Havells fires on all cylinders, Q3 earnings beat may drive earnings upgrades

Havells India

The company said that its consumer and residential portfolio registered a 40% growth y-o-y whereas industrial and infra grew in the mid-teens

The company’s increased penetration in smaller towns and a rising rural reach is fuelling the sales momentum. The supply chain disruption faced by suppliers with high import dependence has further supported market share gains for organised players such as Havells. There is a need to keep an eye on this as smaller players may see supplies coming back in the coming quarters.

The sales of Lloyds, which were a laggard earlier, have been seeing a regular rebound. The significant growth in air-conditioner sales is being supported by the restriction of imports from China. Various sellers dependent on China for products and components have seen disruptions changing industry dynamics. Havells, which has set up its own manufacturing facility, is now benefitting from this.

Select pre-buying and wider network coverage through regional retailers have also said to have helped sales growth. The rising sales of the Lloyds range bodes well as this will help improve margins with economies of scale. The contribution margins of 13.7% are a significant improvement over the 7.8% margins seen in the year-ago quarter, but are still lower than contribution margins in other segments.

The overall operating leverage has helped improve the margin profile of the company. The operating margins of close to 16% have significantly improved from 11.8% in the year-ago quarter. However, the commodity impact on margins is not fully reflected and a close eye will be kept on this.

The company clocked in Ebitda growth of 89% y-o-y aiding net profit growth of 75%, while revenues grew 39% y-o-y.

As the company is firing on all cylinders, sustenance of this growth trend holds key. Overall, the strong beat reported by Havells ahead of analyst estimates is likely to drive earning upgrades. This is crucial for the company sustaining current valuations. The stock is trading at 71 times FY22 consensus earnings estimates prior to results as indicated by Bloomberg prior to results.

Havells continues to showcase a robust balance sheet, analysts at Jefferies India said after the results. As of Decemebr ’20, net cash stood at Rs1,820 crore (Rs1,090 crore as of December ’19). Working capital at an optimum level of 35 days remained stable y-o-y. Operating cash flow as of Q3FY21 was at Rs770 crore compared to Rs820 crore as of March ’20.

News Source:- livemint

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