NEUTRAL Fire resistant (not recession!) INDUSTRY ... - 1QFY20 - HDFC...Havells has gained...

RESULTS REVIEW 1QFY20 29 JUL 2019

Havells India NEUTRAL

Fire resistant (not recession!) Havells 1Q was weak led by slowdown impact on core business while Lloyd shocked us on all fronts. Lloyd’s brand re-positioning initiatives are hurting Havells as the brand lost market share and margins (1% EBITDAM in a harsh summer). We are optimistic on core business to bounce back in 2HFY20 but remain cautious on Lloyd’s recovery in FY20 (non-seasonal). We cut our EPS by 10% for FY20-21E. We value Havells at 36x on Jun-21 EPS, arriving at a TP of Rs 694. Maintain NEUTRAL. HIGHLIGHTS OF THE QUARTER Net revenues grew by 5% (25% in previous 4 qtrs) vs.

exp of 13%. Core biz was up by 9% (22% in previous 4 qtrs). Slow B-B orders (impending elections) and liquidity crunch impacted core business.

Switchgears/Cables/Lighting posted weak 1/4/5% growth. Slowdown in these categories does not worry us, we expect it to be short-lived. Market share gains in a turbulent environment are heartening.

ECD growth of 24% was led by fans (mid-teens) and appliances (35% growth). Premiumisation in fans remains the story for Havells. Havells has become the leader in water heater (in no time). Brand and distribution leveraging remains Havells forte in durables.

Lloyd’s consistent failure has worried us as (1) 1Q miss was in a harsh summer (>20% growth in RAC market),

(2) Leaders (Voltas & LG) are gaining share, (3) EBITDAM was at 1% and (4) Higher competitive intensity from Chinese brands in LED panels (20% revenue). We model 4/4.5% revenue/EBITDAM for FY20 and 14/7.5% in FY21 (in-house manufacturing and distribution churn behind).

Contribution margins for lighting was up by 87bps, while Switchgears/C&W/ECD/Lloyd declined by 23/47/46/326 bps. GM declined by 21bps to 37.4% (exp of +43bps). Employee/other expenses grew by 23/2% resulting in 12% decline in EBITDA (exp. +14%).

STANCE Havells has gained significant market share in switches (+150bps YoY), lighting (+200bps YoY), fans (+300bps YoY), water heater (+400bps YoY) and other appliances (+250bps YoY) in FY19. Havells’ success in ECD (drove re-rating) is expected to sustain despite the scale becoming large. With focus on new launches and market share gains, co has taken a significant leap in FY19 on (1) R&D (New design studio in Noida), (2) Employee strength (expense up 28% YoY) and (3) A&P spend (up +25% YoY). We believe these costs are peaking (% of sales) and hence expect margin expansion. Additionally, benign commodity inflation and price hikes will further support margins. We maintain NEUTRAL (downgraded in Jan-19) and may upgrade at a better price, risk/reward is unfavorable.

Financial Summary (Standalone) (Rs mn) 1Q FY20 1Q FY19 YoY (%) 4Q FY19 QoQ (%) FY18 FY19 FY20E FY21E FY22E Net Sales 27,120 25,963 4.5 27,519 (1.4) 81,386 100,576 112,064 129,717 149,649 EBITDA 2,757 3,123 (11.7) 3,229 (14.6) 10,493 11,922 14,181 17,527 20,637 APAT 1,740 2,104 (17.3) 2,068 (15.9) 7,036 7,915 9,179 11,473 13,819 Diluted EPS (Rs) 2.8 3.4 (17.3) 3.3 (15.9) 11.3 12.7 14.7 18.3 22.1 P/E (x) 59.3 52.7 45.5 36.4 30.2 EV / EBITDA (x) 38.4 34.0 28.3 22.5 18.7 Core RoCE (%) 33.9 26.7 26.4 31.4 37.1 Source: Company, HDFC sec Inst Research

INDUSTRY APPLIANCES CMP (as on 29 Jul 2019) Rs 666 Target Price Rs 694 Nifty 11,189 Sensex 37,686 KEY STOCK DATA Bloomberg HAVL IN No. of Shares (mn) 626 MCap (Rs bn) / ($ mn) 417/6,055 6m avg traded value (Rs mn) 1,040 STOCK PERFORMANCE (%) 52 Week high / low Rs 807/550 3M 6M 12M Absolute (%) (13.2) (5.0) 6.5 Relative (%) (9.6) (10.9) 5.6 SHAREHOLDING PATTERN (%) Mar-19 Jun-19 Promoters 59.55 59.52 FIs & Local MFs 4.30 4.64 FPIs 27.28 26.95 Public & Others 8.87 8.89 Pledged Shares (% of total shares) - -

Source : BSE

Naveen Trivedi [email protected] +91-22-6171-7324

Siddhant Chhabria [email protected] +91-22-6171-7336

HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters

HAVELLS INDIA: RESULTS REVIEW 1QFY20

Quarterly Financials (Havells + Lloyd)

