Time Horizon 12 Months · Lighting Lighting& Fixtures 6,500 10-14% # 2-4 Medium Philips, Crompton, Bajaj, Wipro Electrical Consumer Durables Fans 6,900 16% # 3 High Crompton, Orient,

Anand Rathi Research

Time Horizon – 12 Months

January 3, 2019

Source: Company, Anand Rathi Research, Bloomberg

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k

Relative stock performance (Jan 18=100)

CMP: ₹680

Target: ₹788

Shareholding Pattern (as on Sep’18)

Havells India Ltd. (HAVL IN)

Research Team

Key Data

Bloomberg Code HAVL IN

NSE Code HAVELLS

BSE Code 517354

Sector Industrials

Industry Electrical Equipment

Face Value (₹) 1.0

BV per share (₹) 60

Dividend Yield (%) 0.6%

52 Week L/H(₹) 454 / 729

Market Cap. (₹ Mn.) 4,25,509

(In ₹ Mn.) FY-17 FY-18 FY-19E FY-20E

Net Sales 61,558 81,464 94,364 1,10,517

EBITDA 8,182 10,309 12,261 15,188

EBITDA Margin 13.3% 12.7% 13.0% 13.7%

PAT 4,945 6,624 8,073 10,035

EV/Sales 6.9 5.2 4.5 3.9

EV/EBITDA 44.0 37.1 31.3 25.4

P/E (x) 86.0 64.2 52.7 42.4

Price Performance CY16 CY17 CY18 YTD

Absolute 12% 64% 23% -2%

Relative 8% 28% 26% 0%

Sep-18 Jun-18 Mar-18 Dec-17

Promoter 67.2% 67.2% 67.2% 67.2%

Institutions 19.4% 19.4% 19.4% 19.2%

Others 13.4% 13.4% 13.4% 13.6%

Total 100% 100% 100% 100%

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100

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160

Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

Nifty 500 HAVL

2 Anand Rathi Research

HAVL: A promising player in the industry.


Based in Noida (UP), Havells India Limited is one of the leading Fast Moving Electrical Goods (FMEG) companies and a key player in power distribution

equipment manufacturing. With a robust global presence in over 52 countries, the company offers a wide range of products, including Industrial & Domestic

Circuit Protection Devices, Cables & Wires, Fans, Modular Switches, Luminaires for Domestic, Commercial and Industrial Applications.

Havells was founded in 1958 as trading operation in Delhi and in 1971 acquired Havells brand and started Havells Industries. Since then the company has grown

through meaningful acquisitions and expansions. In 2017, it acquired the Consumer Durables Business of Lloyd Electric and Engineering Limited in 2017,

foraying in the business of Air Conditioners, LED TV and washing machines.

Havells’ manufacturing units are spread over seven locations in India including Alwar (Rajasthan), Baddi (Himachal Pradesh) and Haridwar (Uttrakhand). Further

it is setting up plant for Lloyd products in Rajasthan, enhancing manufacturing capabilities. Post completion of this plant, the company will have 13 plants across

8 different locations in the country.

In its latest quarterly results, Havells recorded net revenue growth of 23% at ₹21,909 million as against ₹17,774 million in same quarter previous year. Net

Profit increased 4% to ₹1,786 million from ₹1,711million in the previous year quarter. While Lloyd’s performance was affected by adverse season, channel

inventory and forex headwinds, all other key business segments reported solid double digits growth in the quarter.

Havells looks to drive growth with technology upgradation. Channel expansion remains one of the key strategic initiatives of the company, focused on modern

format retails, brand stores and online platforms along existing relationships with distributors and direct dealers. With this, the company targets to grow all its

four key product groups viz. Washing Machines, Refrigerators, Room AC and TVs in double digits.

In terms of guidance, management expects Cable and wire business margin in the range of 15% to 17% in the coming quarters, while the range for lighting is

expected at about 27% to 30%. Post completion of the Lloyd plant, Capex is expected in the range of ₹200-250 crores every year.

In terms of macro scenario, the consumer durable industry has plenty upside given Government’s focus on electrification, infrastructure and housing and

implementation of GST. Also, emerging middle class, increasing disposable income and easy access to credit is set to boost demand in the sector.

