Electrical consumer goods company Havells India has been growing at a healthy clip with its consolidated net sales rising 33% to 81.38 billion in FY18. The momentum continued in the first quarter of FY19 with sales growing 39% to 25.96 billion. Not surprising that despite the BSE Midcap Index coming off 12% since the beginning of this year, the stock has gained nearly 11%. A large part of the outperformance was post the Q1 results, with the stock surging 10% to hit its 52-week high of 630 from 572 on July 23.
The company’s strong performance is being driven by the switchgears business, followed by cables and wires, aided by high industrial demand, better-than-expected numbers for electronic consumer durables business and the acquisition of Lloyd in May 2017. In fact, Lloyd’s revenue grew 14% in Q1FY19, on the back of a ramp-up in distribution by 30-35%. The acquisition of Lloyd has helped Havells increase market share in the consumer durables category. Lloyd’s air conditioner business contributes 70% to its total sales followed by LED TV and washing machines.
In view of the growing demand, Havells has outlined a capex of 5 billion for FY19, of which 3 billion would be deployed for setting up a new AC manufacturing plant. Currently, the switchgear segment is the most profitable business, accounting for 40% of the company’s margin. Revenue of the electrical consumer division grew 33%, the highest for the second successive quarter, led by fans and appliances. The company’s consolidated net profit in Q1FY19 rose to 2.10 billion against 1.21 billion in the year-ago quarter.
Given the buoyancy in the stock market, the company’s group CFO and director (finance), Rajesh Kumar Gupta, sold 600,000 shares worth 361 million on July 24, 2018, reducing his stake from 0.22% to 0.13%. He had last sold 138,856 shares worth 80 million on January 29, 2018. Manju Gupta, an immediate relative to one of the company’s directors, also sold 200,000 shares worth 123 million on July 24. The company’s top personnel have been selling in huge chunks since the beginning of the year. CMD Anil Rai Gupta’s mother, Vinod Gupta, also sold 8.5 million shares worth 4.39 billion on January 31, 2018, while assistant general manager, Sanjay Kumar Gupta sold 5,800 shares worth 3.41 million and non-executive director, Surjit Kumar Gupta, sold 4 million shares worth 2.06 billion on January 29 and 31 respectively. The overall promoter holding, as of June 2018, is 59.55%. As per the June quarter disclosure, institutional holding is around 30% with Pulak Prasad founded Nalanda Capital holding 5.28%.
With an umbrella of brands such as Havells, Lloyd, Crabtree and Standard, the company today has a network of 7,575 dealers with 40 branches across the country. It is also widening its product portfolio and has recently ventured into water purifiers, besides acquiring Bengaluru-based Promptec Renewable Energy solutions to foray into LEDs and solar lighting products.
Elara Capital expects earnings to compound at 19% over FY18-21 with average RoE of 21% and RoCE of 20% respectively, while Edelweiss Securities believes the Lloyd business will continue to drive growth and management’s focus on improving working capital will generate average free cash flow of 6.5 billion over FY19-20.