Year to March (Rs mn) 1QFY20 1QFY19 YoY Chg (%) 4QFY19 QoQ Chg

(%) FY19 FY18 YoY Chg

(%) Net Revenue 27,120 25,963 4.5 27,519 (1.4) 100,576 81,386 23.6 Material Expenses 16,988 16,208 4.8 17,308 (1.8) 62,785 49,808 26.1 Employee Expenses 2,413 1,970 22.5 2,213 9.0 8,324 6,497 28.1 ASP Expenses 1,370 1,156 18.5 1,030 33.0 3,842 3,076 24.9 Other Operating Expenses 3,592 3,506 2.4 3,740 (3.9) 13,702 11,512 19.0 EBITDA 2,757 3,123 (11.7) 3,229 (14.6) 11,922 10,493 13.6 Depreciation 469 350 33.9 391 20.1 1,486 1,395 6.5 EBIT 2,288 2,772 (17.5) 2,838 (19.4) 11,712 10,267 14.1 Other Income 397 292 35.9 310 28.3 1,276 1,170 9.0 Interest Cost 47 26 85.1 61 (23.1) 159 240 (33.6) PBT 2,638 3,039 (13.2) 3,086 (14.5) 11,553 10,028 15.2 Exceptional item - - na - na - 119 na PBT after exceptional 2,638 3,039 (13.2) 3,086 11,553 10,147 13.9 Tax 898 935 (3.9) 1,018 (11.7) 3,637 3,022 20.4 RPAT 1,740 2,104 (17.3) 2,068 (15.9) 7,916 7,125 11.1 Exceptional (net of taxes) - - na - na - (90) na APAT 1,740 2,104 (17.3) 2,068 (15.9) 7,916 7,035 12.5 EPS (adjusted) 2.8 3.4 (17.3) 3.3 (15.9) 12.7 11.3 12.4 Source: Company, HDFC sec Inst Research Margin Analysis (Havells + Lloyd)

(% of Revenues) 1QFY20 1QFY19 YoY Chg (bps) 4QFY19 QoQ Chg

(bps) FY19 FY18 YoY Chg

(bps) Material Expenses 62.6 62.4 21 62.9 (25) 62.4 61.2 123 Employee Expenses 8.9 7.6 131 8.0 86 8.3 8.0 29 ASP Expenses 5.1 4.5 60 3.7 131 3.8 3.8 4 Other Operating Expenses 13.2 13.5 (26) 13.6 (34) 13.6 14.1 (52) EBITDA Margin (%) 10.2 12.0 (186) 11.7 (157) 11.9 12.9 (104) Tax Rate (%) 34.0 30.8 329 33.0 107 31.5 30.1 135 APAT Margin (%) 6.4 8.1 (169) 7.5 (110) 7.9 8.6 (77) Source: Company, HDFC sec Inst Research

Havells core business grew by 9% vs. exp of 12% Lloyd business degrew by 8% owing to brand re-positioning and decline in LED panels ASP spend for core business grew by 7% (2.9% of rev.) while for Lloyd it was up by 34% (7.1% of rev.) Employee/other expense grew by 23/2% owing to investment in talent and distribution resulting in EBITDA degrowth of 12% Higher taxes further dented APAT resulting in 17% degrowth (higher taxes) vs. exp of +15%

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Quarterly Performance

Particulars (Rs mn) Havells (Ex-Lloyd) Lloyd Consumer Havells (With Lloyd)

1QFY20 1QFY19 YoY Chg 1QFY20 1QFY19 YoY Chg 1QFY20 1QFY19 YoY Chg Net Revenue 20,600 18,882 9.1 6,520 7,081 (7.9) 27,120 25,963 4.5 Contribution 5,325 4,905 8.6 1,049 1,370 (23.4) 6,374 6,275 1.6 Contribution Margin (%) 25.8% 26.0% -13bps 16.1% 19.4% -326bps 23.5% 24.2% -67bps ASP 702 656 7.0 668 500 33.6 1,370 1,156 18.5 (% of sales) 3.4% 3.5% -7bps 10.2% 7.1% 318bps 5.1% 4.5% 60bps Other Expenses 1,890 1,999 (5.4) 357 262 36.3 2,247 2,261 (0.6) (% of sales) 9.2% 10.6% -141bps 5.5% 3.7% 178bps 8.3% 8.7% -42bps EBITDA 2,668 2,550 4.6 89 659 (86.5) 2,757 3,209 (14.1) EBITDA Margin (%) 13.0% 13.5% -55bps 1.4% 9.3% -795bps 10.2% 12.4% -220bps Depreciation/Amortisation 404 300 34.7 65 51 27.5 469 351 33.6 Interest (Inc Forex) (40) 25 (259.2) 87 (85) (202.4) 47 (60) (178.7) Other income 397 291 36.4 - - na 397 291 36.4 PBT 2,527 2,516 0.4 111 523 (78.8) 2,638 3,039 (13.2) Exceptional - - na - - na - - na PBT after exceptional 2,527 2,516 0.4 111 523 (78.8) 2,638 3,039 (13.2) Tax 898 935 (4.0) Tax Rate (%) 34.0% 30.8% 328bps PAT 1,740 2,104 (17.3) Exceptional (net of taxes) - - na APAT 1,740 2,104 (17.3) NPM (%) 6.4% 8.1% -169bps Source: Company, HDFC sec Inst Research

