Havells India
A Trio of Positives: Dealer
Franchise, Brand Strength,
and Demand Growth; OW
We think Havells is in a sweet spot in the domestic
FMEG market – with its leading dealer franchise,
strong brand, and diversified product lineup.
Sylvania's reduced debt is a tailwind. We think the
stock deserves a premium to its historical P/E, on
consistently high domestic EPS CAGR and ROE.
AlphaWise dealer survey confirms Havells’ dealer
strategy is bearing fruit: Our pan-India survey of 503
dealers in the competitive fast-moving electrical goods
(FMEG) market shows that Havells has a leading
franchise and the highest revenue share at dealers
surveyed, and that dealers expect to increase its share in
their business. However, market fragmentation and lower
penetration in India’s south and west are challenges.
Solid play on rising FMEG demand in India: We
expect strong FMEG growth amid increasing household
numbers, greater access to electricity, and rising income.
Havells is gaining market share across key categories
and generating strong revenue growth.
Gradual recovery at Sylvania; reduced consolidated
debt and lower interest cost gives comfort: We
expect modest revenue momentum in tough macro
conditions, but we like the margin focus. Lower interest
costs on lower consolidated net debt is earnings
positive.
P/E premium warranted: We use a P/E-based sum of the
parts to value the stock. We think the premium to Havells’
15x five-year average P/E in our 19x (consolidated 1-year
forward EPS) target P/E is justified, because of Havells’
strengthening domestic franchise, consistent domestic EPS
delivery, 20-25% domestic ROE, and Sylvania’s improved
balance sheet.
Key risks: Slower-than-expected domestic growth;
weakening margins at Sylvania.