Jefferies Retains ‘Hold’ Rating on Havells India, Raises Target Price to Rs 1,420

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Overseas brokerage firm Jefferies has retained a “Hold” rating on Havells India stock while raising the target price from Rs 1,360 to Rs 1,420. The brokerage acknowledged Havells as a strong franchise, but said that most positives appear to be priced in at the current valuation.

Lloyd’s sales growth remains healthy, but margins are still under pressure. Jefferies believes that better capacity utilisation, softening commodities, and cost rationalization could help revive margins.

Havells is expected to expand its network into Tier 3/rural areas and Lloyd is set to drive the next leg of growth. The company has a strong balance sheet and timely price hikes, and a revival in Lloyd’s margins would be key to earnings upside.

Jefferies expects a revenue CAGR of 13% over FY23-26e driven by traction in infra, real estate demand, new capex commissioning, and healthy growth in Lloyd. The brokerage forecasts Havells’ operating margin to revive to 10.5% by FY25e versus 9.5% in FY23 driven by softening commodities and improving profitability in Lloyd.

Unlike peers, V-Guard and Crompton who outsource 50-60% of their production, 90-95% of Havells manufacturing is in-house, which entails higher capex. Havells targets Rs 600 crore capex in FY24e, mainly towards the Tumkur facility. Jefferies expects capex to moderate from FY25e onwards.

Earlier in July this year, Havells India reported a consolidated net profit of Rs 287.07 crore for the quarter ended June, up 18% from Rs 243.16 crore in the year-ago period. The company reported a 13.8% YoY rise in consolidated revenue from operations at Rs 4,833.80 crore against Rs 4,244.46 crore in the same quarter of the previous year. EBITDA for the quarter stood at Rs 402 crore.

The stock touched a 52-week high of Rs 1,466 on September 11, 2023, and a 52-week low of Rs 1,092 on December 26, 2022.

Key Takeaways

  • Jefferies has retained a “Hold” rating on Havells India stock.
  • The brokerage has raised the target price to Rs 1,420 from Rs 1,360.
  • Jefferies believes that most positives appear to be priced in at the current valuation.
  • The brokerage expects a revenue CAGR of 13% over FY23-26e.
  • Havells’ operating margin is expected to revive to 10.5% by FY25e.
  • The company targets Rs 600 crore capex in FY24e.

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