Key Takeaway: HAVL’s FY21 AR elaborates its key strategic levers – 1) Product extension, 2) Attain in semi-urban & rural, 3) Omni-channel distribution, 4) R&D spend (+3x from FY16) and 5) Lloyd revamp. Mar’21 stock spiked with overstocking of Lloyd ACs, in view of worth hikes amid peak demand. We view this as one-off, since extra stock would liquidate as demand resumes. We keep optimistic on HAVL’s progress prospects past close to time period hiccups (Q1FY22). Purchase. PTRs 1,190.
Technique, catalysts in place: HAVL’s FY21 gross sales / PAT grew by +11%/+42% YoY with op margin at 15% (+410 bps). This resilience was pushed by – 1) Electrification & infrastructure, esp. in semi-urban, rural, 2) Govt. impetus to indigenisation Eg: AC import restrictions from Oct’20. Going ahead, HAVL is evaluating PLI in AC and Lighting, and likewise Rs10bn capex over coming years, 3) Omni-channel distribution: Retail, On-line, MFR, Canteen, Rural. The truth is, E-comm & rural noticed 50%+ YoY progress Exh 16, 4) Market share positive factors, 5) New Launches (Exh 15) and 6) Lloyd revamp synergies, with in-house manufacturing.
Outlook: FY22 might be subdued, attributable to rising enter prices and 2nd-wave disruption. However, past this, medium-term drivers ought to keep sturdy. Over FY19-24e, we pencil +15% PAT CAGR, with +270bps op-margin to 14.5% – pushed by share positive factors, new launches, in-house manufacturing, and Lloyd revamp. We foresee FY21 all-time excessive op-margin (15%) to normalize from hereon.
Deepening attain: This can be a sturdy moat for HAVL, outpacing most friends. Pan-India vendor community is at ~14K (~11K in FY20) and 180K retailers. HAVL targets to reinforce penetration in semi-urban & rural areas. Firm has now tapped 2,500+ Rural cities (> 28K retailers). In FY22, goal is to achieve 3000+ cities, with 40K+ retailers. HAVL has 14 manufacturing websites – most manufacturing in-house.
Retain purchase: HAVL has proven superior execution, even amid disruption in FY21 – PAT +42%; highest op-margin at 15%. Firm showcases probably the most expansive product combine, sturdy market shares (Exh 2), distribution and excessive B2C combine, which might underpin additional share positive factors. B/S stays sturdy. All these components might assist maintain its premium multiples. Retain Purchase with PT ofRs 1,190 (PE at 55x, premium to hist 5-yr avg). Key dangers: Demand slowdown, pricing pressures, RM volatility.