Jefferies retains ‘Hold’ rating on Havells, raises target price to Rs 1,420 per share

Unlike peers, V-Guard and Crompton who outsource 50-60 percent of their production, 90-95 percent of Havells manufacturing is in-house, which entails higher capex

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Overseas brokerage firm Jefferies has retained a ‘Hold’ rating on Havells India stock while raising the target price from Rs 1,360 to Rs 1,420, which is still lower than the stock’s current price of Rs 1,427.5. While the brokerage acknowledges Havells as a strong franchise, most positives appear to be priced in at the current valuation.

Lloyd’s sales growth remains healthy but margins are still under pressure. The brokerage believes that better capacity utilisation, softening commodities and cost rationalisation could help revive margins. Meanwhile, Havells’ stock fell 1.27 percent to Rs 1427.5 on September 12 despite the benchmark index, Nifty 50 opening above the 20,000 mark.

According to Jefferies, Havells is expected to expand the network into Tier 3 /rural areas and Lloyd is set to drive the next leg of growth. The company has a strong balance sheet and timely price hikes and a revival in Lloyd’s margins would be key to earnings upside. The company has set the base case target price at Rs 1,420 per share, the upside scenario at Rs 1,800 and the downside scenario at Rs 1,100.

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Jefferies further expects a revenue CAGR of 13 percent over FY23-26e driven by traction in infra, real estate demand, new capex commissioning and healthy growth in Lloyd and forecasts Havells’ operating margin to revive to 10.5 percent by FY25e versus 9.5 percent in FY23 driven by softening commodities and improving profitability in Lloyd.

Unlike peers, V-Guard and Crompton who outsource 50-60 percent of their production, 90-95 percent of Havells manufacturing is in-house – which entails higher capex. Havells targets Rs 600 crore capex in FY24e, mainly towards the Tumkur facility. Jefferies expects capex to moderate from FY25e onwards.

Earlier in July this year, Havells India reported a consolidated net profit of Rs 287.07 crore for the quarter ended June, up 18 percent from Rs 243.16 crore in the year-ago period. The company reported a 13.8 percent YoY rise in consolidated revenue from operations at Rs 4,833.80 crore against Rs 4,244.46 crore in the same quarter of the previous year. EBITDA for the quarter stood at Rs 402 crore.

Meanwhile, Havells’ market capitalisation at the current price of Rs 1,427.5 per share stands at Rs 89,482.83 crore. The stock touched a 52-week high of Rs 1,466 on 11 September 2023 and a 52-week low of Rs 1,092 on 26 December 2022.

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