Increasing commodity prices a concern – Havells India

Update on the Indian Equity Market:
On Wednesday, NIFTY closed at 13,981 (-0.3%). The top gainers in NIFTY50 were Ultratech Cement (+4.4%), Grasim (+3.0%), and Shree Cement (+3.0%). The top losers were IndusInd Bank (-1.5%), Sun Pharma (-1.1%), and Axis Bank (-1.0%). The top sectoral gainers were AUTO (+1.3%), METAL (+1.3%), and REALTY (+1.3%) and the sectoral losers were PSU BANK (-0.2%), PAHRMA (-0.1%), and PVT BANK (-0.1%).

Excerpts of an interview with Mr. Anil Rai Gupta, CMD – Havells India with CNBC TV18 dated 29th December 2020:
• Havells has recovered from the lows and is up almost 80 per cent from the March lows. The demand is holding up from B and C grade towns. There is also a shift from unorganized to organized players.
• There is an improvement in the residential sector and there is some revival in the industrial and infra portfolio. He expects the rising commodity prices to be a dampener.
• Commodity price increase has to be passed on because the increase has been sharp. But it does dampen two things. One, there will be pressure on margins and secondly, if this sustains, people will have the option to postpone their purchases even in the construction sector.
• So there will be a little bit of stress if this continues.
• He believes that the government move to boost manufacturing is a step in the right direction. The government has realized that the next big source of job creation will be manufacturing and the government is taking the right steps.
• They have chosen many industries for a production-linked incentive (PLI) and they are looking at increasing investments in both lighting and air conditioning with the new PLI.
• They have invested constantly, at least Rs 300-500 crore in CAPEX every year. Going forward they anticipate a similar CAPEX would continue; maybe a bit more so – maintenance CAPEX and the other divisions and high CAPEX in the air conditioning and the lightings space.
• But they definitely see that going forward they will be looking at continued CAPEX even in the coming times.
• They have seen a gain in market share post lockdown.

Consensus Estimate: (Source: market screener and investing.com websites)
The closing price of HAVELLS was ₹ 902/- as of 30-December 2020. It traded at 68x/ 59x/ 50x the consensus earnings estimate of ₹ 13.2/ 15.4/ 18.2 for FY21E/FY22E/23E respectively.
The Consensus price target of HAVELLS was ₹ 743/- as of 30-December-2020. It trades at 41x of FY23E EPS estimate of ₹18.2/-.
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