Rating: REDUCE | CMP: Rs511 | TP: Rs485
May 13, 2020 Long road to recovery
Q4FY20 Result Update Quick Pointers:
☑ Change in Estimates | ☑ Target | Reco . Covid-19 led disruption resulted in Rs8bn loss of revenue in 4Q20, although Jan/Feb sales were strong on trade inventory built up Change in Estimates Current Previous . Initial recovery in demand to be pull based rather than push based. FY21E FY22E FY21E FY22E Rating REDUCE REDUCE Target Price 485 521 We cut HAVL’s FY21/FY22 EPS by 13% and 7% given Covid-19 led disruption Sales (Rs. m) 93,126 1,10,610 1,00,295 1,17,392 in demand especially in summer season products (Room AC, Air coolers) and % Chng. (7.1) (5.8) EBITDA (Rs. m) 10,438 13,575 11,227 14,088 longer recovery cycle in industrial products (industrial cables & switchgears, % Chng. (7.0) (3.6) professional luminaries). We expect demand for HAVL’s consumer portfolio EPS (Rs.) 10.5 14.7 12.1 15.8 % Chng. (13.0) (7.0) to bounce back faster led by ECD segment, however B2B segments will remain a near term drag. Slump in switchgears and cables is likely to get Key Financials - Standalone stretched given that economic stress and WFH in services sector can deepen Y/e Mar FY19 FY20 FY21E FY22E slowdown in both residential and commercial real estate. We expect sharp
Sales (Rs. m) 1,00,677 94,292 93,126 1,10,610 decline in sales and profits in 1Q and gradual recovery building in from 3Q21. EBITDA (Rs. m) 11,838 10,274 10,438 13,575 We estimate 14.7% PAT CAGR over FY20-22. Maintain Reduce rating with a Margin (%) 11.8 10.9 11.2 12.3 target price of Rs.485 (33x FY22 EPS). PAT (Rs. m) 7,873 7,283 6,588 9,189 EPS (Rs.) 12.6 11.6 10.5 14.7 Gr. (%) 12.3 (7.5) (9.6) 39.5 Sales de-grew by 19.5%, PBT down by 34%: Revenues de-grew by 19.5% to DPS (Rs.) 4.0 8.5 - 5.0 Yield (%) 0.8 1.7 - 1.0 Rs22.2bn with core segment de-grew by 20.8% while Lloyd de-grew by 14%. Gross RoE (%) 19.9 17.1 14.2 17.4 margins fell by ~70bps YoY to 36.2%. EBITDA de-grew by 22% YoY to Rs2.5bn RoCE (%) 28.9 21.5 19.6 23.8 while margins contracted by 40bps YoY to 11.1% on account of unabsorbed costs EV/Sales (x) 3.1 3.3 3.2 2.7 EV/EBITDA (x) 26.0 30.1 28.9 21.8 due to Covid-19 led disruptions in March. PBT was down 34% to Rs2bn impacted PE (x) 40.6 43.9 48.6 34.8 by 37% decrease in other income to Rs195mn & higher depreciation cost. Despite P/BV (x) 7.6 7.4 6.4 5.7 Lower tax outlay (10.4% vs 33.3%) PAT declined by11.7% to Rs1.8bn
