Havells: Electrical Consumer Durables Leading

Havells, the well known brand of India, created huge wealth for the investors. In the previous blog post, we covered the history of the company as well as the family that manages the business.

Let us understand what is the business of Havells & the major factors for stock analysis.

• Product Portfolio
• Revenue Segmentation
• Manufacturing Facilities
• Cost Structure
• Distribution Network
• Segment wise Market Share
• Havells Competitors
• Segment wise Performance
• Financial Highlights & Key Ratios
• Recent Concall Highlights
• Growth Opportunities & Risks/Concerns

(A) Product Portfolio of Havells

Havells India Limited has a diversified Product Portfolio. The company operates through its 5 Product Segments -

• Switchgears,
• Cables,
• Lighting and Fixtures,
• Electrical Consumer Durables and
• LLoyd.

Havells also owns some of the prestigious Global Brands like Crabtree, Standard, LLoyd and REO.

(i) Switchgears

The Switchgear Segment of the Company comprises of Domestic Switchgears, Switches, Industrial Switchgears and Automation.

(a) Domestic Switchgears

(b) Switches

(C) Industrial Switchgears

(d) Automation

Company's Automation Range consists of Modular Automation Switches and Automation Control System.

• Modular Automation Switches - includes Module Relay Switch, Module Dimmer Switch, Module Fan Controller, Scene Controller, Free Locate Switch, Smart Plug, Wall Mount PIR Sensor, Analog Dimmer, and Other Accessories like Sockets etc.
• Automation Control System - includes Customizable Panels, Wireless Module and Video Door Phones and a wide range of Sensors.

(ii) Cables

The Cable Segment consists of a wide range of Power Cables and Flexible Cables.

(a) Power Cables

(b) Flexible Cables

Havells India offers a wide range of Flexible Wires, which includes the following -

Heat resistant Flame Retardant Cables, Flame Retardant Low Smoke cables, Halogen Free Flame Retardant Cables, Flame Retardant with Lifeline, Multicore Round Cables, Flat Submersible Cables, Telecom Switch Board, CATV Coaxial Cables, LAN Cables, CCTV Cables and Speaker Cables.

(iii) Lighting & Fixtures of Havells

Under this Segment Havells offers Home Art lights, Portable Lighting, Lighting Strips, Spot Lights, Solar Lights and LED.

(a) Home Art lights

(b) Portable Lighting

(c) Lighting Strips

(d) Spot Lights

(e) Solar Lights

(f) LED

Havells offers a wide and exclusive range of LED Products, which involves LED Lamps, LED Battens, LED Outdoor, LED Cob, LED Recess Panels and LED Lanterns.

(iv) Havells Electric Consumer Durables

Havells Electric Consumer Durables comprises of Fans, Water Heaters, Small Domestic Aplliances, Water Purifiers and Personal Grooming.

(i) Fans

(ii) Water Heaters

(iii) Small Domestic Appliances

(iv) Water Purifiers

(v) Personal Grooming

This line of Products includes products for Male Grooming and Female Grooming. Male Grooming products range includes - Beard Trimmer, Electric Shaver, Multi Grooming Kit, Body Groomer. On the other hand, Female Grooming products involve - Hair Styling, Hair Dryer, Skin Care and Female Depilation.

(v) LLoyd Consumers

Havells provides a wide range of Air Conditioners , LED TVs and Washing Machines under the Brand "LLoyd"

(i) Air Conditioners

(ii) LED TVs

(iii) Washing Machines

(iv) Dishwasher

(v) Refigerators

(B) Revenue Segmentation of Havells

Cable Segment contributes the maximum to the Total Revenue of the Company i.e. 32%.

Geographical Classification of Revenue

(C) Manufacturing Facilities

Havells India limited manufactures more than 90% of their products in India through its 14 Manufacturing Facilities in located in Following Cities -

• Alwar, Rajasthan - Havells Industrial and Domestic cables are manufactured in Alwar, Rajasthan. It is spread over an area of 100 acres and is also the largest integrated single location cable plant in the country.
• Baddi, Himachal Pradesh - MCB Switchgears and Switches are produced in Baddi located this Manufacturing Facility of the Company, having area of 21,254 Sq. Meters.
• Faridabad, Haryana - Manufacturing of Havells Domestic and Industrial Switchgear – Distribution Boards, Changeover Switches, Control Panels, Switch Disconnectors and Fuses is done in this Faridabad based Facility.
• Haridwar, Uttarakhand - The company has 2 following Manufacturing Facilities in Haridwar -
  • STANDARD Plant - This facility has Area of 21,600 Sq. Meter and the products of company's own Brand "Standard" are manufactured here. MCB's, RCCB's, Distribution Boards, Fan Assemblies and Components, Aluminium Blades and Plastic Components for Table, Pedestal, Wall-mounted Fans are produced in this Haridwar Manufacturing Facility.
  • The Second Plant located at Haridwar produces Ceiling Fans, TPW (Table, Pedestal, Wall-mounted), Personal fans and Domestic Exhaust Fans.
• Neemrana, Rajasthan - Lighting Fixtures, CFLs, HID Lamps and Motors are produced in Neemrana located Manufacturing Facility of Havells India having Area of 48 acres.
• Sahibabad, UP - This Facility has Total area of 1,20,000 square feet and manufactures  Industrial Switchgear – ACBs,MCCB, Load banks, Capacitors and CFL components.
• Guwahati, Assam - Guwahati located Havells' Manufacturing Facility is spread over an area of 1,64,577 Sq. feet and produces MCBs and Switch Disconnectors.
• Ghiloth, Rajasthan - This Facility manufactures Lloyd Air Conditioners and having an area of 50 Acres.

