Recommendations from Other Elect.Equip./ Prod

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 yearHavells India Ltd. 

LIGHTEN YOUR PORTFOLIO 

HERE IS WHY
Healthy cash flow generation.
Premium positioning of products.
Diversified product offerings. 

Havells India Limited has a strong presence in domestic electrical appliances and equipment market with a diversified product portfolio in switchgears, cables, electrical consumer durables, and lighting and fixtures segments. It enjoys an admirable market presence in a wide range of products. It has an established market position with premium positioning of its products, considerable market share across all its key products, and strong brand recall. Havells India pioneered the concept of exclusive brand showroom in the electrical industry with ‘Havells Galaxy’ stores. Today, over 500 such stores across the country are aiding customers, both domestic and institutional, to choose from a wide variety of products for different uses and applications. The company continues to invest in building institutional capability, and increasing channel penetration, brand proliferation, production capacity and innovative solutions.

Lloyd, a subsidiary of Havells India, continues to evolve as a mass premium brand on the back of constant investment in its distribution, marketing and people. In continuation with its commitment to ‘Make in India’, Lloyd’s first air-conditioner plant at Ghiloth has started commercial production. The company is consistently generating free cash flows which help to fund its growth with minimum debt. It has been successful in financing significant investments through internal accruals, thus retaining its debt-free status on a net basis.

The outlook on the electrical equipment sector is stable, given the large population, lower level of penetration, increasing urbanisation and disposable income. 

Overall, the electrical industry in India is expected to provide sustainable growth on a long-term basis. The industry is aggressive in nature and there is competition from the unorganised sector besides the presence of other large players. The government has taken several initiatives like focus on electrification, investments in infrastructure and housing, change in tax regime to create a shift from the unorganised to organised sector, and encouraging ‘Make in India’, among others, for promoting a healthy environment for the growth of the manufacturing sector in the country.

These initiatives have also helped create a pool of new consumers, thus ensuring the next leg of growth for Havells India. The company is dependent on power and real estate sectors’ prospects. With revival in real estate on account of the recent push by the government, Havells India is poised to reap some benefits. On a consolidated basis, the company has shown good year-on-year growth in gross sales, EBIDTA and PAT for the past three years. Gross sales have grown from Rs 6,613 crore in FY16-17 to 9.75 pt10,073 crore in FY18-19, showing a CAGR of 23 per cent. EBITDA and PAT have shown CAGR of 18 per cent and 25 per cent respectively.

In the same period, its RoCE has improved from 22.30 per cent in FY16-17 to 29.40 per cent in FY18-19. The PAT margin has remained constant at around 7.8 per cent. The company is currently trading at a PE of 53x. Long track of operations, demonstration of stable profitability margins over the years, strong brand recall, efficient working capital management, and diversified product offering are all positives for the company. By virtue of these factors, we recommend our reader-investors to BUY this stock.