Fundamental Analysis of Havells India – Financials, Future Plans & More

it’s essential to verify the latest data and news from reliable sources for a more up-to-date analysis. Here are some key areas to consider:

1. Financial Analysis:

• Revenue and Profitability: Review the company’s revenue growth over the past few years. Analyze trends in profitability, including operating margins and net profit margins.
• Balance Sheet: Examine the company’s balance sheet to assess its liquidity, leverage, and solvency. Look at the debt-to-equity ratio and current assets versus current liabilities.
• Cash Flow: Study the company’s cash flow statements to understand its ability to generate cash from operations and its capital expenditure requirements.
• Earnings per Share (EPS): Evaluate the historical EPS growth and any recent changes in the number of outstanding shares.
• Dividends: Assess the company’s dividend history, payout ratio, and dividend growth rate.

2. Future Plans and Strategy:

• Management Commentary: Read statements from the company’s management regarding its strategic goals, expansion plans, and key initiatives.
• Product Diversification: Understand if the company plans to diversify its product portfolio or expand into new markets.
• Investment in Research and Development: Investigate whether Havells is investing in research and development to stay competitive and innovate.

3. Industry Analysis:

• Market Position: Evaluate Havells’ position in the electrical equipment industry. Consider its market share and competitiveness compared to other key players.
• Industry Trends: Assess current trends in the electrical equipment industry, such as demand for energy-efficient products, smart technology integration, and sustainability.
• Regulatory Environment: Understand how regulatory changes and government policies may affect the industry and Havells’ operations.

4. Competitive Positioning:

• Competitors: Identify Havells’ main competitors and their strengths and weaknesses. Compare Havells’ products, pricing, and market presence to those of its competitors.
• Market Share: Analyze the company’s market share in its core segments and regions.

5. Valuation:

• Price-to-Earnings (P/E) Ratio: Compare Havells’ P/E ratio to industry averages and historical levels to assess whether the stock is undervalued or overvalued.
• Discounted Cash Flow (DCF) Analysis: Consider performing a DCF analysis to estimate the intrinsic value of Havells’ stock based on future cash flows.

6. Risks:

• Market Risks: Identify potential risks such as economic downturns, changes in consumer preferences, and competitive pressures.
• Regulatory Risks: Evaluate regulatory risks that may impact the company’s operations and compliance.
• Supply Chain Risks: Assess any supply chain vulnerabilities that could affect production and distribution.

7. News and Updates:

• Stay updated with the latest news, quarterly reports, and announcements from Havells India Limited.

Remember that a comprehensive fundamental analysis should combine quantitative and qualitative factors to provide a well-rounded view of the company. Additionally, it’s advisable to consult with financial experts or analysts who specialize in the industry for a more detailed assessment.

Fundamental Analysis of Havells India: In an age where technology permeates every aspect of our lives, the role of electrical appliances cannot be overstated. We humans are intertwined with this form of energy & it becomes impossible to imagine life without electricity.

Today we talk about a Company that manufactures the appliances that make our lives better, harnessing this energy. Herein, we are going to perform a fundamental analysis of Havells India.

Fundamental Analysis of Havells India

Today we will take a look at the scale of the Company’s operations, understand its business segments, and learn about the developments in the Consumer durable industry before we do the fundamental analysis of Havells India Financials & arrive at a conclusion.

Company Overview

Havells is a Fast Moving Electrical Goods (FMEG) Company, founded by Late Sh. Qimat Rai Gupta. He set up an electrical goods shop at the electrical market of Bhagirath Palace in Delhi. The Company is currently headed by Anil Rai Gupta, as its Chairman and Managing Director.

Havells India has a global footprint in 60+ countries & a network of 17,000+ dealers. It has manufacturing operations in 15 plants spread across India. It houses brand names like Havells, LLOYD, Crabtree, Standard, REO & Havells Studio.

Segment Analysis

Segment analysis involves breaking down a company’s financial and operational performance into different segments or divisions to gain insights into how each segment contributes to the overall business. This type of analysis is valuable for investors, analysts, and company management because it helps identify areas of strength or weakness within the organization. Here’s a step-by-step guide on how to conduct segment analysis:

1. Identify Business Segments:

• Start by identifying the various segments or divisions of the company. These segments can be based on product lines, geographic regions, customer types, or any other meaningful categorization.

