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REGISTER NOW OR LOGINAbout the company:
Havells India Limited is a leading Fast Moving Electrical Goods (FMEG) Company and a major power distribution equipment manufacturer with a strong global presence. It enjoys enviable market dominance across a wide spectrum of products, including Industrial & Domestic Circuit Protection Devices, Cables & Wires, Motors, Fans, Modular Switches, Home Appliances, Air Conditioners, Electric Water Heaters, Power Capacitors, Luminaires for Domestic, Commercial, and Industrial Applications.
Industry Outlook:
The outlook on the electrical equipment sector is stable, given the large population, lower level of penetration, increasing urbanization, and disposable income, the electrical industry in India is expected to provide sustainable growth on a long-term basis. The industry is competitive in nature and there is competition from unorganized sector, besides the presence of other large players. The company operates in a competitive industry with exposure to commodity-related risks and is also dependent upon power and real estate sectors’ prospects to an extent; however, a long track of operations at comfortable profitability levels, strong brand recall, efficient working capital management and diversified product offering mitigates these risks to a good extent.
Pros of Havells India:
Diversified Portfolio of strong brands:
HIL has a strong presence in the domestic electrical appliances and equipment market with a diversified product portfolio in switchgears, cables, electrical consumer durables and lighting & fixtures segments. It has an established market position with premium positioning of its products, considerable market share across all its key products and a strong brand recall. Company earns majority of its revenues from its cables division (32%), followed by Electrical consumer division (23%), Lloyd business (17%), Switchgears (16%) & Lightning & Fixtures (12%).
The produce of the Consumer Division:
The produce of the Industrial Division:
Leading Market share across Various products:
Market Share
The company commands the following market share in the domestic market:-
MCBs - 18%
Switches - 13%
Flexible Cables - 16%
Power Cables - 11%
Lightning & Fixtures - 14%
Fans - 19%
Water Heaters - 19%
Other Appliances - 6%
It commands 1st rank in the market of MCBs & Water heaters, 2nd in Fans, 3rd in Switches, Flexible & power cables, lightning, fixtures & other appliances
Source - Annual Report
The above brands have high customer recall and they have a well-established position in their own respective segment and they offer products covering all the tranches of customers from the bottom to the top of the pyramid.
Agile Distribution Network spread across India:
The company has an established extensive distribution network spread across the country with ~11,000 direct dealers, ~160,000 retailers & ~250,000 electricians. It also owns the largest brand shop channel in the electrical industry with about 550 exclusive shops & a presence in ~300 districts. Havells also sells its products through Digital mode, the company has developed a two way communication App ‘MKonnect’ exclusively for its dealers and this has enabled the dealers and the Distributors to place their orders with ease and this has been effective that 80% of the revenue is generated through this portal.
Source - Annual Report
In house manufacturing facilities:
The entire industrial product range of Havells is manufactured in-house, giving us complete control over product quality and the company manufactures 90% of its products in its own facilities and Currently, it owns 14 Manufacturing facilities spread across India.
Strong Research & Development capabilities:
Havells is operating under the Fast-Moving Electrical segment (FMEG), the company needs to analyze the change in the consumer trend and launch new products to stay at top of the market. The Company’s ability to compete successfully depends heavily upon its ability to ensure a continual and timely flow of competitive products to the marketplace. Last year, the company established an Innovation hub in the Silicon Valley of India – Bengaluru. The prime objective of the Bengaluru Center is to drive Havell's vision of assuming full ownership of the product life cycle management – to incrementally churn customer-centric technologically differentiated innovations to the markets. The center is now fully operational with a clear focus on the development of ‘best in class’ core technical competencies and employs 55+ top-notch R&D staff.
During the financial year 2019-20, Company accelerated its R&D momentum by increasing 60% more towards central R&D (not including the R&D spend in plant locations). Our R&D expenses that stood at 0.8% of total revenue for FY18-19 have grown to 1.1% of revenue for FY19-20.
Opportunities for growth:
Under penetration of the Products: The majority of consumer-facing products in India have lower penetration vis-à-vis other emerging countries. It is expected that increase in per capita income and yearning for comfort could lead to an exponential rise in penetration in medium to long term time frame. Favorable demographic indicators like urbanization, increase in disposable income of individuals, aspiration for good quality products, nuclear families, etc. are expected to catalyze the growth for electrical goods in the mid-to-long term horizon. However, under penetration could lead to increased competition which may result in pricing disruption.
Infrastructure investment: Union Government’s focus on infrastructure development in the country is expected to create demand for electrical goods, particularly in products supplied to projects like street lights, cables, and switchgear, etc. The slowdown in the infrastructure activities may impact the near to mid-term growth prospects. India has seen rapid growth in providing electricity access even in deeper pockets. Government initiatives like metering of houses focus on reducing transmission loss of electricity, and programs like ‘Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) are creating many opportunities in new geographies for the supply of electrical products.
Threats and Concerns:
Economic slowdown:
The slowdown in the Indian economy due to current global developments could adversely impact growth in the short term. Demand for new housing has been sluggish for a couple of years. Continued weak demand for housing could impact demand for electrical goods. Availability of quality electricity is the key to the demand for electrical products, any substantial shortfall in the supply of electricity may hamper growth prospects for the industry.
Increase in Competition:
Last year witnessed irrational pricing behavior in the market in various product categories. Though the same seems temporary in nature but it could negatively impact the industry for a short period of time. The company has to compete with various unorganized players who are ready to produce goods at a low quality by sacrificing the price of the product and this has resulted in adverse competition for the company.
Technical outlook on Havells India:
The above chart is the daily chart of Havells India and we could see clearly that the stock has been in the upward trend for a longer period of time and Currently, the price has been consolidating from 1043 (Support 1 ) to 1100 ( Resistance 1) for a longer period of time and a breakdown from the support could take the price towards 950 Zone and from where we could initiate a long position and in case of a breakout from the resistance level, the stock could go up to 1220 Zone, which is also the lifetime high of the company and a Strong Resistance. The RSI is at 51 which is at a moderate Zone and the Moving Averages that I have taken for analysis is 50 and 100 Day Simple Moving Average and from the above chart, the 100-day moving average is about to the 50 Day moving average from above which is a Bearish crossover and this gives a possibility of a breakdown from the Current support levels.
Financial performance of the company:
Source - Annual Report
The Net sales had been fallen on a YoY basis but we have to keep in mind the Covid situation and see how well the company has performed despite the turbulence. The EBITA margin has also fallen to a 5 year low which can be attributed to the impact on the supply chain due to the Covid. The margins are expected to increase in the coming years. The ROCE of the company stood at 21.5% and the ROE stood at 17.4%. Havells has a Debt to Equity of 0.22 which is a negligible debt and another positive factor for the company. Havells is trading at a PE of 70 and the Industry average is around 25x and this certainly implicates that the company is trading at a premium valuation being a Market leader in its segment. The companies liquidity remains strong and with a Reserves of 4600 Cr as of Sep 2020 which can navigate the future uncertainties without depending on the outside resources for funding.
Navigating Uncertainty:
The world has changed and it may not be the same again and the Covid has seen to it that the change is happening. The current environment has created an uncertain environment rapidly exposing to various business risks and only strong and resilient companies can cope with the challenges and adapt to the change and with an innovative business model and a strong business practice, Havells has been successfully handling the challenges better than any company. Reaching the top level is easy but sustaining at the top of the game is challenging but Havells has been constantly launching new products to stay at the top of the game and be relevant in the market and with the same competitive spirit and its ability to put the needs of the customers at the front will enable the company to stay at the top for the days to come.
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