Core biz was up by 9% (22% in previous 4 qtrs). Slow B-B orders (impending elections) and liquidity crunch in construction industry impacted core business Havells continues to spend behind brands as the general demand situation improves vs. the last 2 years Lloyd disappointed in a seasonally strong quarter (RAC mkt grew >20%)

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Annual Performance

Particulars (Rs mn) Havells (Ex-Lloyd) Lloyd Consumer Havells (With Lloyd)

FY19 FY18 YoY Chg FY19 FY18 FY19 FY18 YoY Chg Net Revenue 82,020 67,244 22.0 18,555 14,141 100,575 81,385 23.6 Contribution 20,724 17,510 18.4 3,176 2,684 23,900 20,194 18.3 Contribution Margin (%) 25.3% 26.0% -77bps 17.1% 19.0% 23.8% 24.8% -105bps ASP 2,563 2,103 21.9 1,279 973 3,842 3,076 24.9 (% of sales) 3.1% 3.1% 0bps 6.9% 6.9% 3.8% 3.8% 4bps Other Expenses 8,504 7,250 17.3 1,115 768 9,619 8,018 20.0 (% of sales) 10.4% 10.8% -41bps 6.0% 5.4% 9.6% 9.9% -29bps EBITDA 10,939 9,367 16.8 986 1,126 11,925 10,493 13.6 EBITDA Margin (%) 13.3% 13.9% -59bps 5.3% 8.0% 11.9% 12.9% -104bps Depreciation/Amortisation 1,282 1,210 6.0 204 184 1,486 1,394 6.6 Interest (Inc Forex) 348 67 419.7 38 168 386 235 64.3 Other income 1,045 842 24.1 - - 1,045 842 24.1 PBT 10,740 8,930 20.3 814 1,098 11,554 10,028 15.2 Exceptional - (119) na - - - (119) na PBT after exceptional 10,740 9,049 18.7 814 1,098 11,554 10,147 13.9 Tax 3,637 3,022 20.4 Tax Rate (%) 31.5% 29.8% 170bps PAT 7,915 7,125 11.1 Exceptional (net of taxes) - - na APAT 7,915 7,125 11.1 NPM (%) 7.9% 8.8% -88bps Source: Company, HDFC sec Inst Research

Core business contribution margin declined by 77bps owing to gradual price hikes. We expect the co to return to margin expansion in FY20 Lloyd witnessed a challenging year owing to seasonality factor

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Segmental Quarterly Performance

Year to March (Rs mn) 1QFY20 1QFY19 YoY Chg (%) 4QFY19 QoQ Chg

(%) FY19 FY18 YoY Chg

(%) Segmental Revenues Cables and Wires 7,785 7,499 3.8 8,979 (13.3) 32,346 26,001 28.0 Consumer Durables 6,235 5,040 23.7 5,049 23.5 20,220 15,602 39.0 Switch Gears 3,775 3,758 0.5 4,368 (13.6) 16,519 14,077 25.0 Lighting & Fixtures 2,712 2,573 5.4 3,296 (17.7) 11,902 10,240 20.0 Lloyd Consumer Division 6,520 7,081 (7.9) 5,324 na 18,556 14,141 2.0 Others 93 10 830.0 504 na 1,021 1,325 (22.9) Total 27,120 25,962 4.5 27,519 (1.4) 100,563 81,386 31.0 Segmental Contribution Cables and Wires 1,291 1,279 1.0 1,575 (18.0) 5,218 4,380 19.1 Consumer Durables 1,732 1,423 21.7 1,320 31.2 5,405 4,201 28.7 Switch Gears 1,491 1,493 (0.1) 1,656 (10.0) 6,409 5,572 15.0 Lighting & Fixtures 772 710 8.7 886 (12.9) 3,403 3,120 9.1 Lloyd Consumer Division 1,049 1,370 na 798 na 3,175 2,684 18.3 Others 39 1 na 161 na - - na Total 6,374 6,276 1.6 6,396 (0.3) 23,609 19,957 18.3 Less: (a) Interest Cost & Bank Charges 47 26 85.1 61 (23.1) 159 240 (33.6) (b) Other Un-allocable Expenses 3,681 3,211 14.6 3,249 13.3 12,188 9,807 24.3 PBT 2,646 3,039 (12.9) 3,086 (14.3) 11,262 9,911 13.6 Capital Employed Cables and Wires 4,155 3,465 19.9 2,854 45.6 2,854 2,289 24.7 Consumer Durables 3,633 1,710 112.5 3,009 20.7 3,009 1,205 149.7 Switch Gears 3,979 3,477 14.4 3,750 6.1 3,750 3,328 12.7 Lighting & Fixtures 3,653 2,809 30.0 3,517 3.9 3,517 2,508 40.2 Lloyd Consumer Division 19,679 16,400 na 21,273 na 21,273 15,484 na Total 35,100 27,861 26.0 34,402 76.3 34,402 24,815 38.6 Unallocable Capital Employed 9,292 11,810 (21.3) 8,023 15.8 8,023 12,577 (36.2) Total Capital Employed 44,392 39,671 11.9 42,425 4.6 42,425 37,391 13.5 Source: Company, HDFC sec Inst Research Note: Contribution margins are derived after deducting material cost, manufacturing variables, direct selling variables and depreciation from the net revenue| *Lloyd’s growth in FY19 is based on comparable growth