(D) Cost Structure

The key cost components include the following:

(i) Advertisement Expenses

Indian Electrical Industry includes various Organized as well as Unorganized Players. These players use different Policies and Strategies to increase the demand of their Products as there is very less difference in Products. Thus, these Players choose to spend on Advertisement of their Products, so that their Brands as well as Products get recognition among Consumers.

Havells spends a good amount on advertising from many years. In F20, Havells Advertisement Cost is INR 369.50 Crores i.e 3.91% of Total Revenue of the company.

(ii) Raw Material Consumed

Commodities like Copper and Aluminium form key raw materials for an FMEG company like Havells India. Thus, any fluctuation in prices of these commodities affect the cost of raw material consumed of the Company.

In FY20, Cost of Raw Material Consumed by Havells is INR 5,466.81 Crores i.e. 57.91% of the Total Revenue of the company.

(E) Group Structure

Havells India Limited has 2 Overseas Wholly-owned Subsidiaries and 1 Joint Venture.

During FY20, Company's 4 wholly-owned domestic Subsidiaries - Havells Global, Standard Electrical, Lloyd Consumer Pvt Ltd and Promptec Renewable Energy Solutions merged with Havells India.

(F) Distribution Network

The company strengthened its pan-India presence over the years. Today, Havells has a vast Distribution Network of 160,000 Retailers and 11,200 Direct Dealers and 2,50,000 Electricians across the Country. Moreover, Havells has penetrated around 1,150 Towns in India. Moreover, company has 40 Branch Offices across India. Company also has Global presence in 50+ Countries.

(G) Market Share of Havells

The company expanded its Market Share in Fans Segment from 9% in June 2017 to 19% in June 2019. Also, in other electrical consumer durable segment market share increased from 2-3% to 5.6% in June 2019.

(H) Peers Group

(I) Operational Parameters

(i) Year-on-Year Segment-wise Revenue

The company maintained a well-diversified Product Portfolio over the years. The company mainly operates through its Five Product Segments. Over the years, Havells' Revenue increased on the basis of its Diversified Product Segments and also by its strong Brand recognition.

During FY20, Company's Revenue impacted due to spread of Covid-19 Pandemic. However, in the Consumer Durables Segment, company's Revenue increased by 5.7%.

Company's Electrical Consumer Durables Segment's Revenue grew at a CAGR of 18% over last 4 Years. Cables Segment's Revenue grew at 5% CAGR over past 4 Years. On the other hand, both Switchgear and LLoyd Consumer Segment grew at 3% CAGR in last 4 years.

(ii) Segment-wise Operation Profit Contribution

During FY20, Switchgears segment generated 27.03%, Electric Consumer Durables 26.91%, Cables - 22.91%, Lighting & Fixtures 15.24% and Lloyd Consumers generates 7.91% of Total Operating Profit of the Company.

(iii) Year-on-Year Segment-wise Operating Profit

Profit of Switchgear's Segment grew at 4% CAGR over past 4 years. On the other hand, Cable Segment's Profit has grown at a CAGR of 12% over last 4 Years. Profit of Consumer Durable Segment and LLoyd Consumer grew at CAGR 15% and 19% respectively over past 4 years.

Reasons of strong Financial Performance of Havells

• Expanding Distribution Network
• Product Diversification
• Strong Brand Position
• The highest impact of commodity price fluctuation is on Wires & Cables segment. The company is able to pass the Price fluctuations to consumers. It tells about the company's strong Business Model.
• Company's ability to pass on changes in Raw Material Cost to customers along with expansion of Profit Margins denotes strong position of the Company.

(J) Key Financial Performance Parameters

(a) Net Sales

(b) Profit After Tax

In F.Y. 2016, the Company's wholly owned subsidiary 'Havells Holdings Limited' completed sale of shares with respect to 80% of its stake in ''Havells Malta Limited'' to INESA UK Limited, a China based Listed Company. The Profit on the disposal of stake in Havells Malta Limited amounted to INR 702.65 Crores.

The Company also entered into a Share Purchase Agreement dated December 10, 2015 with Shanghai Feilo Investment Limited for the sale of 80% stake in its wholly owned subsidiary "Havells Exim Limited", Hong Kong. The profit on the disposal of stake in Havells Exim Limited was INR 55.07 Crores.