Havells, which boasts of around 8,500 dealers and 1,00,000 retailers in its business, aims to expand its major penetration zones -Metro, Tier I & II Towns, while

it sees Rural sector and Tier III & below towns as key penetration opportunity.

With solid fundamentals and favourable macro traits, we believe the company is well positioned for long term growth and initiate our coverage on Havells India

Ltd. with a BUY rating and a target price of ₹788 per share.


Business Segments & Key Brands

Source: Company, Anand Rathi Research

Havells Business Segments

Lloyd Consumers (17%)

Cables (33%)Electrical consumer

durables (19%)

Switchgear (17%)


Lighting and fixtures (14%)

Domestic cables Industrial

underground cables

Domestic and Industrial switchgears

Electrical wiring accessories

Industrial motors, pumps and capacitors

Air Conditioner Television, Washing Machine Domestic

Appliances

Energy Saving Lamps (CFL, LED)

Solar Luminaries

Fans Water Heaters Coolers Personal Grooming Water Purifier Domestic Appliances


Steady margin improvement despite revenue challenges.

Source: Company, Anand Rathi Research. NOTE: FY18 figures include Lloyd Business

revenues

Revenue & Revenue Growth EBITDA & EBITDA margin

Havells revenue has witnessed mixed growth the past five years. The growth was impacted by demonetization followed by GST

implementationin FY16-17 while drop in commodity prices affected revenue in FY15-16. However, the company regained

momentum in FY18 with 9.5% growth (excluding Lloyd business in FY18) in revenues, continuing the streak current financial year.

Notably, for the H1-FY19, Havells has reported a growth of 32% in its net revenues.

In terms of profitability, the company has improved its operating margins in last five years. The total margins improvement for

the company for the period was ~360 basis points (include Lloyd business in FY18) despite facing challenges in revenue growth in

few years. The improvement in margins was mainly due to improvement in overall efficiency of the company.


-20.0%

-5.0%

10.0%

25.0%

40.0%

20,000

40,000

60,000

80,000

1,00,000

FY-14 FY-15 FY-16 FY-17 FY-18

Sales ₹Mn. Sales Growth (RHS)

8.0%

10.0%

12.0%

14.0%

16.0%

4,000

6,000

8,000

10,000

12,000

FY-14 FY-15 FY-16 FY-17 FY-18

EBITDA (₹ Mn.) EBITDA Margins (RHS)


Segment wise performance …


Cables business recorded a CAGR of 8.6% in revenues over the last 5 years.

The company’s several efforts to lift growth in this segment include continuous innovation in regular product range, enhancing

share of B2B sales, extending existing portfolio of communication cables by launching speaker wires, CCTV wires, LAN cables and

introduction new wires in projects based on POE concept, wherein same wires will be used in power distribution and signal

transmission as well.

Switchgear revenues registered a CAGR of 4% over the last 5 years.

Fortifying its market position and product portfolio in the switchgear segment Havells tied up with South Korean major Hyundai

Electric & Energy Systems Co. Ltd to expand the product range. The company aims to drive growth through introduction of new

products, building a multi-brand portfolio to focus on different customer profile.


Cables & Wires Segment Switchgear (Domestic & Industrial)

0%

5%

10%

15%

20%

25%

16000

19500

23000

26500

30000

FY-16 FY-17 FY-18


-5%

0%

5%

10%

15%

10000

11000

12000

13000

14000

15000

FY-16 FY-17 FY-18



Contd. Segment wise performance


Lighting & Fixtures registered revenue growth of 27.8% year over year in FY18. Notably, in Oct 2017, Havells closed its joint venture business Jiangsu

Havells Sylvania Lighting Co. Ltd.

With shift of consumer preference towards energy-efficient lighting, traditional lighting products have significantly declined and LED lamps and

luminaires currently constitutes 87% of the business.

Havells bagged several projects in Delhi, Punjab and Tamil Nadu to offer various energy efficient lighting solutions. In consumer lighting, the company

aims to drive growth through opportunities in primary and secondary reach. In professional lighting, it intends to focus on product innovation and use of

latest technology.

Electrical Consumer Durables recorded a CAGR of 16.5% in revenues over the last 5 years. Water heaters and Fans are the major growth drivers for this

segment. However, Havells remains focused in launching various innovative and technology led products in different categories like kitchen appliances,

switches, personal grooming, lighting and home security.