Havells continued to gain share in Fans led by premiumisation Switchgears/Cables/Lighting posted weak 1/4/5% growth, while, ECD’s outperformance of 24% growth sustained despite a high base of 43%. C&W and lighting performance outperformed vs. V-Guard (mid-single digit decline in wires) and Crompton (-2% in lighting). Polycab C&W was up by 8% of which wires was muted and cables growth was led by optical fibre Switchgears/Cables/Lighting slowdown does not worry us as these are expected to be short-lived. Market share gains even in a turbulent environment were heartening.

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Segmental Contribution Margin

(% of Revenues) 1QFY20 1QFY19 YoY Chg (bps) 4QFY19 QoQ Chg

(bps) FY19 FY18 YoY Chg

(bps) Cables and Wires 16.6 17.0 (47) 17.5 (96) 16.1 16.8 (72) Electrical Consumer Durables 27.8 28.2 (46) 26.2 163 26.7 26.9 (20) Switch Gears 39.5 39.7 (23) 37.9 157 38.8 39.6 (79) Lighting & Fixtures 28.5 27.6 87 26.9 158 28.6 30.5 (188) Lloyd Consumer Division 16.1 19.4 (326) 15.0 110 17.1 19.0 (187) Others 41.9 10.0 3,194 na na - - - Total 23.5 24.2 (67) 23.2 26 23.5 24.5 (105) Source: Company, HDFC sec Inst Research

Delay in price hikes and modest volume growth led to decline in margins

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Segmental Analysis Cable & Wires 2Q FY17 3Q FY17 4Q FY17 1Q FY18 2Q FY18 3Q FY18 4Q FY18 1Q FY19 2Q FY19 3Q FY19 4Q FY19 1Q FY20 Sales (Rs mn) 5,592 6,092 6,780 6,363 5,693 6,256 7,689 7,499 7,665 8,203 8,979 7,785 Sales Gr. (%)* 0.2 17.7 12.5 19.4 2.0 3.0 13.0 18.0 34.6 31.1 16.8 3.8 Sales Mix (%) 38.5 40.5 39.6 34.2 32.0 31.8 30.3 28.9 35.0 32.6 32.6 28.7 Contribution Gr. (%) 0.2 17.7 12.5 19.4 2.0 3.0 13.0 18.0 34.6 31.1 16.8 3.8 Contribution Margin (%) 14.2 14.3 12.9 13.5 19.9 17.1 17.1 17.0 14.0 15.8 17.5 16.6 Contribution Margin Chg 63bps 14bps -194bps 0bps 573bps 284bps 423bps 355bps -594bps -133bps 40bps -47bps Contribution Mix (%) 21.5 23.7 21.9 20.7 24.2 21.5 20.6 20.4 20.3 21.7 24.6 20.3

Elec. Consumer Durables 2Q FY17 3Q FY17 4Q FY17 1Q FY18 2Q FY18 3Q FY18 4Q FY18 1Q FY19 2Q FY19 3Q FY19 4Q FY19 1Q FY20 Sales (Rs mn) 3,085 3,296 3,888 3,583 3,215 4,158 4,646 5,040 4,579 5,552 5,049 6,235 Sales Gr. (%)* 22.2 17.8 28.0 2.0 11.0 33.0 29.0 43.0 42.4 33.5 8.7 23.7 Sales Mix (%) 21.2 21.9 22.7 19.3 18.1 21.2 18.3 19.4 20.9 22.0 18.3 23.0 Contribution Gr. (%) 48.1 11.3 11.1 (10.6) 8.9 51.9 32.6 74.4 39.8 14.8 4.7 21.7 Contribution Margin (%) 26.6 24.6 24.5 22.8 27.8 29.6 27.2 28.2 27.3 25.4 26.2 27.8 Contribution Margin Chg 465bps -143bps -374bps -320bps 121bps 502bps 269bps 546bps -52bps -414bps -100bps -46bps Contribution Mix (%) 22.2 22.1 23.8 19.7 19.1 24.7 19.8 22.7 23.7 23.7 20.6 27.2

