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24 May

Gaining market share due to shift from unorganized to organized sector- HAVELLS

Update on the Indian Equity Market:

 

On Monday, Nifty closed 0.2% higher at 15,198. Within NIFTY50, IOC (+4.9%), BPCL(+2.8%), and SBIN(+2.4%) were top gainers, while SHREECEM (-2.5%),JSWSTEEL(-2.3%), and TATASTEEL (-1.9%) were the top losing stocks. Among the sectoral indices, PSU BANK (+2.1%), REALTY (+1.4%), and MEDIA (+1.2%) were the highest gainers, while METAL (-0.6%) and FMCG (-0.3%) were the only losing sectors.

 

Gaining market share due to shift from unorganized to organized sector- HAVELLS

 

Excerpts of an interview with Mr. Anil Rai Gupta, CMD, Havells India (HAVELLS), aired on CNBC-TV18 on 21stMay 2021:

  • HAVELLS reported a strong performance in 4QFY21. Even 1QFY22E started off well with continued growth momentum but has been hampered as the covid-19 second wave progressed. Mr. Gupta believes that things should start looking up fromJune 2021.
  • HAVELLS margins contracted 80 bps in 4QFY21. Any movement in raw material costs is passed on with a bit of lag. Due to the sharp increase in raw material costs in 2HFY21, the lag has been longer which led to margin contraction in some categories. As raw material prices start stabilizing, Mr. Gupta expects the margins to normalize by 2QFY22E.
  • HAVELLS made foray into rural India only a couple years back. They have expanded distribution that resulted in 100% growth for the segment in FY21. Rural sales now form 4-5% of overall sales. Rural India is in stress right now but Mr. Gupta still expects it to be an area of big growth potential for HAVELLS.
  • Post the 1QFY21 lockdown, consumer products (contributes to 75% of total revenues)saw good growth in 2QFY21 and 3QFY21. Industrial products segment reported revenue decline in the same period and only started growing in 4QFY21. Mr. Gupta believes that the industrial and infra segment should come back to normalized levels post the current lockdown.
  • Within the consumer products segment, the growth in FY21 largely came from electrical products such as fans, domestic appliances, and personal grooming appliances. As housing sales started improving from 3QFY21, installation products like switches and sockets also started growing.
  • Covid-19 led disruption has been an opportunity for HAVELLS to gain market share from unorganized sector. Mr. Gupta expects to see more benefits on market share post the 2nd
  • HAVELLS sawa lot of restructuring on operating costs and improvement on the technology side in FY21. As some cost savings are sustainable, going ahead Mr. Gupta expects there will be margin expansion compared to FY20.

Asset Multiplier Comments

  • Raw material cost inflation has affected the entire spectrum of sectors and thus companies have taken a hit on their margins. Many companies have taken a cautious approach in taking price hikes as the demand scenario is a little sensitive currently.
  • As companies start taking the required price hikes gradually, margin profiles are expected to improve.
  • Post the lockdowns in FY21, there was a big spike in consumer spending as there was pent up demand in the market. Whether that phenomenon repeats and if it does, will it be to the same extent remains to be seen.

Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of HAVELLSwas ₹ 1,016as of 24-May-2021. It traded at 55x/ 46x the consensus EPS estimate of ₹ 18.5/22.1 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 1,071/- implies a PE multiple of 49x on FY23E EPS of ₹22.1/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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01 Mar

Rising commodity costs, a headwind in managing cost reduction: Crompton Greaves

Update on the Indian Equity Market:

After a big sell-off on Friday, markets witnessed some relief as Nifty started the week on a positive note with 252 point gains to close at 14,782. Within the sectoral indices, all but one, PSU BANK (-0.3%), closed in green led by MEDIA (4.3%), AUTO (2.4%), and METAL (2.0%). The Nifty index followed similar path as only one stock, BHARTIARTL (-4.3%) closed in the red. POWERGRID (6.7%), ONGC (5.5%), and GRASIM (5.4%) led the gainers within the index.

Excerpts of an interview with Mr. Shantanu Khosla, Managing Director, Crompton Greaves Consumer Electricals (CROMPTON) with CNBC -TV18 dated 25th February 2021:

  • The overall demand scenario is promising through January and February. The company reported double-digit growth in the December quarter largely driven by volumes.
  • The trend in the overall demand scenario is positive and expected to continue well into 2021. The company is expected to reach to pre-COVID levels in CY21E.
  • The B2C (Business to Consumer) delivered double-digit growth while B2G (Business to Government) and institutional segment was subdued during the December quarter.
  • Commenting on a possible GST rate reduction, he mentioned that the company has always passed on the benefit of lower tax rates to its customers and it will continue to do so in future as well. The benefit is passed on to the customers through price reductions.
  • Commodity costs have moved up significantly in the last few months. The rising prices are acting as headwinds in the cost optimization initiative taken by company. The company is managing this price rise by further deepening of cost reductions and better management.

Asset Multiplier Comments:

  • With the Make-in-India program and Work from Home restrictions, there was a shortage of appliances in India. As a result, domestic electrical goods companies have witnessed a surge in demand for appliances such as washing machines, dishwashers, air-conditioners, and laptops.
  • CROMPTON has also been a beneficiary and reported YoY revenue growth in the appliances category in the December quarter. CROMPTON intends to increase its presence in electrical appliances category as well to meet the increasing demand.
  • As the company is focusing more on premium category products, the increasing pressure of raw material prices is expected to have lesser impact on the fundamentals of the company.

Consensus Estimates (Source: market screener and investing.com websites):

  • The closing price of CROMPTON was ₹ 383/- as of 1-March-2021.  It traded at 49x/ 40x/ 34x the consensus EPS estimate of ₹ 8.0/ 9.8/ 11.4 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 451/- which trades at 40x the EPS estimate for FY23E of ₹ 11.4/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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