Key Data HVEL.BO | HAVL IN Core segment de-grows by 20.8% YoY: Switchgear revenues/EBIT declined by 52-W High / Low Rs.807 / Rs.458 Sensex / Nifty 32,009 / 9,384 14%/24.7% to Rs3.5bn/1.2bn while margins contracted by 490bps to 34.4%. Market Cap Rs.320bn/ $ 4,241m Cables Revenues/EBIT de-grew by 24%/46.6% to Rs6.8bn/Rs841mn while Shares Outstanding 626m 3M Avg. Daily Value Rs.2245.21m margins fell by 520bps to 12.3%. Lighting Revenues /EBIT de-grew by 30.7%/22.8% to Rs2.6bn/Rs758mn, however margins improved by 290bps to Shareholding Pattern (%) 28.7%. ECD Revenues/EBIT de-grew by 13.7%/17.4% to Rs4.6bn/Rs1.1bn while Promoter’s 59.52 margins fell by 110bps to 24.6%. Lloyd Revenue/EBIT declined by 14%/44.4% YoY Foreign 23.04 to Rs4.6bn/Rs444mn while margins declined by 530bps to 9.7% Domestic Institution 8.27 Public & Others 9.17 Promoter Pledge (Rs bn) - Concall Takeaways: 1) Covid-19 led disruptions led to 4Q revenue of ~Rs8bn. In Jan-Feb Lloyd/Switchgears/ECD grew by 46%/15%/22% as trade stocked up on Stock Performance (%) likely supply disruptions on material supply from China 2) Demand since opening 1M 6M 12M Absolute (4.7) (24.2) (30.2) up of economic activity is better than expected. Rural and semi-urban markets Relative (8.6) (5.0) (19.1) showing strength3) In red zones 35-40% shops have opened. Although most shops
are open in orange and green zones, activity level only at ~35-40%4) Best part of Amnish Aggarwal summer products season is now lost. Going forward demand to be more pull based [email protected] | 91-22-66322233 than push 5) Pick up seen in domestic wires, personal grooming, fans & RAC. Paarth Gala Demand recovery to be faster in consumer category. 6) Inventory in channel not [email protected] | 91-22-66322242 high. All primary demand right now more likely to be replenishment demand.
May 13, 2020 1 Havells India
Q4FY20 Result Overview (Rs mn): Sales de-grew by 19.5% YoY; PBT declines by 34% YoY Y/e March Q4FY20 Q4FY19 YoY gr. (%) Q3FY20 FY20 FY19 YoY gr. (%) Net Sales 22,161 27,535 (19.5) 22,699 94,292 1,00,677 (6.3) Expenditure Operating & Manufacturing Expenses 14,146 17,382 (18.6) 13,766 58,351 62,873 (7.2) % of Net Sales 63.8 63.1 60.6 61.9 62.5 Gross Profit 8,016 10,153 (21.1) 8,933 35,941 37,804 (4.9) % of Net Sales 36.2 36.9 39.4 38.1 37.5 Personnel Cost 1,989 2,217 (10.3) 2,194 8,996 8,373 7.4 % of Net Sales 9.0 8.1 9.7 9.5 8.3 Other Expenses 3,573 4,787 (25.4) 4,066 16,671 17,593 (5.2) % of Net Sales 16.1 17.4 17.9 17.7 17.5 Total Expenditure 19,708 24,386 (19.2) 20,025 84,018 88,839 (5.4) EBITDA 2,453 3,149 (22.1) 2,673 10,274 11,838 (13.2) Margin (%) 11.1 11.4 11.8 10.9 11.8 Other income 195 311 (37.1) 240 1,120 1,278 (12.4) Depreciation 625 392 59.4 552 2,179 1,494 45.9 EBIT 2,023 3,067 (34.0) 2,361 9,214 11,622 (20.7) Interest 46 61 (25.1) 53 197 161 22.2 PBT before exceptional item 1,977 3,006 (34.2) 2,309 9,017 11,461 (21.3) Total Taxes 205 1,000 (79.5) 305 1,687 3,588 (53.0) ETR (%) 10.4 33.3 13.2 18.7 31.3 Adj. PAT 1,772 2,006 (11.7) 2,004 7,330 7,873 (6.9) PAT 1,772 2,006 (11.7) 2,004 7,330 7,873 (6.9) Source: Company, PL