Switchgears 2Q FY17 3Q FY17 4Q FY17 1Q FY18 2Q FY18 3Q FY18 4Q FY18 1Q FY19 2Q FY19 3Q FY19 4Q FY19 1Q FY20 Sales (Rs mn) 3,474 3,309 3,753 3,389 3,299 3,443 3,946 3,758 4,231 4,162 4,368 3,775 Sales Gr. (%)* 5.0 2.0 15.9 (4.0) 1.0 11.0 12.0 26.0 28.3 20.9 10.7 0.5 Sales Mix (%) 23.9 22.0 21.9 18.2 18.6 17.5 15.6 14.5 19.3 16.5 15.9 13.9 Contribution Gr. (%) 10.2 (0.9) 12.2 (8.9) (5.7) 6.9 5.7 14.2 19.5 18.2 - - Contribution Margin (%) 41.6 39.0 38.4 38.6 41.3 40.1 38.6 39.7 38.5 39.2 37.9 39.5 Contribution Margin Chg 198bps -116bps -127bps -209bps -27bps 107bps 20bps 116bps -283bps -89bps -67bps -23bps Contribution Mix (%) 39.2 35.2 36.0 31.6 29.0 27.7 23.9 23.8 30.9 27.4 25.9 23.4

Lighting & Fixtures 2Q FY17 3Q FY17 4Q FY17 1Q FY18 2Q FY18 3Q FY18 4Q FY18 1Q FY19 2Q FY19 3Q FY19 4Q FY19 1Q FY20 Sales (Rs mn) 2,371 2,363 2,680 2,053 2,419 2,700 3,068 2,573 2,844 3,189 3,296 2,712 Sales Gr. (%)* 22.0 13.3 16.8 (11.0) 21.0 21.0 20.0 25.0 18.0 18.1 7.4 5.4 Sales Mix (%) 16.3 15.7 15.7 11.0 13.6 13.7 12.1 9.9 13.0 12.7 12.0 10.0 Contribution Gr. (%) 36.2 28.3 28.8 4.8 18.1 11.0 34.2 14.3 13.7 24.2 (9.7) 8.7 Contribution Margin (%) 26.6 29.5 27.3 30.2 30.8 28.6 32.0 27.6 29.8 30.1 26.9 28.5 Contribution Margin Chg 279bps 344bps 255bps 456bps 418bps -83bps 471bps -265bps -103bps 147bps -509bps 87bps Contribution Mix (%) 17.1 19.0 18.3 15.0 15.9 15.5 15.4 11.3 16.1 16.1 13.9 12.1 Note: Sales growth/margin expansion for 1QFY16 to 4QFY16 are calculated based on OLD AS *Like-to-like revenue growth 2QFY18-1QFY19

Cables & wires segment growth was been driven by price hike and richer mix during FY19. Havells ECD segment growth has outperformed core business growth in the last 6 quarters driven by market share gains (premium fans), favorable base, distribution expansion and new product launches Switchgear growth has moderated owing to slowdown in new construction Lighting & fixtures segment has grown consistently with healthy contribution growth. Recent slowdown is on account of elections (B2B contracts)

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Havells Progress: Key focus areas are manufacturing, R&D, distribution and talent

With focus on new launches and market share gains, co has taken a significant leap in FY19 on (1) R&D (Rs 790mn), (2) Employee strength (expense up 28% YoY) and (3) A&P spend (up +25% YoY). We believe these costs are peaking (% of sales) and hence expect margin expansion led by operating leverage

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Havells Market Share

Segments Market Size (Rs bn) Havells' Mkt

Share (%) Rank Organized

Penetration Peers

Switchgears - MCB 22 27-28 1 High Legrand, Schneider Switchgears - Switches 22 16 3 Medium Panasonic (Anchor), Legrand Cable - Domestic 80 16 3 Low Finolex, Polycab Cable - Industrial 120 10 3 Medium Polycab, KEI Lighting & Fixtures 65 12-15 2-4 Medium Philips, Crompton, Bajaj, Wipro Fans 69 19 3 High Crompton, Orient, Usha Water Heater 14 19 3 Low Racold, AO Smith Other Appliances 50 5-6 na Low Bajaj, Philips Source: Company, HDFC sec Inst Research Business Breakup And Assumptions Particulars (Rs mn) FY17 FY18 FY19 FY20E FY21E FY22E Revenue Havells 61,353 67,244 82,020 92,766 107,718 124,569 Lloyd Consumer* 18,140 18,556 19,298 22,000 25,080 Total 61,353 81,386 100,576 112,064 129,717 149,649

