Analysts downgrade Havells as Lloyd numbers disappoint
The LED panels business has been marred by aggressive competition and substantial decline in prices.
The company reported lower revenue growth for the third consecutive quarter for July-September as revenues of Lloyd Electric and Engineering, which it had acquired in 2017, were hit by a sharp fall in LED TV sales.
The slowdown in construction and real estate sector would impact Havells’ growth in the coming quarters while Lloyd’s margins would continue to remain subdued, limiting the upside for the stock from the current level, said analysts.
“We cut our FY20-22 estimates by 7-11 per cent to reflect September quarter performance. We believe the near term appears challenging for the company, especially on the Lloyd front due to distribution transition and LED disruption,” said Achal Lohade, analyst, JM Financial. “However, we continue to believe in Havells’ long-term strategy of market leading growth through continuous portfolio expansion, distribution expansion and brand-building initiatives.”
Shares of Havells, which have declined 7 per cent so far this month, ended at Rs 665 on the BSE on Friday.
The LED panels business has been marred by aggressive competition and substantial decline in prices, while AC sales were flat during the second quarter of this financial year. LED panel prices have declined about 25 per cent owing to online sales and lowering of prices by a few Chinese players. Havells had acquired the consumer durables business of the Lloyd Electric and Engineering two years ago for an enterprise value of Rs 1,600 crore.
“Though we continue to remain optimistic on Havells’ growth potential on the back of low penetration, increasing urbanisation and rising middle class, in our view there is no upside from the current level and we maintain hold recommendation on the stock with a target price of Rs 640,” said Arafat Saiyed, analyst, Reliance Securities.
Motilal Oswal Financial Services has cut its 2019-20 and 2020-21EPS estimates by 12 per cent and 10 per cent, respectively, to factor in lower revenue growth and margin assumptions.
Havells’ underperformance in LED panels was marginally cushioned by growth in business-toconsumer durables business such as domestic wires and electrical consumer business. AC sales were flat year-on-year as the company continued to face resistance amid repositioning of its brand from mass to mass premium. Margins in core business were under pressure from underabsorption of capacities and high competitive intensity.