Jefferies Maintains ‘Hold’ Rating on Havells, Raises Target Price to Rs 1,420 per Share

Prominent overseas brokerage firm Jefferies has reaffirmed its ‘Hold’ rating on Havells India stock while increasing the target price from Rs 1,360 to Rs 1,420. This new target price, however, still falls slightly below the current stock price of Rs 1,427.5. Jefferies acknowledges Havells as a robust franchise but suggests that most of the positives are already factored into the current valuation.

Lloyd’s sales growth continues to impress, but the company is grappling with margin pressure. The brokerage believes that a potential margin revival could be achieved through better capacity utilization, a softening commodities market, and cost rationalization. Interestingly, on September 12, Havells’ stock dipped by 1.27 percent to Rs 1,427.5, even as the benchmark index Nifty 50 surged above the 20,000 mark.

Jefferies foresees Havells expanding its network into Tier 3 and rural areas, with Lloyd expected to drive the next phase of growth. The company boasts a robust balance sheet, and Jefferies suggests that timely price hikes and a resurgence in Lloyd’s margins will be pivotal for earnings growth. Jefferies has set a base case target price of Rs 1,420 per share, with an upside scenario at Rs 1,800 and a downside scenario at Rs 1,100.

Looking ahead, Jefferies anticipates a revenue Compound Annual Growth Rate (CAGR) of 13 percent between FY23-26e. This growth is projected to be driven by increased activity in infrastructure, real estate demand, new capital expenditure commissioning, and strong growth in Lloyd. Furthermore, Jefferies predicts that Havells’ operating margin will rebound to 10.5 percent by FY25e, up from 9.5 percent in FY23, driven by a softening commodities market and improved profitability in Lloyd.

In a notable departure from its peers, V-Guard and Crompton, Havells maintains an impressive in-house manufacturing capacity, with 90-95 percent of its production done internally. This approach entails higher capital expenditure (capex). For FY24e, Havells is targeting a capex of Rs 600 crore, primarily focused on the Tumkur facility. Jefferies, however, expects capex to moderate from FY25e onwards.

In July of this year, Havells India reported a consolidated net profit of Rs 287.07 crore for the quarter ending in June, marking an 18 percent increase from the year-ago figure of Rs 243.16 crore. The company also reported a substantial 13.8 percent YoY growth in consolidated revenue, reaching Rs 4,833.80 crore compared to Rs 4,244.46 crore in the same quarter of the previous year. EBITDA for the quarter stood at Rs 402 crore.

As of the current trading price of Rs 1,427.5 per share, Havells’ market capitalization stands at a significant Rs 89,482.83 crore. The stock recently reached a 52-week high of Rs 1,466 on September 11, 2023, with a 52-week low of Rs 1,092 recorded on December 26, 2022.

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