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Target: ₹1,390
CMP: ₹1,181.30
Havells India revenue grew 15 per cent y-o-y to ₹3,650 crore, 3 per cent/2 per cent above our/consensus estimates. Festive demand was encouraging initially but it tapered in second half of Q3-FY22 due to inflation in product prices and Omicron surge. This led to flat volume growth for the quarter.
Gross margin continued the downward trend as it fell 200bps q-o-q to 32.3 per cent, lowest in the past 10 years (since Q4FY11). Gross margin was impacted by higher input costs and delay in passing complete price hikes to consumers. EBITDA margin fell 400bps y-o-y and 170bps q-o-q to 12.1 per cent, lower than our/consensus estimates of 14 per cent each.
PAT was down 12 per cent y-o-y to Rs 310 crore, 10 per cent/11 per cent below our/consensus estimates. Havells does not expect the demand to slow down structurally and is hopeful of a strong summer season. It aims to take gradual price hikes starting from Feb & March 2022.
In fans & ACs cost pressure is higher and a 5-10 per cent price hike is needed for margin profile to normalise in FY23. We have cut our earnings estimates by 4-6 per cent for FY22-FY24. We maintain Add rating on the stock, with a revised target price of ₹1,390 (₹1,465 earlier) based on 55x H1-FY24 EPS.
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