Havells Shares Complete Fundamental Analysis and Future Outlook
Havells is a leading Fast Moving Electrical Goods (FMEG) Company and a major power distribution equipment manufacturer. Havells enjoys significant market dominance across a wide spectrum of products, including Industrial and Domestic Circuit Protection Devices, Cables, Wires, Motors, Fans, Modular Switches, Home Appliances, Air Conditioners etc. The company owns some of the most well known brands like Havells, Lloyd, Crabtree and Standard.
- The business model of the company is such that it is placed in top 3 in terms of market share across all its business segments.
- The revenue split is such that 17% revenue comes from Switchgears, 32% from cables, 13% from lighting, 20% from Electrical Consumers and Durables and 18% from the Lloyd range of electronics.
- In terms of contribution margin 27% is from switchgears, 22% from cables, 16% from lighting, 22% from Electrical Consumers and Durables and 13% from Lloyd products. This shows that switchgears and lighting products drive profitability and others drive revenue for the company.
- Havells has the largest brand shop channel in electrical industry in India. It has 550+ brand exclusive shops and 297+ district presence which contribute to a total of 20% of sales. It also has introduced a Mobile-app based electrician loyalty program and have 80K+ registered electricians.
- Havells also has continuously expanded its markets through new product launches like water heaters in 2012, domestic appliances in 2013, Air Coolers in 2016 and water purification and personal grooming in 2017. This shows the innovation capacity of the company.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Havells Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The effect of Covid-19 outbreak will be severe on the company due to both production and sales loss. The near term concerns for the company will be cash conservation, restoring supply chains and downsizing operations to match the demand outlook in the coming years. Any recovery will depend on the changes in per capita income and credit availability in the market.
- Last year to tackle the slowdown in certain segments, the management could have increased off-take by increasing credit terms and offering heavy discounting, but chose not to. However with Covid-19 worsening the situation they can now look out for selective price cuts or down-trading for stimulating demand in the coming years.
- For Lloyd, currently the company has strong control on its supply chains as their new factory has got operational. They have also improved distribution network with wider geographical reach as well as increasing presence in MBOs.
- Cost rationalization has helped margins for the company in the recent years. As the company grows, some amount of increased spending does happen, which is currently at an optimal level. The Management views advertisements as long-term investments and will continue to spend to build brand awareness.
Overall the company has solid fundamentals and a past history of managing a slowdown and liquidity crunch during the demonetization in 2016. However the near term demand in all segments will be declining or remain flat at the best. Still the company remains a good investment at correct price levels.
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