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Havells India-Higher focus on rural and digital, ICICI Securities

FY21 annual report of Havells focusses on rural as well as digital as the next growth drivers. It believes (1) rural markets will be key revenue contributor ahead and (2) ‘Phygital’ will be the next growth driver as offline and online channels will co-exist. The company had done strong investments in distribution in FY21 and expanded dealer count by 27%. It has also expanded direct coverage to 1,562 cities in FY21 from 1,054 cities in FY13. It plans to focus on eight strategic business objectives like (1) brand enforcement, (2) product extension and expansion, (3) proximity to consumer, (4) in-house manufacturing, (5) financial management, (6) digitisation, (7) strengthening Lloyd business and (8) sustainable business. We remain structurally positive on the company due to its competitive advantages and growth opportunity in consumer durables. Maintain BUY with DCF-based target price of Rs1,198 (implied P/E 52x FY23E).

  • Highlights from Chairman’s speech: (1) The company plans to expand distribution in semi-urban and rural markets under the initiative ‘Rural Vistaar’. It expects rural market to be the major revenue contributor ahead. (2) It also expects increase in large capital outlays, uptick in private capex cycle is likely to reduce dependence on consumption growth and drive investment growth and (3) Phygital is expected to be the next growth driver as offline and online channels will co-exist.
  • Steady expansion of distribution network: There was 27% increase in dealers in FY21. We believe Havells expanded retail network in rural markets. However, revenue per dealer declined 13% YoY. Direct presence of Havells has increased to 1,562 cities in FY21 compared to 1,054 cities in FY13 at a CAGR of 5%.
  • Strategic business initiatives: Havells plans to focus on eight strategic business objectives like (1) brand enforcement, (2) product extension and expansion, (3) proximity to consumer, (4) in-house manufacturing, (5) financial management, (6) digitisation, (7) strengthening Lloyd business and (8) sustainable business.
  • Steep reduction in ad-spend: Ad-spend as % of net sales has declined from 4.7% in FY20 to 2.3% in FY21. We believe likely reasons were (1) strong revenue growth in H2FY21 leading to lower ad-spend as % of net sales, (2) higher input prices, the company curtailed ad-spend and (3) cost saving initiatives post covid.
  • Maintain BUY: We model Havells to report PAT CAGR of 17.4% over FY21-FY23E and RoE to be upwards of 20% over FY22-23. We remain positive on the company’s business model due to strong moats and growth opportunities. We maintain our BUY rating on the stock with DCF-based target price of Rs1,198 (implied P/E 52x FY23E).
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