Recommendation From Electric Equipment Sector

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 year.

HAVELLS INDIA LIMITED : KEEPING IT COOL 

HERE IS WHY
✓Huge growth potential
✓Focus on cost reduction
✓Good returns on capital employed.

Havells India Limited is a leading fast moving electrical goods (FMEG) company and a major power distribution equipment manufacturer with a strong global presence. The company has presented a robust performance in Q3FY21 with pick-ups in volume across major segments. Also, there was improvement seen in margins.

It reported net sales of Rs 9,440.26 crore in FY20. It had reported net sales of Rs 10,073.43 crore in FY19, thus posting a decrease of 6.29 per cent. The company reported PBIDT of Rs 1,028.65 crore in FY20, a decrease of 13.14 per cent. It had reported PBIDT of Rs 1,184.32 crore in FY19. The company reported PAT of Rs 735.35 crore in FY20, a decrease of 6.64 per cent. It had reported PAT of Rs 787.61 crore in FY19. The company has reported cash from operating activities of Rs 826 crore in FY20 as against Rs 501 crore which it reported in FY19.

Its net sales were at Rs 3,175.20 crore in December 2020, up by 39.67 per cent from Rs 2,273.29 crore in December 2019. The PBIDT stands at Rs 510.06 crore in December 2020, up 89.21 per cent from Rs 269.57 crore in December 2019. Its quarterly net profit was at Rs 350.14 crore in December 2020 as against net profit of Rs 200.77 crore in December 2019, an increase of 74.4 per cent. The company saw improving business performance with growth across divisions and regions led by improvement in consumer sentiment, festive season and increased penetration in smaller towns and a higher rural reach.

The pent-up demand (as most seasonal categories missed out massively in the last season), work-from-home, improving housing activities and resumption of capex will sustain strong revenue traction in the coming quarters too. The company’s outlook looks good led by improvement in consumer sentiment, benefits of increased distribution reach in rural India and market-share gains from unorganised players. The company intends to leverage the government’s production linked incentive (PLI) scheme and tap into export markets for ACs and lighting while also catering to the domestic market.

In the near term, margin pressure due to commodity inflation is expected to lower advertising spends. Meanwhile, higher value growth and benefits of cost savings will enable strong growth over the next 2-3 quarters. The company remains on track to recovery benefitting from in-house manufacturing in RAC, change in industry dynamics post import prohibitions, network expansion and onestop offering with launch of refrigerators. It has streamlined its dealer network and also corrected its price positioning which has led to better demand for the RAC product of the company.

The company has also taken multiple corrective measures to improve the business prospects of its brand Lloyd by putting up a facility at Ghiloth, Rajasthan to have control on production, quality as well as reduce its dependence on outsourcing. It has also launched its washing machine and refrigerator range on an ODM model basis and thus has become a full product portfolio white goods’ company. It has reduced its debt and is almost debt-free. The total debt to equity ratio is 0.01. On the returns front, it has ROE and ROCE of 17.28 per cent and 22.02 per cent. By virtue of these factors, we recommend our reader-investors to BUY this stock.