11.9 13.2 13.5 Source: Company, HDFC sec Inst Research * Lloyd FY18 financials are annualised (acquired on 8 May 2017) and adjusted for GST

HAVELLS INDIA : RESULTS REVIEW 4QFY19

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Havells Core Business Assumption Cable & Wires FY17 FY18* FY19 FY20E FY21E Sales (Rs mn) 23,793 26,001 32,346 37,368 42,973 Sales Gr. (%) 8.8 9.3 24.0 15.5 15.0 Sales Mix (%) 38.8 31.9 32.2 31.9 31.7 Contribution Gr. (%) 5.1 34.5 19.1 20.4 15.0 Contribution Margin (%) 13.7 16.8 16.1 16.8 16.8 Contribution Margin Chg -49bps 316bps -72bps 68bps 0bps Contribution Mix (%) 21.7 21.7 21.8 21.9 21.5

Elec. Consumer Durable FY17 FY18* FY19 FY20E FY21E Sales (Rs mn) 13,783 15,602 19,938 23,703 28,325 Sales Gr. (%) 22.4 21.0 30.0 18.9 19.5 Sales Mix (%) 22.5 19.2 19.8 20.2 20.9 Contribution Gr. (%) 21.8 20.3 27.3 22.3 20.4 Contribution Margin (%) 25.3 26.9 26.8 27.6 27.8 Contribution Margin Chg -12bps 158bps -10bps 78bps 21bps Contribution Mix (%) 23.3 20.8 22.4 22.8 23.4

Switchgears FY17 FY18* FY19 FY20E FY21E Sales (Rs mn) 14,065 14,077 16,802 19,391 22,299 Sales Gr. (%) 10.5 7.0 21.0 15.4 15.0 Sales Mix (%) 22.9 17.3 16.7 16.6 16.4 Contribution Gr. (%) 11.7 (0.7) 16.0 17.7 15.7 Contribution Margin (%) 39.9 39.6 38.5 39.2 39.5 Contribution Margin Chg 43bps -30bps -111bps 75bps 25bps Contribution Mix (%) 37.4 27.6 27.0 26.5 26.1

Lighting FY17 FY18* FY19 FY20E FY21E Sales (Rs mn) 9,720 10,240 11,902 13,912 15,999 Sales Gr. (%) 22.6 12.8 16.0 16.9 15.0 Sales Mix (%) 15.8 12.6 11.8 11.9 11.8 Contribution Gr. (%) 38.3 17.7 9.1 19.8 15.6 Contribution Margin (%) 27.3 30.5 28.6 29.3 29.5 Contribution Margin Chg 310bps 320bps -188bps 71bps 15bps Contribution Mix (%) 17.7 15.5 14.2 14.2 14.0 Source: Company, HDFC sec Inst Research * YoY revenue growth is like-to-like adjusted for GST


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Estimate Change

FY19E FY20E FY21E

New Old Chg (%) New Old Chg (%) New Old Chg (%) Sales 100,576 102,739 (2.1) 117,097 119,239 (1.8) 135,728 137,970 (1.6) EBITDA 11,922 12,874 (7.4) 15,476 16,165 (4.3) 18,358 19,002 (3.4) PAT 7,916 8,643 (8.4) 10,688 11,199 (4.6) 12,916 13,425 (3.8) EPS 12.7 13.8 (8.5) 17.1 17.9 (4.6) 20.6 21.5 (3.8) Peer Set Comparison

Company MCap

(Rs bn)

CMP (Rs) Reco. TP

(Rs)

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

Havells 458 733 NEU 743 12.7 17.1 20.6 57.9 42.9 35.5 37.3 28.4 23.6 27.7 32.3 36.9 Voltas 189 572 BUY 658 15.6 19.9 23.7 36.6 28.8 24.1 27.1 21.3 17.3 31.4 29.6 31.7 Crompton 146 233 BUY 300 5.9 7.3 8.6 39.2 32.0 27.1 24.9 21.0 17.9 39.4 42.7 48.4 V-Guard 97 227 BUY 248 4.1 5.7 7.1 55.8 39.5 32.0 41.5 29.6 24.2 21.4 28.6 31.9 Symphony 96 1,376 BUY 1,643 15.4 30.0 36.5 89.4 45.9 37.7 70.8 33.5 27.5 32.6 50.1 56.9 TTK Prestige 84 7,281 NR 7,646 141.2 163.4 191.1 51.6 44.6 38.1 27.4 23.3 19.7 23.3 25.1 26.4 Source: HDFC sec Inst Research

