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/-.
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