-80.0%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

5000

15000

25000

35000

FY-16 FY-17 FY-18


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

5000

10000

15000

20000

FY-16 FY-17 FY-18


Lighting & Fixtures Electrical Consumer Durables


Lloyd Business


Havells forayed in the business of air conditioners, television, washing machines and refrigerators with the strategic acquisition

of Lloyd’s consumer durables business in May 2017. Revenues has been on the increasing trend over the last three quarters.

Havells is set to leverage on this acquisition as Lloyd has already gained markets share of about 13% in AC segment of India over

the last 7 years and 3% share in LED TV segment of India over the last 5 years

While Lloyd an established brand in the Air conditioner market, Havells intends to strengthen offerings in categories such as

Televisions and Washing Machines.



Lloyd Business Revenues (Quarterly)

8000

11000

14000

17000

20000

Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18


Havells’ Key Strategic Moves Contd..


A. Channel Expansion

• Bolstering technology in channel management – Online ordering solutions, sales force automation, distribution management system, vendor management system, etc.

• Focus on modern format retails, exclusive brand stores and online platforms along with continued relationships with distributors and direct dealers

• With around 8,500 dealers and 1,00,000 retailers Havells’ major penetration is in Metro, Tier I & II Towns

• Havells aims to expand in Tier 1 and Metro towns while it sees Rural sector and Tier III & below towns as potential penetration zones.



…Contd


B. Product Expansion

• Reduce dependency on single product category• Havells aims to expand its offerings in Televisions and Washing Machines.• In Cables business, the company intends to add new products such as Photo-voltaic Range,

Surge Protection Device, Industrial P&S, Communication ready MCB and Modular contactor• Enhancing manufacturing capabilities, Havells committed an outlay of about Rs. 350 crores

for AC plant at Neemrana.



Segment ProductIndicative Market Size(Rs. in crores)

Indicative Market Share

Indicative RankOrganized Penetration Level

Peers

Switchgears MCB 2,200 27-28% # 1 HighLegrand, Schneider

Switches 2,200 14-15% # 3 MediumPanasonic (Anchor), Legrand

Cables Domestic 8,000 16% # 3 Low Finolex, Polycab

Industrial 12,000 10% # 3 Medium Polycab, KEI

LED Lighting

Lighting& Fixtures 6,500 10-14% # 2-4 MediumPhilips, Crompton, Bajaj, Wipro

ElectricalConsumer Durables

Fans 6,900 16% # 3 HighCrompton, Orient, Usha

Water Heater 1,400 15% # 2 LowRacold, AO Smith

Other Appliances 5,200 2-3% - Low Bajaj, Philips



Enables company to remain one of the top three players in market.


Industry Snapshot

Source: IBEF, Anand Rathi Research

Consumer Durables Industry Structure

Consumer Electronics (Brown Goods)

• Televisions• CD and DVD Players• Laptops• Audio and video

systems• Personal Computers• Digital Cameras, etc.• Branded flour, etc.

Consumer Appliances (White Goods)

• Air Conditioners• Washing Machines• Refrigerators• Electric Fans• Microwave ovens• Sewing Machines• Cleaning Equipment• Others Domestic

appliances




Consumer Electronics –Major Products

Color TVs (CTVs) Flat Panel Display


Direct-To-Home (DTH)

CTVs are the biggest contributors in this segment.

Television industry in India is estimated to have reached Rs 660 billion (US$ 10.19 billion) in CY2017

Projected to reach Rs 862 billion (US$ 13.31billion) in CY2020

LED/LCD/Plasma television have significant opportunity in India with a penetration of only 14% households.

Production of LCD/LED TVs soared from 8.7 million units in FY15 to 16 million units in FY18.

Rapid growth in The Set-Top Box (STB) market due to the expansion of DTH and introduction of the Conditional Access System (CAS) in metros.

Active DTH subscribers increased nearly 10% year over year in June 2018.



Consumer Appliances –Major Products

Refrigerators Washing appliancesAir Conditioners


Electric Fans

Constituted 27% of consumer appliances market in 2017.