We cut our earnings by 4% owing to near-term slowdown in the sector and weak performance of Lloyd


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Income Statement (Rs mn) FY17 FY18 FY19P FY20E FY21E Net Revenues 61,353 81,386 100,576 117,097 135,728 Growth (%) 14.1 37.0 23.6 16.4 15.9 Material Expenses 36,485 49,808 62,785 68,886 79,048 Employee Expense 5,004 6,497 8,324 9,323 10,442 ASP Expense 1,906 3,076 3,842 3,833 4,442 Distribution Expense 2,215 2,717 3,458 4,144 4,939 Other Expenses 7,501 8,795 10,244 15,437 18,500 EBITDA 8,241 10,493 11,922 15,476 18,358 EBITDA Growth (%) 9.2 27.3 13.6 29.8 18.6 EBITDA Margin (%) 13.4 12.9 11.9 13.2 13.5 Depreciation 1,196 1,395 1,486 1,908 2,168 EBIT 7,045 9,098 10,437 13,567 16,190 Other Income (Inc. EO Items) 765 1,289 1,276 1,510 1,977 Interest 122 240 159 129 102 PBT 7,688 10,147 11,553 14,948 18,065 Total Tax 2,298 3,022 3,637 4,260 5,148 RPAT 5,390 7,125 7,916 10,688 12,916 Adjusted PAT 5,967 7,036 7,916 10,688 12,916 APAT Growth (%) 16.1 17.9 12.5 35.0 20.8 Adjusted EPS (Rs) 9.5 11.3 12.7 17.1 20.6 EPS Growth (%) 16.0 17.9 12.4 35.0 20.8


Balance Sheet (Rs mn) FY17 FY18 FY19P FY20E FY21E SOURCES OF FUNDS Share Capital - Equity 625 625 626 626 626 Reserves 32,111 36,766 41,757 48,420 56,214 Total Shareholders' Funds 32,736 37,392 42,382 49,045 56,839 Long Term Debt - 810 405 205 105 Short Term Debt 1,981 270 270 270 270 Total Debt 1,981 1,080 675 475 375 Net Deferred Taxes 1,138 2,070 3,217 3,217 3,217 Other Non Current Liabilities 137 471 536 536 536 TOTAL SOURCES OF FUNDS 35,990 41,012 46,810 53,273 60,967 APPLICATION OF FUNDS Net Block 12,476 13,017 14,306 18,898 20,729 Goodwill 182 14,835 14,707 15,200 15,200 CWIP 747 366 2,322 1,161 580 Non Current Investments 2,274 417 583 583 583 LT Loans & Advances 259 276 588 588 588 Other Non Current Assets 136 176 214 214 214 Total Non-current Assets 16,072 29,087 32,719 36,642 37,894 Inventories 9,284 16,217 19,170 22,457 26,030 Debtors 2,285 3,254 4,048 4,713 5,463 Other Current Assets 804 1,432 1,864 2,106 2,379 Cash & Equivalents 20,992 15,262 14,613 19,220 26,156 Total Current Assets 33,365 36,164 39,695 48,496 60,028 Creditors 6,296 16,340 15,594 20,211 23,427 Other Current Liabilities & Provns. 7,151 7,899 10,010 11,654 13,527 Total Current Liabilities 13,446 24,239 25,604 31,865 36,955 Net Current Assets 19,919 11,925 14,091 16,631 23,073 TOTAL APPLICATION OF FUNDS 35,991 41,012 46,810 53,273 60,967



