Fundamental Analysis of Havells India: In an age where technology permeates every aspect of our lives, the role of electrical appliances cannot be overstated. We humans are intertwined with this form of energy & it becomes impossible to imagine life without electricity.

Today we talk about a Company that manufactures the appliances that make our lives better, harnessing this energy. Herein, we are going to perform a fundamental analysis of Havells India.

Fundamental Analysis of Havells India

Today we will take a look at the scale of the Company’s operations, understand its business segments, and learn about the developments in the Consumer durable industry before we do the fundamental analysis of Havells India Financials & arrive at a conclusion. 

Company Overview

Havells is a Fast Moving Electrical Goods (FMEG) Company, founded by Late Sh. Qimat Rai Gupta. He set up an electrical goods shop at the electrical market of Bhagirath Palace in Delhi. The Company is currently headed by Anil Rai Gupta, as its Chairman and Managing Director. 

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Havells India has a global footprint in 60+ countries & a network of 17,000+ dealers. It has manufacturing operations in 15 plants spread across India. It houses brand names like Havells, LLOYD, Crabtree, Standard, REO & Havells Studio. 

Segment Analysis

Now we will understand the 5 business segments of Havells.

Cables: The Cables business being the biggest revenue generator bringing in 32% of FY23’s revenue. The cables segment grew by 19.12% from the previous year. 

Lloyd consumer: It is the 2nd largest segment that brought in ~20% of FY23’s revenue. This segment nearly doubled over the previous year (~49% YoY). Havells manufactures TVs, ACs, Washing machines & refrigerators under this brand.

Consumer durables: It is the 3rd largest business segment of the company. Fans, Appliances & Water Heaters are sold in this segment. It contributes to 19.54% of the firm’s revenue. Demand for this segment remained muted, growing by just ~8% over the previous year.

Switchgear: As an individual segment of its own is responsible for ~13% of FY23’s revenue. The segment comprises of domestic, industrial switchgears & capacitors. It saw a decent growth of ~19% over the previous year.

Lighting & Fixtures: It is the 5th largest segment that brought in ~10% revenue & grew by ~17%. Havells also manufactures Motors, solar pumps, water purifiers & personal grooming products. This collectively brought it 5.63% of revenue & grew by 25% over the previous year.

SegmentFY2023(% of total revenue)FY2022(% of total revenue)
Cables553332.80%464533.44%
Lloyd Consumer336919.97%226116.28%
Consumer Durables329619.54%306722.08%
Switchgears212012.57%178612.86%
Lighting & Fixtures16029.50%13719.87%
Others950.005.63%7595.46%
Total:16870100.00%13889100.00%

Industry Overview

FY23 witnessed a mixed operating environment as it had a healthy business outlook, while at the same time commodity price fluctuations killed margins.

The consumer electricals and durables industry continued to perform well with demand expanding on the back of urbanization, electrification, and higher disposable incomes in Indian households. Smart-connected homes are on the rise, as the younger population is contributing to buying decisions in the home. 

We will now examine the industry of each individual segment.

Electronic Consumer Durables (ECD)

The fan industry moved to BEE-rated energy-efficient fans with all manufacturers phasing out non-rated fans by December 2022. In the pre-transition phase, there was initially some uncertainty with significant destocking, but just before the transition, there was healthy pickup by channels. 

The industry continues to witness higher demand for premium. Demand rose in Tier 2 and Tier 3 cities as well.

The “Make in India” initiative has led to the local manufacturing of mixer grinders (MG) and juicer mixer grinders (JMG). Other categories like induction cooktops, steam irons, toasters, room heaters, hand blenders, etc. have followed suit.

Cables

The category experienced stable growth in FY23 in spite of decreasing metal prices for the major part of the year and copper price volatility. The industry continued its transition from the unorganized to the organized segment with increased consumer focus on buying branded and reliable products for homes and workplaces. 

Increased government spending on infrastructure, education, health, manufacturing hubs, and expansion of 5G network all contributed to the growth of the cable industry.

There is a strong demand for visibility across all industrial segments which led to an overall improved environment for the industrial cable sector. In the coming years, various sectors like renewable energy, data centers, metros, 5G, airports, defense, and digitalization are expected to provide sustainable growth.