Segmental Breakup (Rs mn): Core segment de-grew by 20.8% Y/e March Q4FY20 Q4FY19 YoY gr. (%) Q3FY20 FY20 FY19 YoY gr. (%) Revenues Switchgears 3,511 4,085 (14.0) 3,713 14,976 15,777 -5.1 Cables 6,823 8,979 (24.0) 7,121 29,942 32,346 -7.4 Lighting & Fixtures 2,646 3,816 (30.7) 3,046 11,313 13,035 -13.2 Electrical Consumer Durables 4,603 5,331 (13.7) 5,814 22,158 20,964 5.7 Core Revenues 17,582 22,211 (20.8) 19,694 78,389 82,122 -4.5 Lloyd 4,579 5,324 (14.0) 3,004 15,903 18,556 -14.3
EBIT Switchgears 1,209 1,605 (24.7) 1,479 5,766 6,287 (8.3) EBIT margin (%) 34.4 39.3 39.8 38.5 39.8 Cables 841 1,575 (46.6) 1,248 4,887 5,217 (6.3) EBIT margin (%) 12.3 17.5 17.5 16.3 16.1 Lighting & Fixtures 758 982 (22.8) 894 3,233 3,668 (11.9) EBIT margin (%) 28.7 25.7 29.4 28.6 28.1 Electrical Consumer Durables 1,133 1,372 (17.4) 1,496 5,742 5,526 3.9 EBIT margin (%) 24.6 25.7 25.7 25.9 26.4 Core EBIT 3,941 5,533 (28.8) 5,117 19,628 20,698 (5.2) EBIT margin (%) 22.4 24.9 26.0 25.0 25.2 Lloyd 444 798 (44.4) 236 1,687 3,176 (46.9) EBIT margin (%) 9.7 15.0 7.8 10.6 17.1 Source: Company, PL
May 13, 2020 2 Havells India
Delite Alkaline High Recovery Water Purifier India’s first intelligent fan – Carnesia I
Source: Company, PL Source: Company, PL
May 13, 2020 3 Havells India
Financials
Income Statement (Rs m) Balance Sheet Abstract (Rs m) Y/e Mar FY19 FY20 FY21E FY22E Y/e Mar FY19 FY20 FY21E FY22E Net Revenues 1,00,677 94,292 93,126 1,10,610 Non-Current Assets YoY gr. (%) 23.7 (6.3) (1.2) 18.8 Cost of Goods Sold 62,873 58,351 57,572 68,112 Gross Block 34,271 40,906 41,733 43,233 Gross Profit 37,804 35,941 35,554 42,498 Tangibles 22,013 28,470 29,298 30,798 Margin (%) 37.5 38.1 38.2 38.4 Intangibles 12,258 12,436 12,436 12,436 Employee Cost 8,373 8,996 8,521 9,181 Other Expenses 8,524 8,587 8,586 9,954 Acc: Dep / Amortization 8,337 10,516 12,498 14,549 Tangibles 7,678 9,475 11,208 13,011 EBITDA 11,838 10,274 10,438 13,575 Intangibles 659 1,041 1,289 1,538 YoY gr. (%) 12.8 (13.2) 1.6 30.0 Margin (%) 11.8 10.9 11.2 12.3 Net fixed assets 25,934 30,390 29,235 28,684 Tangibles 14,335 18,994 18,089 17,786 Depreciation and Amortization 1,494 2,179 2,527 2,607 Intangibles 11,599 11,395 11,146 10,898
EBIT 10,345 8,095 7,912 10,968 Capital Work In Progress 2,327 861 1,500 2,000 Margin (%) 10.3 8.6 8.5 9.9 Goodwill 3,105 3,105 3,105 3,105 Non-Current Investments 231 230 241 252 Net Interest 161 197 212 185 Net Deferred tax assets (3,168) (2,865) (2,910) (2,971) Other Income 1,278 1,073 1,163 1,580 Other Non-Current Assets 1,462 1,357 1,416 1,499