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Cash Flow Statement (Rs mn) FY17 FY18 FY19P FY20E FY21E Reported PBT 7,688 10,147 11,553 14,948 18,065 Non-operating & EO Items 512 (335) - - - Interest Expenses (889) (249) (159) (129) (102) Depreciation 1,196 1,395 1,486 1,908 2,168 Working Capital Change 1,323 2,568 (3,547) 1,591 (52) Tax Paid (2,052) (2,450) (3,637) (4,260) (5,148) OPERATING CASH FLOW ( a ) 7,778 11,077 5,695 14,058 14,931 Capex (2,369) (15,888) (4,728) (5,832) (3,420) Free Cash Flow (FCF) 5,410 (4,811) 967 8,226 11,511 Investments (722) 5,028 3,601 (658) (500) Non-operating Income 816 843 38 - - INVESTING CASH FLOW ( b ) (2,275) (10,017) (1,090) (6,490) (3,920) Debt Issuance/(Repaid) 1,533 (901) 144 183 352 Interest Expenses (93) (197) 159 129 102 FCFE 7,035 (5,514) 952 8,280 11,761 Share Capital Issuance 93 147 1,100 1,098 1,464 Dividend (2,256) (2,632) (4,025) (5,123) (6,586) Others - - 1,147 - - FINANCING CASH FLOW ( c ) (724) (3,583) (1,474) (3,712) (4,668) NET CASH FLOW (a+b+c) 4,780 (2,523) 3,131 3,855 6,343 EO Items, Others 13,828 12,236 - - - Closing Cash & Equivalents 5,548 3,026 14,613 18,720 25,156


Key Ratios FY17 FY18 FY19P FY20E FY21E PROFITABILITY (%) GPM 40.5 38.8 37.6 41.2 41.8 EBITDA Margin 13.4 12.9 11.9 13.2 13.5 EBIT Margin 11.5 11.2 10.4 11.6 11.9 APAT Margin 8.8 8.8 7.9 9.1 9.5 RoE 19.2 20.1 19.8 23.4 24.4 RoIC (or Core RoCE) 35.5 33.9 27.7 32.3 36.9 RoCE 18.1 18.7 18.3 21.5 22.7 EFFICIENCY Tax Rate (%) 27.8 30.1 31.5 28.5 28.5 Fixed Asset Turnover (x) 3.4 4.1 4.4 4.0 4.1 Inventory (days) 55.2 72.7 69.6 70.0 70.0 Debtors (days) 13.6 14.6 14.7 14.7 14.7 Other Current Assets (days) 4.8 6.4 6.8 6.6 6.4 Payables (days) 37.5 73.3 56.6 63.0 63.0 Other Current Liab & Provns (days) 43.5 36.2 36.3 36.3 36.4 Cash Conversion Cycle (days) (7.4) (15.7) (1.9) (8.1) (8.3) Net D/E (x) (0.5) (0.4) (0.3) (0.4) (0.4) Interest Coverage (x) 69.0 42.8 73.6 116.7 178.0 PER SHARE DATA (Rs) EPS 9.5 11.3 12.7 17.1 20.6 CEPS 11.5 13.5 15.0 20.1 24.1 Dividend 3.5 4.0 5.5 7.0 9.0 Book Value 52.4 59.8 67.8 78.4 90.9 VALUATION P/E (x) 76.8 65.1 57.9 42.9 35.5 P/BV (x) 14.0 12.3 10.8 9.4 8.1 EV/EBITDA (x) 53.3 42.3 37.3 28.4 23.6 EV/Revenues (x) 7.2 5.5 4.4 3.8 3.2 OCF/EV (%) 1.8 2.5 1.3 3.2 3.4 FCF/EV (%) 1.2 (1.1) 0.2 1.9 2.7 FCFE/Mkt Cap (%) 1.6 (1.2) 0.4 2.0 2.9 Dividend Yield (%) 0.5 0.5 0.8 1.0 1.2



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RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 12-May-18 548 BUY 656

9-Jul-18 545 BUY 680 21-Jul-18 560 BUY 680 10-Oct-18 564 BUY 693 18-Oct-18 586 BUY 693 9-Jan-19 670 NEU 713

22-Jan-19 711 NEU 738 10-Apr-19 761 NEU 773 30-May-19 733 NEU 743

400

450

500

550

600

650

700

750

800

May

-18

Jun-

18

Jul -1

8

Aug-

18

Sep-

18

Oct

-18

Nov

-18

Dec-

18

Jan-

19

Feb-

19

Mar

-19

Apr-

19

May

-19

Havells TP


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Disclosure: We, Naveen Trivedi, MBA & Siddhant Chhabria, PGDBM, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. 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mailto:[email protected]


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HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com

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NEUTRAL Seasonality blip - 4QFY19 - HDFC sec... · Havells India. NEUTRAL . securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters. Seasonality