YoY Gr. (%) Havells 14.1 11.8 22.0 13.1 16.1 15.6 Lloyd Consumer* 11.0 2.3 4.0 14.0 14.0 Total 14.1 32.7 23.6 11.4 15.8 15.4

EBITDA Havells 8,242 9,367 10,936 13,312 15,877 18,631 Lloyd Consumer* 1,451 987 868 1,650 2,006 Total 8,242 10,493 11,922 14,181 17,527 20,637

EBITDA Margin (%) Havells 13.4 13.9 13.3 14.4 14.7 15.0 Lloyd Consumer* 8.0 5.3 4.5 7.5 8.0 Total 13.4 12.9 11.9 12.7 13.5 13.8 Source: Company, HDFC sec Inst Research * Lloyd FY18 financials are annualised (acquired on 8 May 2017) and adjusted for GST

Havells has gained market share in switches (+150bps YoY), lighting (+200bps YoY), fans (+300bps YoY), water heater (+400bps YoY) and other appliances (+250bps YoY) Havells has maintained its market share in switchgears and cables

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HAVELLS INDIA : RESULTS REVIEW 1QFY20

Havells Core Business Assumption Cable & Wires FY17 FY18* FY19 FY20E FY21E FY22E Sales (Rs mn) 23,793 26,001 32,346 35,568 41,064 46,813 Sales Gr. (%) 8.8 9.3 24.0 10.0 15.5 14.0 Sales Mix (%) 38.8 31.9 32.2 31.7 31.7 31.3 Contribution Gr. (%) 5.1 34.5 19.1 15.9 15.4 14.0 Contribution Margin (%) 13.7 16.8 16.1 17.0 17.0 17.0 Contribution Margin Chg -49bps 316bps -72bps 88bps 0bps 0bps Contribution Mix (%) 21.7 21.7 21.8 22.2 21.9 21.4

Elec. Consumer Durable FY17 FY18* FY19 FY20E FY21E FY22E Sales (Rs mn) 13,783 15,602 20,220 25,007 30,008 36,010 Sales Gr. (%) 22.4 21.0 30.0 23.7 20.0 20.0 Sales Mix (%) 22.5 19.2 20.1 22.3 23.1 24.1 Contribution Gr. (%) 21.8 20.3 28.7 26.7 20.9 20.9 Contribution Margin (%) 25.3 26.9 26.7 27.4 27.6 27.8 Contribution Margin Chg -12bps 158bps -20bps 65bps 20bps 20bps Contribution Mix (%) 23.3 20.8 22.6 25.2 26.0 26.9

Switchgears FY17 FY18* FY19 FY20E FY21E FY22E Sales (Rs mn) 14,065 14,077 16,519 17,561 19,792 22,365 Sales Gr. (%) 10.5 7.0 21.0 6.3 12.7 13.0 Sales Mix (%) 22.9 17.3 16.4 15.7 15.3 14.9 Contribution Gr. (%) 11.7 (0.7) 15.0 8.1 13.6 14.0 Contribution Margin (%) 39.9 39.6 38.8 39.5 39.8 40.1 Contribution Margin Chg 43bps -30bps -79bps 66bps 30bps 34bps Contribution Mix (%) 37.4 27.6 26.8 25.5 24.7 24.1

Lighting FY17 FY18* FY19 FY20E FY21E FY22E Sales (Rs mn) 9,720 10,240 11,902 13,365 15,396 17,706 Sales Gr. (%) 22.6 12.8 16.0 12.3 15.2 15.0 Sales Mix (%) 15.8 12.6 11.8 11.9 11.9 11.8 Contribution Gr. (%) 38.3 17.7 9.1 16.4 16.0 15.6 Contribution Margin (%) 27.3 30.5 28.6 29.6 29.8 30.0 Contribution Margin Chg 310bps 320bps -188bps 105bps 20bps 15bps Contribution Mix (%) 17.7 15.5 14.2 14.6 14.4 14.3 Source: Company, HDFC sec Inst Research * YoY revenue growth is like-to-like adjusted for GST

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Estimate Change

FY20E FY21E

New Old Chg (%) New Old Chg (%) Sales 112,064 116,185 (3.5) 129,717 134,672 (3.7) EBITDA 14,181 15,222 (6.8) 17,527 18,059 (2.9) PAT 9,179 10,416 (11.9) 11,473 12,699 (9.6) EPS 14.7 16.7 (11.9) 18.3 20.3 (9.6) Peer Set Comparison

Company MCap

(Rs bn)

CMP (Rs) Reco.