Profit Before Tax 11,461 8,970 8,863 12,363 Current Assets Margin (%) 11.4 9.5 9.5 11.2 Investments - - - - Inventories 19,190 18,719 17,860 19,698 Total Tax 3,588 1,687 2,275 3,173 Trade receivables 4,066 2,409 3,700 4,243 Effective tax rate (%) 31.3 18.8 25.7 25.7 Cash & Bank Balance 12,877 11,069 17,725 24,516 Other Current Assets 1,495 1,646 1,583 1,659 Profit after tax 7,873 7,283 6,588 9,189 Total Assets 71,257 70,479 77,042 86,385 Minority interest - - - - Share Profit from Associate - - - - Equity Equity Share Capital 625 626 626 626 Adjusted PAT 7,873 7,283 6,588 9,189 Other Equity 41,297 42,422 49,010 55,070 YoY gr. (%) 12.4 (7.5) (9.6) 39.5 Total Networth 41,922 43,048 49,636 55,696 Margin (%) 7.8 7.7 7.1 8.3 Extra Ord. Income / (Exp) - - - - Non-Current Liabilities Long Term borrowings 405 - - - Reported PAT 7,873 7,283 6,588 9,189 Provisions 327 356 354 387 YoY gr. (%) 10.5 (7.5) (9.6) 39.5 Other non current liabilities 203 220 220 220 Margin (%) 7.8 7.7 7.1 8.3 Current Liabilities Other Comprehensive Income - - - - ST Debt / Current of LT Debt - - - - Total Comprehensive Income 7,873 7,283 6,588 9,189 Trade payables 15,601 14,141 14,196 16,421 Equity Shares O/s (m) 625 626 626 626 Other current liabilities 9,622 8,940 8,818 9,780 EPS (Rs) 12.6 11.6 10.5 14.7 Total Equity & Liabilities 71,257 70,479 77,042 86,385 Source: Company Data, PL Research Source: Company Data, PL Research
May 13, 2020 4 Havells India
Cash Flow (Rs m) Key Financial Metrics
Y/e Mar FY19 FY20 FY21E FY22E YearY/e Mar FY19 FY20 FY21E FY22E
PBT 11,461 9,017 8,863 12,363 Per Share(Rs) Add. Depreciation 1,494 2,179 2,527 2,607 EPS 12.6 11.6 10.5 14.7 Add. Interest 161 197 212 185 CEPS 15.0 15.1 14.6 18.9 Less Financial Other Income 1,278 1,073 1,163 1,580 BVPS 67.0 68.8 79.3 89.0 Add. Other (883) (533) (27) 1 FCF 0.2 7.4 10.1 15.4 Op. profit before WC changes 12,234 10,860 11,575 15,156 DPS 4.0 8.5 - 5.0 Net Changes-WC (4,639) (215) (970) 180 Return Ratio(%) Direct tax (2,469) (2,398) (2,275) (3,173) RoCE 28.9 21.5 19.6 23.8 Net cash from Op. activities 5,126 8,248 8,329 12,162 ROIC 25.9 20.8 20.6 29.0 Capital expenditures (4,996) (3,592) (2,011) (2,556) RoE 19.9 17.1 14.2 17.4 Interest / Dividend Income 876 625 - - Balance Sheet Others 6,003 (2,509) - - Net Debt : Equity (x) (0.3) (0.3) (0.4) (0.4) Net Cash from Invt. activities 1,883 (5,477) (2,011) (2,556) Net Working Capital (Days) 28 27 29 25 Issue of share cap. / premium 180 242 - - Valuation(x) Debt changes (209) (937) - - PER 40.6 43.9 48.6 34.8 Dividend paid (3,016) (6,413) - (3,129) P/B 7.6 7.4 6.4 5.7 Interest paid (134) (52) (212) (185) P/CEPS 34.1 33.8 35.1 27.1 Others - - - - EV/EBITDA 26.0 30.1 28.9 21.8 Net cash from Fin. activities (3,180) (7,159) (212) (3,314) EV/Sales 3.1 3.3 3.2 2.7 Net change in cash 3,830 (4,388) 6,106 6,292 Dividend Yield (%) 0.8 1.7 - 1.0 Free Cash Flow 130 4,655 6,318 9,606 Source: Company Data, PL Research Source: Company Data, PL Research
