Balance Sheet Remains Strong, Suggests Buy This Large-Cap FMEG Stock For 34% Gains: BoB Capital

BoB Capital Markets Ltd, a leading brokerage firm, published a report on Havells India on 10 June 2022, where the brokerage recommended investors buy the stocks of the company for a target price of Rs 1,500. The company's management is optimistic about margin recovery on the back of strong underlying demand across segments.

Stock Overview

The Havells India Ltd's share price fall 3.04% the previous week, ending at the Current Market Price (CMP) is Rs 1,123.45 per share. The CMP of Havells India is trading at Rs 165.45 per share above the 52-week low of the Rs 958 per share level and Rs 381 per share below its 52-week high of Rs 1504.45 per share level. It has given positive on long-term investment. Over the 1 year, it has given 9.59% of positive return, 42.16% positive return in 3 years, and 122.88% in 5-years. The company has delivered good profit growth of 35.17% CAGR over the last 5 years. According to the estimated target price of Rs 1,500 per share, the stock could expect a 34% jump in 12 Months investment horizon.

CMP	Target Price	Potential Gains
Rs 1,123.45	Rs 1500	34.00%

Healthy growth; margin headwinds to abate

Havells India's FY22 annual report focuses on initiatives aimed at increasing distribution reach (particularly in rural areas) as well as R&D. Revenue share of new products stood at 17% in the last 21 months. All business segments experienced healthy growth during the year but margins weakened in a competitive environment. Management is optimistic of margin recovery given strong underlying demand. The balance sheet is strong with net cash at Rs 30bn.

Capex plan in place; net cash up

Management has guided for capex of Rs 7bn-8bn in FY23 - Rs 1bn-1.5bn for raising wires & cables capacity and regular maintenance, and Rs 3.5bn for the new AC plant in Sri City. Net cash rose by Rs 10bn to Rs 30bn as of Mar'22 with D/E at 0.07x. FY22 ROCE/ROE was at 25%/21.4%.

Lloyd grew but at the expense of margins

Lloyd's sales logged a CAGR of 13% over FY18-FY22. The operating margin remained muted as management pursued an aggressive growth strategy to gain market share. This strategy has paid off, in that the AC industry now recognises Lloyd as a competitor. The company is also focusing on refrigerators and washing machines by leveraging its extensive distribution reach and brand familiarity. Though headwinds will persist in the medium term, we believe Lloyd will return to profitability as benefits start accruing from its upcoming manufacturing plant in Sri City (Andhra Pradesh) and from the PLI scheme.

Highest rural distribution reach in FMEG

Havells's Rural Vistaar programme (started four years ago) has seen its footprint expand to 3k rural towns covering 40k retail outlets, giving it the largest rural reach among FMEG companies. Additionally, as part of this initiative, the company intends to open a large number of 'Utsav' stores, which correspond to 'Havells Galaxies' (brand stores) in the urban market.

Buy for a target price of Rs 1,500 per share

The brokerage said, "We continue to value Havells at 53x FY24E EPS, a 10% premium to its 5Y average, for an unchanged Target Price of Rs 1,500. Retain BUY." According to the brokerage, the key downside risks to growth include higher commodity prices and a weaker economy.

About - Havells India

Havells India Limited is a Fast Moving Electrical Goods (FMEG) Company with an extremely strong global presence. The company is a major power distribution equipment manufacturer with a strong global presence. Havells enjoys enviable market dominance across a wide spectrum of products. Havells owns some of the most prestigious brands like Havells, Lloyd, Crabtree and Standard. Its network constitutes 4000 professionals, over 14000 plus dealers and 35 branches in the country.

The company's products are available in 60-plus countries. The company has 14 state-of-the-art manufacturing plants in India located at Haridwar, Baddi, Sahibabad, Faridabad, Alwar, Neemrana and Ghiloth manufacturing globally acclaimed products, synonymous with excellence and precision in the electrical industry. Havells along with its brands have earned the distinction of being the preferred choice of electrical products for discerning individuals and industrial consumers both in India and abroad.

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets Ltd. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.