Havells Shares Tumble On Q2 Margin Stress, Company Optimistic

Shares of Havells India Ltd. fell the most since March 12 as its second-quarter margin remained under pressure because of rising input prices.

YES Securities

• Maintains 'buy' rating with a target price of Rs 1,390 apiece.

• Strong revenue growth but gross margins remain under pressure; expect earnings upgrades reinforce positive view

• The company continues to surprise positively on strong revenue growth, which is on the back of omnichannel strategy including online, rural, modern trade and enterprise business penetration playing out well with addition of new customers.

• Contraction in Ebitda margin was restricted on account of strict control over other expenses.

• Expects the stock to continue trading at premium valuations as it has been able to surpass expectations even in a difficult environment and has been able to manage its profitability much better than peers.

• Sees earnings upgrades as the company continues to deliver strong growth in challenging times.

ICICI Securities

• Maintains 'buy' rating, raises target price to Rs 1,650 from Rs 1,350, implying a potential upside of 17%.

• Gross margin was down 605 basis points year-on-year due to revenue mix deterioration, steep commodity inflation and a lag in the effect of price hikes.

• The company benefitted from the revival in economy and higher infrastructure spending.

• Profitability of Lloyd segment remained under stress even in Q2FY22 due to higher input prices and negative operating leverage.

• Remains positive on the company’s business model due to strong moats and growth opportunities.

JM Financial

• Maintains 'hold' rating, raises target price to Rs 1,270 apiece against Rs 1,200 earlier, implying a downside of 8%.

• Havells saw healthy growth across business verticals as it added new customers and broad based demand channels.

• Raised FY22/23/24 estimates by 10%/7%/5% to reflect Q2 performance and improving outlook.

• Note that there was sharp reduction in employee costs and other expenses in 2QFY21, which has resulted into near record Ebitda margin.

• Demand momentum remains positive with a recovery in real estate, industrial and infra segments with increased conversion of projects.

• While commodity price pressure seems to be easing (copper -2% QoQ in Q2), partial pass-through of cost inflation may impact margins in the short term.