Havells Shares Fall As Jefferies Says AC Margin Remains Under Pressure
Better capacity utilisation, softening commodities, and cost rationalisation could help revive margins, the brokerage said.
Shares of Havells India Ltd. fell the most in over seven weeks on Wednesday after Jefferies Financial Group Inc. said the company's margin is still under pressure even after healthy sales growth in the June quarter.
Better capacity utilisation, softening commodities, and cost rationalisation like that of ad spends could help revive margins, the brokerage said.
That led Jefferies to retain its 'hold' rating on the stock as all the positive triggers have been priced in at the current valuations.
Jefferies On Havells India
Retains a 'hold' rating at a price target of Rs 1,420 apiece, implying 2% downside over the next 12 months.
Sales were well diversified across product types. Brokerage expects traction in the upcoming festive season, and says that channel inventories are largely normal ahead of the festive season.
The global AC industry utilises approximately 190 million units, of which China accounts for about 90 million units. India consumes only 8–9 million units, with sharp under-penetration of approximately 6%.
The AC industry in India has consolidated with only seven to eight key players, which represents higher growth potential for companies engaged in the business.
Lloyd is now among the top-five AC players in India with a 13–14% market share. It has also launched other durables like washers and refrigerators. While Lloyd is showcasing healthy sales growth, EBIT margin continues to stay negative.
Key upside to brokerage's target price includes Lloyd's margin revival, softening raw material prices, premium launches. The downside includes demand slowdown and pricing pressures.
Factors For Lloyd's Margin Revival: Jefferies
Current investment behind capex and branding can yield higher volume growth, entailing better operating leverage.
Better utilisation of plants can lead to better cost efficiencies.
Softening commodities and input costs could aid revival.
Rationalisation of ad spends.
Shares of Havells was trading 2.12% lower at 1,386.5 per share, compared with a 0.03% advance in the benchmark NSE Nifty 50 as of 11:18 a.m. It declined as much as 3.04% to an intraday low of Rs 1,373.5 apiece.
The stock has risen 26.1% on a year-to-date basis. The total traded volume stood at 1.6 times its 30-day average. The relative strength index was at 56.
Out of the 47 analysts tracking Havells, 29 maintain a 'buy' rating on the stock, 14 recommend a 'hold' and four suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 3%.