Shares of electrical equipment company Havells India Ltd (HAVL) surged over 3 percent in trade Wednesday after domestic brokerage house Motilal Oswal initiated coverage on the counter, with a ‘Buy’ rating. Foreign brokerage UBS has also upgraded its rating to 'Buy' from 'Neutral' with a target of Rs 1,900. At 12:28 pm, the stock was trading 3.36 percent higher at Rs 1,379.25 apiece on the NSE.

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Motilal sees the stock zooming as much as 18 percent from prevailing prices citing its diverse product portfolio. Havells India has the highest total addressable market (TAM) of Rs 2.2 lakh crore among listed companies in the consumer durable space. It has a target of Rs 1,580 on Havells India.

The stock has gained 8.03 percent in the last five trading sessions. On a year-to-date basis, it has risen 25.15 percent, while it gained 9.43 percent in the last one year.

HAVL's TAM has increased over the years due to its diverse product portfolio, presence in various sectors, and entry into the large home appliances segment through the acquisition of Lloyd, Motilal said.

Lloyd gaining market share in RAC segment

Lloyd's market share is estimated at 10 percent+ in room air conditioners (RAC) versus 8 percent a few years back. It has established itself among the top three players in RAC. Lloyd is in a favorable position to leverage the success of its AC products to drive growth in other offerings, such as washing machines and refrigerators.

In FY23, Lloyd contributed 20 percent to HAVL’s revenue. Motilal estimates Lloyd's revenue share to rise to 22.2 percent/23.5 percent in FY24/FY25.

Havells India is diversifying its distribution channel through various digital and physical platforms. The company has expanded its presence in emerging channels.

Further, Havells India's sustained investments toward in-house manufacturing, research and development, and brand building give it a competitive edge over its peers.

The brokerage expects HAVL to maintain its premium valuations given the 29 percent earnings CAGR (compound annual growth rate) over FY23-25 and strong return ratios (RoE/ROCE of 21 percent/20 percent and RoIC of 30 percent in FY25).

Key downside risks include rise in commodity prices, higher competitive intensity in the sector and a demand impact due to economic slowdown.

The company will announce its June quarter earnings tomorrow (July 20). In the fourth quarter of previous fiscal (Q4FY23), Havells India posted a 2.5 percent increase in profit, led by strong sales for air conditioners.

First Published:Jul 19, 2023 1:13 PM IST