A tremendous shift to mindful shopping seen – Havells India

Update on the Indian Equity Market:

On Thursday, Nifty50 ended 0.7% higher at 11,215 after reports citing India and the US are close to inking a trade deal. EICHERMOT (+4.9), ICICIBANK (+3.6%), and RELIANCE (+3.6%) topped the gainers. AXISBANK (-3.8%), SHREECEM (-1.9%), and HINDUNILVR (-1.4%) led the laggards. PHARMA (+1.4%), REALTY (+1.4%), and AUTO (+1.4%) led the sectoral gainers while IT (-0.2%) was the only sector to end the day in the red.

The buying pattern of consumers has undergone a transformation since the pandemic started and businesses have had to device new strategies to get consumers back. Mr. Ravindra Singh Negi, President, ECD (Electrical Consumer Durables), Havells India talked about the company’s online to offline model with Economic Times.

Here are the edited excerpts of the interview published on 22^nd July 2020:

• The online to offline program combines technology and execution at the local level. This model provides a solution to customers worried about going out and partners concerned about sales. Products can be selected, and payment made online and delivery is made at a fast pace by local channels.
• The launch of the beta version of the program led to a 4 times surge in the average monthly revenue generated by the e-store. The response led to the program being rolled out across the country in June, except for in Kolkata and Maharashtra.
• Cognizant of the potential of digital power, Havells has made the swift movement to online sales and invested in the e-store for the brand at large. The hybrid model will be integral to business recovery as it aims to remove customers’ hesitance to go and shop offline due to health and safety concerns.
• There has been a profound impact of the Covid-19 on the business due to the dependence on domestic consumption. April was a washout and May witnessed little recovery. June was better than the previous two months with a considerable contribution from smaller towns and semi-urban geographies. Although semi-urban and rural are almost back to normal, urban centers will take a while to get back on track.
• Customer behavior has settled into the new normal significantly and there has been a tremendous shift to mindful shopping. There has been an uptake of domestic appliances such as air fryers, mixers, juicers, and blenders as these seem to invade the essentials category.
• With the spas and salons shut for a long time, the grooming products too are high on the consumers’ shopping list. Beard trimmers sale has seen a spike of 5x.
• Consumers are going to look at buying safe and quality products with superior after-sale service, which adds brand recall and loyalty. During the lockdown, more than half of their service issues were solved digitally through video calls or through do-it-yourself videos on their social media channels, which was appreciated by consumers.
• The pandemic has revamped the business structure altogether. The focus remains on ramping up Make in India capabilities to offer better quality products to customers.

Consensus Estimate: (Source: market screener website)

• The closing price of Havells India was ₹ 608/- as of 23-July-2020. It traded at 68x/ 42x/ 38x the consensus earnings estimate of ₹ 8.9/14.4/16.2 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 547/- implies a PE multiple of 34x on FY23E EPS of ₹ 16.2/-.

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