2. Gather Financial Data:

• Collect financial data for each business segment. This includes revenue, operating profit, expenses, and any other relevant financial metrics. Ensure that the data is consistent and accurately allocated to each segment.

3. Analyze Revenue Contribution:

• Determine the contribution of each segment to the company’s total revenue. This will help identify which segments are the main revenue drivers.

4. Profitability Analysis:

• Assess the profitability of each segment by analyzing its operating profit margin, gross margin, and net profit margin. Identify which segments are the most profitable and which may need improvement.

5. Growth Rates: 

• Compare the revenue growth rates of each segment over time. Identify segments that are growing rapidly and those that are stagnant or declining.

6. Segment Trends:

• Look for trends within each segment. Are there shifts in customer preferences, competitive dynamics, or market conditions affecting specific segments?

7. Segment Assets and Liabilities:

• Analyze the segment’s assets and liabilities. This includes understanding the capital investments, working capital requirements, and debt obligations associated with each segment.

8. Return on Investment (ROI):

• Calculate the ROI for each segment by dividing its operating profit by the invested capital. This helps determine which segments are generating the highest returns relative to their capital investments.

9. Market Share:

• Evaluate the market share of each segment within its respective industry or market. This can provide insights into the segment’s competitive position.

10. Risk Assessment: – Identify specific risks and challenges associated with each segment. This could include regulatory risks, market volatility, or supply chain vulnerabilities.

11. Allocation of Corporate Expenses: – Consider how corporate expenses, such as administrative costs or R&D spending, are allocated to each segment. Ensure that these allocations are done accurately.

12. Segment Strategy: – Review the strategic plans and initiatives for each segment. Understand how the company plans to grow or optimize each business area.

13. Cross-Segment Synergies: – Identify any opportunities for cross-segment synergies or cost savings. Sometimes, businesses can leverage resources more efficiently by coordinating activities across segments.

14. External Factors: – Take into account external factors that may impact individual segments, such as economic conditions, regulatory changes, or technological advancements.

15. Reporting and Communication: – Prepare clear and concise reports summarizing the findings of the segment analysis. Share this information with relevant stakeholders, including company management, investors, and analysts.

Segment analysis provides a deeper understanding of a company’s performance and can help in making strategic decisions, resource allocation, and investment assessments. It is particularly useful in diversified companies with multiple business lines or geographic operations.

Now we will understand the 5 business segments of Havells.

Cables: The Cables business being the biggest revenue generator bringing in 32% of FY23’s revenue. The cables segment grew by 19.12% from the previous year.

Lloyd consumer: It is the 2nd largest segment that brought in ~20% of FY23’s revenue. This segment nearly doubled over the previous year (~49% YoY). Havells manufactures TVs, ACs, Washing machines & refrigerators under this brand.

Consumer durables: It is the 3rd largest business segment of the company. Fans, Appliances & Water Heaters are sold in this segment. It contributes to 19.54% of the firm’s revenue. Demand for this segment remained muted, growing by just ~8% over the previous year.

Switchgear: As an individual segment of its own is responsible for ~13% of FY23’s revenue. The segment comprises of domestic, industrial switchgears & capacitors. It saw a decent growth of ~19% over the previous year.

Lighting & Fixtures: It is the 5th largest segment that brought in ~10% revenue & grew by ~17%. Havells also manufactures Motors, solar pumps, water purifiers & personal grooming products. This collectively brought it 5.63% of revenue & grew by 25% over the previous year.

Industry Overview

FY23 witnessed a mixed operating environment as it had a healthy business outlook, while at the same time commodity price fluctuations killed margins.

The consumer electricals and durables industry continued to perform well with demand expanding on the back of urbanization, electrification, and higher disposable incomes in Indian households. Smart-connected homes are on the rise, as the younger population is contributing to buying decisions in the home.

We will now examine the industry of each individual segment.

Electronic Consumer Durables (ECD)

 

These electronic consumer durables contribute to improving the quality of life and convenience in modern households. They are characterized by their durability, reliability, and the role they play in daily living. Advances in technology have led to the development of energy-efficient and smart appliances, which can be controlled remotely and offer additional features to enhance their functionality.

The fan industry moved to BEE-rated energy-efficient fans with all manufacturers phasing out non-rated fans by December 2022. In the pre-transition phase, there was initially some uncertainty with significant destocking, but just before the transition, there was healthy pickup by channels.