Quarterly Financials (Rs m) Y/e Mar Q1FY20 Q2FY20 Q3FY20 Q4FY20 Net Revenue 27,120 22,303 22,699 22,161 YoY gr. (%) 4.5 1.8 (9.9) (19.5) Raw Material Expenses 16,989 13,580 13,766 14,146 Gross Profit 10,131 8,723 8,933 8,016 Margin (%) 37.4 39.1 39.4 36.2 EBITDA 2,757 2,341 2,673 2,453 YoY gr. (%) (11.7) (10.8) (9.2) (24.0) Margin (%) 10.2 10.5 11.8 11.1 Depreciation / Depletion 469 531 552 625 EBIT 2,287 1,810 2,122 1,828 Margin (%) 8.4 8.1 9.3 8.2 Net Interest 47 51 53 46 Other Income 397 292 240 195 Profit before Tax 2,637 2,051 2,309 1,977 Margin (%) 9.7 9.2 10.2 8.9 Total Tax 898 237 305 205 Effective tax rate (%) 34.1 11.6 13.2 10.4 Profit after Tax 1,739 1,814 2,004 1,772 Minority interest - - - - Share Profit from Associates - - - - Adjusted PAT 1,739 1,814 2,004 1,772 YoY gr. (%) (17.3) 1.5 2.4 (14.3) Margin (%) 6.4 8.1 8.8 8.0 Extra Ord. Income / (Exp) - - - - Reported PAT 1,739 1,814 2,004 1,772 YoY gr. (%) (17.3) 1.5 2.4 (14.3) Margin (%) 6.4 8.1 8.8 8.0 Other Comprehensive Income - - - - Total Comprehensive Income 1,739 1,814 2,004 1,772 Avg. Shares O/s (m) 626 626 626 626 EPS (Rs) 2.8 2.9 3.2 2.8 Source: Company Data, PL Research
May 13, 2020 5 Havells India
Price Chart Recommendation History
(Rs) No. Date Rating TP (Rs.) Share Price (Rs.) 800 1 13-Apr-20 Reduce 521 551
710 2 22-Jan-20 Reduce 567 601 3 03-Jan-20 Reduce 571 661 620 4 24-Oct-19 Reduce 580 670
531 5 03-Oct-19 Reduce 640 702 6 09-Sep-19 Reduce 566 661
441
Nov -17 Nov
Nov -18 Nov
Nov -19 Nov
May -17 May
May -18 May
May -19 May May -20 May
Analyst Coverage Universe Sr. No. Company Name Rating TP (Rs) Share Price (Rs) 1 Asian Paints Accumulate 1,687 1,651 2 Avenue Supermarts Reduce 1,875 2,393 3 Britannia Industries BUY 3,744 2,837 4 Colgate Palmolive Reduce 1,206 1,388 5 Crompton Greaves Consumer Electricals BUY 291 224 6 Dabur India Hold 431 503 7 Emami Hold 285 227 8 Future Retail Under Review - 332 9 GlaxoSmithKline Consumer Healthcare Hold 9,377 9,247 10 Havells India Reduce 521 551 11 Hindustan Unilever Hold 2,017 2,195 12 ITC BUY 250 189 13 Jubilant FoodWorks Accumulate 1,490 1,423 14 Kansai Nerolac Paints BUY 486 360 15 Marico Hold 318 284 16 Nestle India Reduce 11,886 17,326 17 Pidilite Industries Hold 1,327 1,349 18 Titan Company Hold 844 892 19 Voltas Accumulate 553 509
PL’s Recommendation Nomenclature (Absolute Performance) Buy : > 15% Accumulate : 5% to 15% Hold : +5% to -5% Reduce : -5% to -15% Sell : < -15% Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
May 13, 2020 6 Havells India
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We/I, Mr. Amnish Aggarwal- MBA, CFA, Mr. Paarth Gala- B.Com Research Analysts, 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. 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. (US Clients)
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