Now, the industry is focusing on selling specialized cables such as heat-resistant flame retardant (HRFR) cables, flame retardant and low smoke halogen (FRLS-H) cables, and halogen-free flame retardant (HFFR) cables.

Havells India – Financials

Revenue & Net Profit Growth

The Company reported a 21.32% YoY increase in revenue, growing from Rs. 13,938  Cr. in FY22 to Rs. 16,910 Cr. in FY23. The growth was led by the expansion of the Lloyd business which saw a spectacular growth of 49%. It maintains a 5 Year CAGR growth of ~14%.

Despite reporting a double-digit growth in revenue, the Company saw its Net Profits fall by ~10%, from Rs. 1196Cr in FY22 to Rs. 1072Cr in FY23. This was due to an increase in the cost of raw materials which rose by ~20% over the previous year & cost ~55% of FY23’s sales. The Net profit is growing at 5 Year CAGR of ~8%.

Fiscal YearNet SalesNet Profit
202316910.731071.73
202213938.481196.47
202110457.31044.31
20209440.26735.35
201910073.43787.61
5-Year CAGR13.83%7.99%

Profit Margins

The Company reported operating profit margins of 9.58%, coming at a 5-year low for the Company, much lower than the 5-year average of 12.18%.

Net Profits of the Company fell in the ~6% category in FY23, much lower than the 5-year average of 8.10%.

Fiscal YearOperating Profit MarginNet Profit Margin
20239.58%6.34%
202212.73%8.58%
202115.20%9.99%
202011.23%7.79%
201912.14%7.82%
5 Year Average12.18%8.10%

Return Ratios

The Company reported a Return on Capital Employed of 23.07%, a 3 Year Low for the Company, significantly lower than the 5-year average of 26.59%.

Its Return on Equity dipped to below the 20% category, being reported at ~17%, lower than the 5 Year Average of ~20%. The fall in the Company’s profitability margins was the cause of the low return ratios.

Fiscal YearRoCERoE
202323.07%16.98%
202227.74%21.41%
202130.49%22.02%
202022.11%17.29%
201929.56%19.88%
5 Year Average26.59%19.52%

Debt Analysis

The Company is virtually debt-free with a debt-to-equity of 0x. During the year, it paid Rs. 393.69 Cr. as part of its debt payments & it currently has no  Short Term or Long Term Debt obligation. Interest Coverage ratio remains at a 5-year high of 27.28x.

Fiscal YearDebt / EquityInterest Coverage
20230.0027.28
20220.0725.01
20210.0916.96
20200.0118.61
20190.0221.76
5 Year Average0.0421.92

Future Plans Of Havells India

Anil Rai Gupta, CMD of Havells India in an interview with The Economic Times, says in FY23 the company will cover 2,800 additional towns with a population of 10,000-50,000. The Company plans to sell white goods, such as Air Conditioners, refrigerators, and washing machines in these markets. They aim to build an organized distribution network, such as the one built by the FMCG Peers.

Havells India plans to launch Havells Studio Meditate Air Purifier, Q-Tron MCCB Range, Glamtubes and Nimbus downlights, Lloyd ACs with AQI Indicator and on-device voice (ODV) features in the coming year, which is expected to further strengthen its consumer durables market of both Havells & Lloyd.

ParticularsAmountParticularsAmount
CMP1354Market Cap (Cr.)85149
EPS (TTM)17.8Stock P/E (TTM)76.32
RoE16.98%RoCE23.07%
Promoter Holding59.43%Book Value109.90
Debt to Equity0Price to Book Value12.32
Net Profit Margin6.34%Operating Profit Margin9.58%

Conclusion

Havells India is set on a growth trajectory on the back of the growth of its Cables & Lloyd Consumer segment. The urbanization of Indians coupled with the rising temperatures in India makes a really good combination to spur up demand for its products. 

The Company reported a ~67% fall in Net Operating Cash Flow, due to ~25% & ~27% increase in Inventories as well as Trade Receivables respectively, with these assets collectively holding up ~41% of the Company’s Total Assets. These raise liquidity risks in its financials & must be kept in check.

Do you think that Havells segments, especially Lloyd will continue to maintain their growth trajectory? Do you think that stock is attractive at its current price level? Let us know in the comments below

Written by Nasir Hussain

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