24 September 2020
Company Update | Sector: Capital Goods
Havells India
Neutral
BSE SENSEX
36,554
S&P CNX
10,806
CMP: INR669
TP: INR635 (-5%)
Foray into Refrigerator segment
Timely launch going into festive season; watch out for competitive intensity
Havells enters Refrigerator market under ‘Lloyd’ brand:
Havells announced
its entry into the Refrigerator product category with the launch of 25 new
models of Direct Cool, Frost Free, and Side by Side refrigerators. The
product launch spans capacities ranging from 190–587 liters. The newly
launched refrigerators would come with a one-year comprehensive
warranty, along with a 10-year compressor warranty. With this, Havells now
has access to the ~INR250b Refrigerator market. Moreover, the launch
plugs an important gap in Lloyd’s product portfolio of Air Conditioners,
Washing Machines, and TVs. The category has a penetration level of ~33%
in India. Going ahead, the company aims to launch 25 additional
refrigerator models and a new range of dishwashers by Diwali 2020.
Launch of refrigerators at attractive price point:
The product range has an
introductory price range of INR10–85k. Assuming INR10k as the price of the
base model (190-liter Direct Cool refrigerator) implies a 12–13% discount on
a like-to-like basis v/s products offered by key brands such as LG, Samsung,
and Whirlpool.
Launch via existing Lloyd channel:
The new products launched would be
available across pan-India Lloyd brand stores, offline dealers, and Lloyd
online e-stores. The company would leverage its existing strength of 10,000
dealers and retailers across the country.
Top 3 brands occupy ~80% market share:
The
Top 3 players in the
Refrigerator category – LG, Samsung, and Whirlpool – occupy ~80% market
share. Videocon’s exit has resulted in market share gains for the Top 3
players, with Whirlpool being the biggest beneficiary owing to an attractive
pricing point). However, there is room for brands to gain entry given the
structural double-digit growth opportunity in the segment. Thus, we have
witnessed the entry of Voltas and Havells (Lloyd brand) in the segment as a
natural extension from ACs to the wider White Goods space. Competitive
intensity may increase given that both Voltas and Lloyd are likely to target
market share gains through attractive pricing points.
COVID results in demand for premium products:
The work-from-home
model has resulted in greater demand for higher capacity refrigerators.
Additionally, with the festive season around the corner, its entry into the
category appears timely. With Voltas already making a foray into the
segment, any further delay could have meant a tougher journey in a highly
consolidated segment.
Valuation and view:
Our channel check suggests sound recovery in the B2C
business, with scope for primary growth higher than secondary growth
going into the festive seasons (owing to channel refilling). We raise our
FY21E/FY22E estimate by 14%/6%. We maintain a Neutral rating, with TP of
INR635 (45x Mar’22E), as we await a better entry point on the stock.
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials Snapshot (INR b)
Y/E Mar
2020 2021E
Sales
94.3
88.0
EBITDA
10.3
10.3
PAT
7.3
6.3
EBITDA (%)
10.9
11.7
EPS (INR)
11.7
10.0
EPS Gr. (%)
(6.9) (14.3)
BV/Sh. (INR)
68.8
75.2
Ratios
Net D/E
(0.2)
(0.2)
RoE (%)
17.0
13.3
RoCE (%)
16.2
13.2
Payout (%)
87.5
36.0
Valuations
P/E (x)
57.1
66.7
P/BV (x)
9.7
8.9
EV/EBITDA (x)
39.7
39.6
Div Yield (%)
1.3
0.4
FCF Yield (%)
1.1
0.4
HAVL IN
625
418.9 / 5.7
765 / 447
11/0/-5
1196
2022E
111.0
13.5
8.8
12.1
14.1
40.8
84.3
(0.3)
16.8
16.1
36.0
47.4
7.9
29.8
0.6
2.1
Shareholding pattern (%)
As On
Jun-20 Mar-20 Jun-19
Promoter
59.5
59.5
59.5
DII
9.9
8.5
4.8
FII
22.0
23.1
27.0
Others
8.7
8.9
8.7
FII Includes depository receipts
Stock Performance (1-year)
Havells India
850
750
650
550
450
Sensex - Rebased
Nilesh Bhaiya – Research Analyst
(Nilesh.Bhaiya@MotilalOswal.com)
Pratik Singh – Research Analyst
(Pratik.Singh@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.