TP (Rs)

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

Havells 417 667 NEU 694 12.7 14.7 18.3 52.7 45.5 36.4 34.0 28.3 22.5 26.7 26.4 31.4 Voltas 192 579 BUY 677 15.6 19.9 24.2 37.1 29.1 23.9 28.4 22.2 17.7 31.4 29.6 32.3 Crompton 143 228 BUY 304 5.9 7.2 8.4 38.4 31.9 27.2 24.4 20.5 17.6 39.4 43.0 48.5 V-Guard 97 228 BUY 261 4.1 5.5 6.9 56.2 41.3 33.1 43.6 31.5 25.4 21.1 27.4 31.1 Symphony 85 1,215 BUY 1,626 15.4 29.3 36.1 78.9 41.5 33.7 62.1 30.0 24.3 31.9 51.4 58.1 TTK Prestige 64 5,502 NR 7,388 138.7 157.9 184.7 39.7 41.7 35.6 21.1 21.9 18.5 21.6 21.9 23.5 Source: HDFC sec Inst Research

We are optimistic for core business to bounce back in 2HFY20 but remain cautious for Lloyd’s recovery in FY20 (non-seasonal). We cut our EPS by 10% for FY20-21E

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Income Statement (Rs mn) FY18 FY19 FY20E FY21E FY22E Net Revenues 81,386 100,576 112,064 129,717 149,649 Growth (%) 37.0 23.6 11.4 15.8 15.4 Material Expenses 49,808 62,786 66,698 75,581 87,194 Employee Expense 6,497 8,324 9,530 10,674 11,954 ASP Expense 3,076 3,842 4,112 4,242 4,894 Distribution Expense 2,717 3,422 3,925 4,673 5,541 Other Expenses 8,795 10,280 13,618 17,020 19,428 EBITDA 10,493 11,922 14,181 17,527 20,637 EBITDA Growth (%) 27.3 13.6 18.9 23.6 17.7 EBITDA Margin (%) 12.9 11.9 12.7 13.5 13.8 Depreciation 1,395 1,486 1,908 2,168 2,298 EBIT 9,098 10,436 12,273 15,359 18,339 Other Income (Inc. EO Items) 1,289 1,276 1,586 1,900 2,405 Interest 240 159 158 134 118 PBT 10,147 11,553 13,700 17,124 20,625 Total Tax 3,022 3,637 4,521 5,651 6,806 RPAT 7,125 7,915 9,179 11,473 13,819 Adjusted PAT 7,036 7,915 9,179 11,473 13,819 APAT Growth (%) 17.9 12.5 16.0 25.0 20.4 Adjusted EPS (Rs) 11.3 12.7 14.7 18.3 22.1 EPS Growth (%) 17.9 12.4 16.0 25.0 20.4

Source: Company, HDFC sec Inst Research

Balance Sheet (Rs mn) FY18 FY19 FY20E FY21E FY22E SOURCES OF FUNDS Share Capital - Equity 625 626 626 626 626 Reserves 36,766 41,800 47,686 54,768 62,733 Total Shareholders' Funds 37,392 42,425 48,311 55,394 63,358 Long Term Debt 810 405 205 105 5 Short Term Debt 270 540 540 540 540 Total Debt 1,080 945 745 645 545 Net Deferred Taxes 2,070 3,217 3,217 3,217 3,217 Other Non Current Liabilities 471 536 536 536 536 TOTAL SOURCES OF FUNDS 41,012 47,123 52,809 59,792 67,656 APPLICATION OF FUNDS Net Block 13,017 14,306 18,898 20,729 20,431 Goodwill 14,835 14,707 15,200 15,200 15,200 CWIP 366 2,553 1,392 812 812 Non Current Investments 417 583 583 583 583 LT Loans & Advances 276 445 356 356 356 Other Non Current Assets 176 1,088 912 912 912 Total Non-current Assets 29,087 33,682 37,341 38,592 38,293 Inventories 16,217 19,170 21,492 24,877 28,700 Debtors 3,254 4,048 4,510 5,221 6,023 Other Current Assets 1,432 1,864 2,032 2,291 2,584 Cash & Equivalents 15,262 12,848 17,149 23,211 31,732 Total Current Assets 36,164 37,930 45,183 55,600 69,038 Creditors 16,340 15,594 19,343 22,390 25,830 Other Current Liabilities & Provns. 7,899 8,895 10,372 12,011 13,846 Total Current Liabilities 24,239 24,489 29,714 34,401 39,676 Net Current Assets 11,925 13,442 15,469 21,200 29,363 TOTAL APPLICATION OF FUNDS 41,012 47,123 52,809 59,792 67,656