Market sizeforrefrigerators in India is estimated to be Rs 195 billion (US$ 3.02 billion in 2017

Expected to reach Rs 344 trillion (US$ 5.34 billion) by 2022

The Indian market is estimated at 2.5 million fans per month and it is growing at about 10% per annum.

Penetration of electric fans in rural areas was 65% in 2017,expected to reach 76-78% in 2019-20

Production of washing appliances in India increased 5.1 per cent year-on-year in FY18* to 5.79 million units.

Lower prices and higher disposable incomes has led to increasing market share for fully automatic washing.

During FY18 production of ACs in India increased 4.9 % year-on-year to 3.19 million units.

Split ACs comprised 85% market share in FY18.

India’s overall room ACs market is expected to increase to 7 million units by FY21 from 5.5 million units in FY18.


Huge untapped opportunity in the Consumer durables industry

The current low penetration levels in India, compared to the global average for consumer durables and electronics products such as air conditioners,

washing machines and refrigerators, augurs well for future growth.

Indian appliance and consumer electronics (ACE) market reached Rs 2.05 trillion (US$ 31.48 billion) in 2017. It is expected to increase at a 9% CAGR to

reach Rs 3.15 trillion (US$ 48.37 billion) in 2022.

Electronics hardware production in the country reached Rs 3.88 trillion (US$ 60.13 billion) in FY18, growing at a CAGR of 26.7 per cent between FY14-18.

Demand for electronics hardware in India is expected to reach US$ 400 billion by FY24.

With focus of Government on electrification and commitment to improve infrastructure and housing and GST rationalization, electrical space has plenty

upside. Also, government policy of 100% FDI allowing in electronic hardware manufacturing sectors looks reassuring for the industry

Increasing disposable income, emerging middle class, easy access to credit is set to accelerate demand in the sector. Other drivers include huge

untapped market for appliances like AC, washing machine and refrigerators. Notably, the S&P BSE Consumer durable Index has grown at a CAGR of 20%

between 2010-17.

Source: PwC research ,IBEF, Anand Rathi Research


0%

25%

50%

75%

100%

WashingMachine

Refrigerator Smartphon Television AC

India China Global Average

Household Penetration of consumer durables & electronics



Switchgears (Domestic & Industrial)

Source:Anand Rathi Research

Switchgear market in India is estimated to grow at a CAGR of over 15% through 2023, backed by rising development acrossresidential, commercial and industrial end use sectors.

The industry constitutes of Low Voltage , Medium Voltage and High Voltage switchgear products. Low voltage switchgears has alarger share of unorganized players and accounts for more than 55% of the total market share.



Lighting & Luminaries Industry

Source:The Electric Lamp and Component Manufacturers Association of India (ELCOMA), Anand Rathi Research

Indian lighting industry is expected to continue to grow at an increasing rate between 13% and 15% until 2020 per annum. The LED market in India is expected to grow to ₹ 216 billion by 2020, following which LED market should account for about 60%

of India’s total lighting industry (about ₹ 376 billion) in 2020.

Value in Crores


20,000

45,000

70,000

95,000

1,20,000

FY-17 FY-18 FY-19E FY-20E

We expect growth to maintain momentum of latest quarter along with gradual improvement margins.

Revenue estimates (₹ Mn.)

We expect Havells to grow at a CAGR of 16.5% in next two years. We estimate the company to report revenues of ₹94,364 million in

FY-19E and ₹110,517 million in FY-20E.

The operating margins for the company should continue to improve with our estimate of around 100 basis points over two years. We

expect company’s EBITDA margins to be around 13.0% in FY-19E and 13.7% in FY-20E.


EBITDA & EBITDA margin estimates


12.0%

12.5%

13.0%

13.5%

14.0%

4,000

8,000

12,000

16,000

20,000

FY-17 FY-18 FY-19E FY-20E

EBITDA (₹ Mn.) EBITDA Margins (RHS)


Several favorable macro traits including Government focus on

electrification and infrastructure and housing and GST rationalization,

emerging middle class aspiring for improved standard of living,

increasing disposable income, easy access to credit is set to drive

demand in the sector .

Pan-India dealer network, will continue to support Havells growth

momentum. The huge distribution base should help the company in

introduction of new products and enter new markets.

