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Business News/ Markets / Mark To Market/  Havells India’s growth prospects are bright, but the stock is pricey
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Havells India’s growth prospects are bright, but the stock is pricey

After a robust Q1, investors will watch if the demand momentum sustains going ahead

 Havells India’s revenues for the June quarter (Q1FY22) naturally declined sequentially owing to the adverse impact of the second covid wave  (Photo: Mint)Premium
 Havells India’s revenues for the June quarter (Q1FY22) naturally declined sequentially owing to the adverse impact of the second covid wave  (Photo: Mint)

Havells India Ltd’s shares rose about 6% on Wednesday on the National Stock Exchange, also touching a new 52-week high in intraday trading. Needless to say, valuations of the stock have become more expensive now. Based on Bloomberg data, the shares trade at 58 times estimated earnings for FY23.

Yes, analysts are upbeat on the company’s growth prospects. In a report on 1 September, analysts from Credit Suisse Securities (India) Pvt. Ltd said, “We expect Havells to deliver a 20% CAGR in earnings over FY21-24E, driven by: (1) revival in switchgear and cables; (2) market share gains in durables; (3) an increasing presence in electrical consumer goods; and (4) margin gains in the Lloyd’s portion of the business." CAGR is short for compound annual growth rate. The brokerage believes returns will be driven by addressable market expansion in white goods and growth visibility on the back of that.

A pause in recovery
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A pause in recovery

Even so, the stock’s significant appreciation suggests investors are factoring in a good share of the positives about demand recovery and growth into the current valuations. To that extent, upsides could well be capped.

Meanwhile, Havells India’s revenues for the June quarter (Q1FY22) naturally declined sequentially owing to the adverse impact of the second covid wave. Note that revenues had shown a consistent sequential improvement for three quarters before Q1.

Nevertheless, the Q1 results exceeded analysts’ expectations. Analysts from HDFC Securities Ltd point out that Havells and Hawkins posted +13% and +5% Ebitda on two-year CAGR in 1QFY22, respectively, while all other consumer durables companies under its coverage reported a decline. Ebitda is earnings before interest, tax, depreciation and amortization.

To be sure, after a robust Q1, investors will watch if the demand momentum sustains going ahead. Improvement in Lloyd’s performance remains a key monitorable, too.

In Q1, Lloyd’s business wasn’t able to capitalize on peak seasonal sales owing to the second wave. Further, to cope with higher commodity prices, the company has taken price hikes across most categories. As such, some analysts reckon the price hikes may help the September quarter show.

Be that as it may, even as growth prospects for Havells remain bright as mentioned earlier, the stock’s valuations already capture a good portion of the optimism.

Overall, according to Credit Suisse, key risks include “(1) high expectations; (2) margins (given a margin spike from lower ad spend in FY21); (3) demand impact from recent price hikes; and (4) increased competition as rivals catch up in systems/processes, especially in durables."

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ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
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Published: 01 Sep 2021, 11:04 PM IST
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