Packaging boxes for the E-Lite LED 18 W Pride Plus light sit on the production line of Havells India Ltd. (Photographer: Udit Kulshrestha/Bloomberg)

10 Reasons Why HSBC Is Bullish On Havells India

HSBC expects Havells India Ltd. to be a key beneficiary of the Prime Minister Narendra Modi government's push for rural electrification.

The brokerage house hiked its 12-month target price on the stock to Rs 800 apiece, implying a potential upside of over 14 percent from yesterday's close.

Shares of Havells closed at a record high of Rs 707.25 yesterday. The stock has returned 26 percent so far this year and advanced 45 percent in the past 12 months.

Among the analysts tracked by Bloomberg, 79 percent have a ‘Buy’ rating on the stock, while 12 percent have a ‘Hold’ rating and the remaining have a ‘Sell’ call. However, the consensus return potential is 8.3 percent below the current market price.

Here are 10 reasons why Havells India is a ‘Buy’ for HSBC

  • The company’s switchgears, cables and lighting segment are expected to benefit from better demand outlook from both residential and non-residential new construction in the next financial year.
  • While Havells is a mass premium brand, it also has an entry-level brand like Reo, which can partly benefit from increased demand for switches from the newly electrified households.
  • The company operates in many categories with medium to high unorganised sector participation. A stable GST regime, increase e-way bill verification/ compliance will ensure a sectoral shift to organised players.
  • The LED price deflation will be less significant in 2019-2020 compared to the current year. Therefore, the revenue growth will be closer to volume growth, which has been around 25-30 percent for the last few quarters.
  • LED as a product offers significant scope for differentiation compared to traditional lighting. Havel’s continuous innovation, expanding distribution reach will result in stronger revenue growth for this segment.
  • Lloyd’s geographic exposure is skewed to significantly underpenetrated tier II and tier III markets. These are growing at a faster clip compared to the overall market. The company is expanding its reach in large tier I market through tie-ups with regional retailers and multi-format retailer expanding its addressable market. Lloyds is currently around 20 percent of consolidated sales.
  • There is scope for strong volume growth for room AC segment as sales have been weak for two consecutive summer season.
  • See stronger growth in electrical consumer durables category driven by market share gains in the domestic appliance business, higher contribution from new category products and more relevant offerings and distribution expansion. ECD category is currently around 20 percent of consolidated sales.
  • The company is taking several measures like focusing on export markets, western India distribution footprint, entry into EHV cable and enterprise business.
  • Expect stronger than industry growth in switchgear segments on account of the special thrust on non-focus markets like non-residential and lower rated residential market. Increased supply of magnetic contactors and MCBs to Hyundai Electric will also aid growth for the company.