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Cash Flow Statement (Rs mn) FY18 FY19 FY20E FY21E FY22E Reported PBT 10,028 11,553 13,700 17,124 20,625 Non-operating & EO Items (204) (43) - - - Interest Expenses (249) (650) (158) (134) (118) Depreciation 1,395 1,486 1,908 2,168 2,298 Working Capital Change 2,556 (4,752) 1,473 (219) (235) Tax Paid (2,450) (2,468) (4,521) (5,651) (6,806) OPERATING CASH FLOW ( a ) 11,077 5,125 12,403 13,289 15,764 Capex (15,888) (5,009) (5,832) (3,420) (2,000) Free Cash Flow (FCF) (4,811) 117 6,571 9,869 13,764 Investments 5,028 6,002 (658) (500) (500) Non-operating Income 843 788 (176) - - INVESTING CASH FLOW ( b ) (10,017) 1,782 (6,667) (3,920) (2,500) Debt Issuance/(Repaid) (901) (135) 328 357 400 Interest Expenses (197) (132) 158 134 118 FCFE (5,514) 114 6,741 10,092 14,046 Share Capital Issuance 147 180 1,098 1,464 1,464 Dividend (2,632) (3,016) (4,391) (5,854) (7,318) Others - - - - - FINANCING CASH FLOW ( c ) (3,583) (3,103) (2,807) (3,900) (5,336) NET CASH FLOW (a+b+c) (2,523) 3,803 2,929 5,470 7,928 EO Items, Others 12,236 - - - - Closing Cash & Equivalents 3,026 12,883 16,649 22,211 30,232


Key Ratios

FY18 FY19 FY20E FY21E FY22E PROFITABILITY (%) GPM 38.8 37.6 40.5 41.7 41.7 EBITDA Margin 12.9 11.9 12.7 13.5 13.8 EBIT Margin 11.2 10.4 11.0 11.8 12.3 APAT Margin 8.8 7.9 8.2 8.8 9.2 RoE 20.1 19.8 20.2 22.1 23.3 RoIC (or Core RoCE) 33.9 26.7 26.4 31.4 37.1 RoCE 18.7 18.2 18.6 20.5 21.8 EFFICIENCY Tax Rate (%) 30.1 31.5 33.0 33.0 33.0 Fixed Asset Turnover (x) 4.1 4.4 3.8 3.9 4.2 Inventory (days) 72.7 69.6 70.0 70.0 70.0 Debtors (days) 14.6 14.7 14.7 14.7 14.7 Other Current Assets (days) 6.4 6.8 6.6 6.4 6.3 Payables (days) 73.3 56.6 63.0 63.0 63.0 Other Current Liab & Provns (days) 36.2 32.9 33.8 33.8 33.8 Cash Conversion Cycle (days) (15.7) 1.5 (5.5) (5.7) (5.8) Net D/E (x) (0.4) (0.3) (0.3) (0.4) (0.5) Interest Coverage (x) 42.8 73.6 87.8 128.6 175.1 PER SHARE DATA (Rs) EPS 11.3 12.7 14.7 18.3 22.1 CEPS 13.5 15.0 17.7 21.8 25.8 Dividend 4.0 4.5 6.0 8.0 10.0 Book Value 59.8 67.8 77.2 88.6 101.3 VALUATION P/E (x) 59.3 52.7 45.5 36.4 30.2 P/BV (x) 11.2 9.8 8.6 7.5 6.6 EV/EBITDA (x) 38.4 34.0 28.3 22.5 18.7 EV/Revenues (x) 4.9 4.0 3.6 3.0 2.6 OCF/EV (%) 2.8 1.3 3.1 3.4 4.1 FCF/EV (%) (1.2) 0.0 1.6 2.5 3.6 FCFE/Mkt Cap (%) (1.3) 0.1 1.9 2.8 3.7 Dividend Yield (%) 0.6 0.7 0.9 1.2 1.5


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RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 9-Jul-18 545 BUY 680

21-Jul-18 560 BUY 680 10-Oct-18 564 BUY 693 18-Oct-18 586 BUY 693 9-Jan-19 670 NEU 713

22-Jan-19 711 NEU 738 10-Apr-19 761 NEU 773 30-May-19 733 NEU 743

4-Jun-19 770 NEU 743 9-Jul-19 739 NEU 732

29-Jul-19 666 NEU 694

500

550

600

650

700

750

800

Jul-1

8

Aug-

18

Sep-

18

Oct

-18

Nov

-18

Dec-

18

Jan-

19

Feb-

19

Mar

-19

Apr-

19

May

-19

Jun-

19

Jul-1

9

Havells TP

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com

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Disclosure: We, Naveen Trivedi, MBA & Siddhant Chhabria, PGDBM, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is solely for information of the recipient only. The report must not be used as a singular basis of any investment decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to take professional advice before investing. Nothing in this document should be construed as investment advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in securities of the companies referred to in this document (including merits and risks) and should consult their own advisors to determine merits and risks of such investment. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete. HSL is not obliged to update this report for such changes. HSL has the right to make changes and modifications at any time. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently sent or has reached any person in such country, especially, United States of America, the same should be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published in whole or in part, directly or indirectly, for any purposes or in any manner. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report should not be construed as an invitation or solicitation to do business with HSL. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. 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HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE, BSE, MSEI, MCX: INZ000186937; AMFI Reg. No. ARN: 13549; PFRDA Reg. No. POP: 11092018; IRDA Corporate Agent License No.: CA0062; SEBI Research Analyst Reg. No.: INH000002475; SEBI Investment Adviser Reg. No.: INA000011538; CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

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