Havells is well positioned for growth owing to its wide range of

product portfolio, with exposure in Consumer as well as Professional

customer category. .

At CMP the stock is trading at 52.7x times FY19E and 42.4x FY-20E

consolidated earnings.

We initiate our coverage on Havells India Ltd. (HAVL IN) with a BUY

rating and a target price of ₹788 per share.

Relative stock performance (Jan 18=100)

Valuation and Recommendation:

Source: Bloomberg, Anand Rathi Research



(In ₹ mn) FY-17 FY-18 FY-19E FY-20E

EPS (₹) 7.9 10.6 12.9 16.0

P/E (x) 86.0 64.2 52.7 42.4

P/B (x) 13.0 11.4 14.9 21.7

ROE 15.1% 17.8% 28.2% 51.1%

ROCE 21.7% 24.3% 37.2% 64.0%

EV/EBIDTA (x) 44.8 37.7 31.8 25.8

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Nifty 500 HAVL


Consolidated Financials:



Margins FY-17 FY-18 FY-19E FY-20E

Sales Growth % -19.1% 32.3% 15.8% 17.1%

Operating Margin % 13.3% 12.7% 13.0% 13.7%

Net Margin % 8.0% 8.1% 8.6% 9.1%

(In ₹ Mn.) FY-17 FY-18 FY-19E FY-20E

Liabilities

Equity Share Capital 625 625 625 625

Reserves & Surplus 32,143 36,667 27,957 19,020

Total Shareholder's Funds 32,768 37,292 28,582 19,645

Minority Interest 91 77 77 77

Long-Term Liabilities - 810 810 810

Other Long-term Liabilities 145 479 479 479

Deferred Tax Liability 1,169 2,117 2,117 2,117

Short-term Liabilities 17,505 25,301 29,307 34,324

Total 51,677 66,075 61,372 57,452

Assets

Net Fixed Assets 13,579 27,898 32,701 37,173

Long-Term L&A 1,020 565 565 565

Non Current Investments 2,176 538 538 538

Other Non-Current Assets 8 17 17 17

Current Asset 34,895 37,058 27,551 19,159

Total 51,677 66,075 61,372 57,452

(In ₹ Mn.) FY-17 FY-18 FY-19E FY-20E

Net Sales 61,558 81,464 94,364 1,10,517

Operating Expense 53,376 71,155 82,103 95,329

EBITDA 8,182 10,309 12,261 15,188

Other Income 1,501 1,179 1,366 1,599

Depreciation 1,205 1,405 1,699 1,989

EBIT 8,478 10,083 11,928 14,799

Interest 133 248 144 151

Misc. items (1,068) (187) - -

PBT 7,276 9,648 11,784 14,648

Tax 2,288 3,038 3,711 4,613

Minority Interest (43) 14 - -

PAT 4,945 6,624 8,073 10,035


The company’s Switchgears and Cables business are largely dependent on capital expenditure in housing and infrastructure. Hence a slow growth in this

sector would affect segment revenue growth.

Disruption of regular and quality electricity supply may affect overall demand for electrical product.

Volatility in prices of key raw materials like copper could impact profitability of the company.

Key Risks:



Rating and Target Price history:

Date Rating Target Price (₹) Share Price (₹)

03-Jan-19 BUY 788 680

HAVL rating detailsHAVL rating history & price chart

Source: Bloomberg, Anand Rathi Research Source: Bloomberg, Anand Rathi Research

NOTE: Prices are as on 3 January 2019 close.


80

100

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Continued…



Disclaimer:

Contd…

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Contd…



Disclaimer:

Contd.

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Statement

Answers to the Best of the knowledgeand belief of the ARSSBL/ itsAssociates/ Research Analyst who ispreparing this report

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2

ARSSBL/its Associates/ Research Analyst/ his Relative have actual/beneficial ownership of one per cent or more securities of the subject company, at theend of the month immediately preceding the date of publication of the research report or date of the public appearance?. NO

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NO

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Documents

Time Horizon 12 Months · Lighting Lighting& Fixtures 6,500 10-14% # 2-4 Medium Philips, Crompton, Bajaj, Wipro Electrical Consumer Durables Fans 6,900 16% # 3 High Crompton, Orient,