27 July 2020
1QFY21 Results Update | Sector: Capital Goods
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TP: INR560 (-6%)
Strong show, but cost-cutting measures unlikely to sustain
June exit run-rate in positive territory; outlook remains hazy
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
EPS Gr. (%)
Div Yield (%)
FCF Yield (%)
372.6 / 5.1
765 / 447
While revenue decline of 45% YoY was in line with our expectations,
aggressive cost rationalization measures led to a strong beat in earnings. Ad
spends stood at INR60m (0.4% of sales) in 1QFY21 v/s INR1.4b (5% of sales)
in 1QFY20. Employee costs were also lower by 27% YoY on account of
certain voluntary actions, which should normalize from 2QFY21. As demand
recovers, we expect the large part of these cost elements to scale back.
Havells’ core portfolio witnessed 4% YoY growth in June, while Lloyd was up
Overall, demand for B2C products grew by 12% YoY in Jun’20, a
However, the outlook remains hazy due to the local
lockdowns; hence, the management appears cautious on extrapolating the
June run-rate to the coming quarters. The results of peers suggest that with
a demand level of 80–85% v/s last year in July,
Havells is likely witnessing
market share gains across key categories.
Factoring cost savings in 1QFY21, we increase our FY21/FY22 EPS estimates
by 14%/4%. Our FY20–22E revenue/EBITDA/adj. PAT CAGR stands at
7%/12%/7%. The deterioration in working capital was disappointing, but this
should normalize in the coming quarters. Maintain
with TP of
INR560 (earlier: INR515) as we await a better entry point.
Revenue declined 45% to INR14.8b and was in line with our expectation.
EBITDA declined 53% to INR1.3b and was 82% above our expectation. The
EBITDA margin came in at 8.8% v/s our expectation of 5%. Adj. PAT came in
at INR633m, a strong beat v/s our expectation of INR219m.
Segmental highlights: (a)
HAVL’s core portfolio revenue declined 43% YoY in
1QFY21 and was 5% below our expectation – Cables and Wires (-41% YoY),
Switchgears (-44% YoY), Lighting (-45% YoY), ECD (-46% YoY), and Others (-
Lloyd’s revenues declined 53% YoY to INR3b (v/s our
expectation of INR2b).
The working capital requirement was higher at the end of 1QFY21 due to a
reduction in creditors’ days as the level of production was low and the
company made payments for previous supplies. With factories fully
operational and supplies inching back to pre-COVID-19 levels, management
expects the working capital situation to normalize going ahead.
~70% of Havells’ sales are toward the B2C channel, which has shown better
traction. Overall, demand for B2C products grew by 12% YoY in Jun’20.
Channel inventory is now lower than before as channels have become
cautious and are working with optimum inventory. The
intensity of recovery
has been slower in the second half of July due to intermittent lockdowns.
Commercial Papers (CPs) are being raised at lower rate and are very short
term. CPs would substitute the short-term loans on the balance sheet.
Lloyd revenue surprises; ad spend cuts drive earnings surprise
Shareholding pattern (%)
Jun-20 Mar-20 Jun-19
Key highlights from management commentary
FII Includes depository receipts
Nilesh Bhaiya – Research Analyst
Pratik Singh – Research Analyst
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.