Havells Q1 Review - Positivity Priced In, Valuation Remains Stretched; Downgrade To Reduce: Yes Securities

Yes Securities Report

Havells India Ltd.'s strong revenue growth has been driven by strong summer season and continued industrial and infrastructure led B2B segment, demand outlook remains positive with some uptick in consumer trends. Summer dependent categories like Lloyd and ECD has registered growth of 47% and 20% respectively, led by strong performance of room AC, fans and air-coolers which has grown higher albeit on low base.

Gross margins have expanded on yoy basis, while flowthrough of higher gross margin has resulted in Ebitda margin improvement. However, on sequential basis margins are lower. Lloyds for the second quarter in a row has registered positive Ebit.

Ebit margins stood at 3.5% expanding 73 basis points on sequential basis. Management is committed to drive volume growth as well as improving profitability for Lloyd. Management is cautiously optimistic of improvement in consumer demand going forward.

We are factoring FY24-26E revenue/Ebitda/profit after tax compound annual growth rate of 17%/26%/27%. Our EPS estimates are marginally revised upwards resulting from higher revenue growth on back of strong summer season.

Expected improvement in B2C consumer demand on back of real estate uptick and continued industrial and infrastructure led demand has already factored in the stock price.

We continue to value the company at 55 times on FY26 EPS and arrive at target price of Rs 1,792. We however downgrade the rating to Reduce as recent rally in the stock price has priced in all the positives and we would wait for better entry point as recent commodity price surge could pose margin challenges going forward.

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