29 July 2019
1QFY20 Results Update | Sector: Capital Goods
TP: INR700 (+5%)
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Lloyd facing stiff competition
Strategy in place but proving time consuming
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
416.7 / 6.1
807 / 550
Financials & Valuations (INR b)
Another quarter of revenue pressure:
Revenues continued disappointing for
the second consecutive quarter, with growth of meager 4.5% YoY to
INR27.1b (10% miss). EBITDA too declined 11.7% YoY to INR2.8b (24% miss),
with the margin contracting 180bp YoY to 10.2%. Other income came in
higher than our estimate at INR397m. However, the tax rate stood at 34%
v/s 30.8% in 1QFY19. Thus, net profit was down 17% YoY to INR1.7b (29%
miss) in the quarter.
Lloyd hit by intensifying competition:
In a seasonally strong quarter backed
by a robust summer season, Lloyd reported an 8% decline in revenues.
While Lloyd revenue was impacted by a sharp decline in LED TV sales, we
that even in the AC business, the company has lost market share.
Lloyd reported an EBITDA margin of just 1.4% v/s 8.1% in 1QFY19 due to (a)
weak top line and (b) higher ad spends at 10.2% of sales v/s 7.1% in 1QFY19
(likely against the backdrop of the Cricket World Cup). Management
admitted to fierce competition in terms of pricing in the segment as
competitors were more focused on volume rather than profitability,
especially given weak sales last summer and the high inventory level into the
summer season this year. Thus, despite of input cost pressure on account of
INR depreciation and higher import duty, price hikes eluded the segment.
Lloyd’s performance was also impacted by the ongoing distribution network
revamp, as management is focusing on increasing penetration through
multi-brand retail rather than the traditional low-price model distribution
We note that Lloyd is carrying higher-than-usual inventory at the
end of the season.
Real estate slowdown impacts core growth:
Ex-Lloyd business, HAVL
reported revenue growth of 9% YoY. Management attributed
flat growth in
the Switchgears business
to the slowdown in the real estate market. The
industry has been registering negative growth since Nov’18; however, HAVL
has gained market share in the segment. Going forward, the recovery may
be stretched out in the segment.
Cables & Wires
segment reported revenue
growth of 4%, but is expected to recover in the second half on account of
likely higher infrastructure spending.
price erosion. However, the key silver lining was the ability of the company
to improve margins (+140bp) on account of a better product mix.
delivered strong growth of 24% YoY, led by high-teen growth in
fans segment, market share gain in water heaters and strong growth in
other appliances, given the low base. The company continues gaining
market share in the ECD segment and expects the trend to continue. On the
margin front, HAVL (ex-Lloyd) EBITDA margin stood at 12.9% (-60bp YoY) –
the weakest in the past two years.
Nilesh Bhaiya – Research Analyst
(Nilesh.Bhaiya@MotilalOswal.com); +91 22 6129 1556
Amit Shah – Research Analyst
(Amit.Shah@MotilalOswal.com); +91 22 6129 1543
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.