The industry continues to witness higher demand for premium. Demand rose in Tier 2 and Tier 3 cities as well.

The “Make in India” initiative has led to the local manufacturing of mixer grinders (MG) and juicer mixer grinders (JMG). Other categories like induction cooktops, steam irons, toasters, room heaters, hand blenders, etc. have followed suit.

Cables

The category experienced stable growth in FY23 in spite of decreasing metal prices for the major part of the year and copper price volatility. The industry continued its transition from the unorganized to the organized segment with increased consumer focus on buying branded and reliable products for homes and workplaces.

Increased government spending on infrastructure, education, health, manufacturing hubs, and expansion of 5G network all contributed to the growth of the cable industry.

There is a strong demand for visibility across all industrial segments which led to an overall improved environment for the industrial cable sector. In the coming years, various sectors like renewable energy, data centers, metros, 5G, airports, defense, and digitalization are expected to provide sustainable growth.

Now, the industry is focusing on selling specialized cables such as heat-resistant flame retardant (HRFR) cables, flame retardant and low smoke halogen (FRLS-H) cables, and halogen-free flame retardant (HFFR) cables.

Revenue & Net Profit Growth

The Company reported a 21.32% YoY increase in revenue, growing from Rs. 13,938  Cr. in FY22 to Rs. 16,910 Cr. in FY23. The growth was led by the expansion of the Lloyd business which saw a spectacular growth of 49%. It maintains a 5 Year CAGR growth of ~14%.

Despite reporting a double-digit growth in revenue, the Company saw its Net Profits fall by ~10%, from Rs. 1196Cr in FY22 to Rs. 1072Cr in FY23. This was due to an increase in the cost of raw materials which rose by ~20% over the previous year & cost ~55% of FY23’s sales. The Net profit is growing at 5 Year CAGR of ~8%.

Profit Margins

The Company reported operating profit margins of 9.58%, coming at a 5-year low for the Company, much lower than the 5-year average of 12.18%.

Net Profits of the Company fell in the ~6% category in FY23, much lower than the 5-year average of 8.10%.

Return Ratios

The Company reported a Return on Capital Employed of 23.07%, a 3 Year Low for the Company, significantly lower than the 5-year average of 26.59%.

Its Return on Equity dipped to below the 20% category, being reported at ~17%, lower than the 5 Year Average of ~20%. The fall in the Company’s profitability margins was the cause of the low return ratios.

Debt Analysis

The Company is virtually debt-free with a debt-to-equity of 0x. During the year, it paid Rs. 393.69 Cr. as part of its debt payments & it currently has no  Short Term or Long Term Debt obligation. Interest Coverage ratio remains at a 5-year high of 27.28x.

Future Plans Of Havells India

 

Please note that these are general strategies and considerations that apply to many companies in the electrical equipment industry. The specific future plans of Havells India will depend on its leadership, market conditions, industry trends, and its assessment of opportunities and challenges in the coming years. To get the most accurate and up-to-date information about Havells India’s future plans, it’s advisable to refer to the company’s official announcements, annual reports, and press releases.

Anil Rai Gupta, CMD of Havells India in an interview with The Economic Times, says in FY23 the company will cover 2,800 additional towns with a population of 10,000-50,000. The Company plans to sell white goods, such as Air Conditioners, refrigerators, and washing machines in these markets. They aim to build an organized distribution network, such as the one built by the FMCG Peers.

Havells India plans to launch Havells Studio Meditate Air Purifier, Q-Tron MCCB Range, Glamtubes and Nimbus downlights, Lloyd ACs with AQI Indicator and on-device voice (ODV) features in the coming year, which is expected to further strengthen its consumer durables market of both Havells & Lloyd.

Conclusion

Havells India is set on a growth trajectory on the back of the growth of its Cables & Lloyd Consumer segment. The urbanization of Indians coupled with the rising temperatures in India makes a really good combination to spur up demand for its products.

The Company reported a ~67% fall in Net Operating Cash Flow, due to ~25% & ~27% increase in Inventories as well as Trade Receivables respectively, with these assets collectively holding up ~41% of the Company’s Total Assets. These raise liquidity risks in its financials & must be kept in check.

Fundamental Analysis of Havells India – Financials, Future Plans & More

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