Havells: Strong show in core operations seen as key driver of growth

Strong show in core operations, traction in Lloyd's business can drive 20-25 per cent annual growth in earnings in next two years

Havells kicked off FY19 on a strong note, clocking 40 per cent revenue growth during the June quarter (Q1), led by its electrical consumer durables (ECD) segment. While the Lloyd air-conditioners (AC) business also surprised positively, others supported growth, too. With healthy growth across businesses, analysts remain positive on Havells.

The Lloyd business (acquisition completed in May 2017) grew 14 per cent on a like-to-like basis, commendable in a quarter affected by unseasonal rain, equally aided by volume growth and price hikes. Margins fell sequentially, owing to adverse foreign exchange movement. Yet, analysts remain positive on Lloyd, given its upcoming AC plant and tie-up with modern retail stores, which will help re-position its portfolio and increase margins.

Excluding Lloyd, Havells’ revenue growth of 19 per cent was still noteworthy. ECD, a fifth of revenues and consistent growth driver, grew 43 per cent (adjusted for excise duties) in Q1. 

Havells continued to gain market share in fans (to 15 per cent; 40 per cent in premium segment). Growth in the cables segment (29 per cent of revenue) growth at 18 per cent remained strong and sustenance of this trend will be a sign of gains for the organised sector after Goods and Services Tax. Sale of switchgears grew 19 per cent. 

Lighting and fixtures were the only exceptions, impacted by decline in the EESL (government) business, lumpy in nature. However, Havells is consciously working to limit exposure to government sales, which should lend stability ahead. Excluding EESL, lighting and fixture sales grew 25 per cent.

Operating profit margin jumped to 13.5 per cent (excluding Lloyd) and 12.4 per cent (overall), from 10 per cent and 9.3 per cent, respectively, in the year-ago quarter, driven by ECD and cables. Net profit, grew 73 per cent year-on-year.

With disruptions led by note ban and GST behind, the prospects look good, driven by growth across businesses. Naveen Trivedi at HDFC Securities says, “We are optimistic, owing to improving consumption dynamics, along with superior execution capabilities (quick turnaround in Lloyd).”

Analysts expect net profit to grow 20-25 per cent annually during next two years, and see an upside of 6-7 per cent in the share price after Monday’s 9 per cent jump.