Thus, the Profit After Tax for the F.Y. 2015-16 i.e. INR 1298.70 Crore includes total Exceptional Income of INR 724.02 Crore.

(c) Free Cash Flow

In FY18, the company acquired Lloyd Business in May 2017.
Free Cash Flow = Cash Flow from Operating Activities - Purchase of Fixed Assets

(d) PBIDTM (%)

(e) PATM (%)

(f) ROE (%)

(g) ROCE (%)

In the year 2015-16, the Total Exceptional Income disclosed in the statement of Profit and Loss of the Company on account of profit on the disposal of stake in its Two wholly-owned Subsidiary was INR 724.02 Crores. Therefore, Company's PAT Margin, ROCE and ROE includes this Exceptional Income.

Havells' PAT Margin without including this Exceptional Income for F.Y. 2015-16 is 6.29%. On the other hand, ROE and ROCE of for the same period, without including this Exceptional income is 22.16% and 26.87% respectively.

(h) Dividend Pay Out Ratio (%)-

Havells India Limited is Debt-Free. The Profits of the Company grew at 27% CAGR over last 10 years. On the other hand, Net Sales grew at 6% CAGR. Also, the company maintained healthy ROE and ROCE over last 10 years.

(K) Management Discussion And Concall Highlights

Performance Highlights Quarter 2 FY21

• Revenue grew 10% YoY to INR 24.5bn. The revenue grew because of Consumer Durables Segment which grew by 18% YoY & Lloyd business.
• Revenue from Switch gears & Lighting & fixtures grew by 2% & 4% YoY, while Cables revenue declined by 5%.
• Company's Domestic Wire business grew around 19-20%,
• Lloyd Witnessed a Revenue growth of 56% YoY, led by AC sales and supported by newly launched products.
• Havells' EBITDA grew by 80% YoY, while EBITDA margin jumped to 17.2%, led by lower discretionary Costs.
• INR 80 Crores already spent in 1HFY21 and target Capex of INR 330 Crores for FY21.
• As per the management, there is 140% growth in the Rural sales in the 2nd quarter and almost 4% of Consumer and Residential sales is coming from the Rural areas.
• The net working capital days reduced to 37 in 2QFY21 vs. 44 YoY.

New Launches

• Havells announced its entry into the Refrigerator product category with the launch of 25 new Models of Direct Cool, Frost Free, and Side by Side Refrigerators.
• The newly launched Refrigerators would come with a one-year comprehensive warranty, along with a 10-year Compressor warranty.
• Moreover, this Refrigerator range has an introductory price range of INR10–85k.
• These products are launched via existing Lloyd channel across the country.

Other Key Highlights

• Management stated that in the Next Financial Year, Company will not enter into any new Manufacturing Plant, because the company is focusing on expanding the capacity of its existing Facilities. The company is expecting Capex of Rs 250 - Rs 300 crores for this Expansion.
• 75% of the Total Revenues came from B2C. 70% of Switchgears business and 50% of Cables and wires business is B2C.
• The company is working on Online-to-offline Model of Commerce (O2O) with Order Placements and Orders being done Online and last mile delivery by Distributors. As per the Management, the company has about 1,100 distributors on that platform. Management also added that this O2O sales build-up will take time.
• The Management also stated that the company is seeing a huge opportunity to grow in the Domestic Small appliances Segment in the Near Future.

(L) Opportunities

(i) Well-diversified Product Portfolio

Havells has a Well-diversified Product Portfolio spanning categories such as Cables and Wires, Lighting and Fixtures, Switchgears, Electrical Consumer Durables, and Lloyd (ACs, LED TVs, and Washing Machines). From being a prominent Cables and Wires player, the company diversified into other products. Having a wide Product Portfolio, Havells has access to both Consumer and Professional Customer category giving superior opportunity to succeed.

(ii) Infrastructure Development

Union Government’s focus on Infrastructure Development in country is expected to create demand for electrical goods, particularly in products supplied to Projects like Street Lights, Cables and Switchgears etc.

(iii) Strong Distribution Network

Having a strong Pan-India Dealer Network, Havells is in an advantageous position for better growth opportunities. Thus, on such a wider base of Distribution, Company can leverage it to introduce more New Product Lines and enter New Geographies.

(iv) Entry Into Consumer Durables With The Acquisition of "Lloyd"

The acquisition of Lloyd in FY18, paved the way for the Company to enter the Consumer Durables Market in India. In addition, Lloyd is amongst the top 3 Brands in Air-conditioners’ category and expanded into TVs and Washing Machines as well.

This acquisition will help Havells participate in a high growth Consumer Durable segment with low penetration levels and will also provide the chances to the company of grabbing more opportunities in this segment . Currently, Lloyd’s Product Portfolio consists of ACs, LED TVs, and Washing Machines. The company recently launched Refrigerators under the Brand "Lloyd".

(v) Electricity Penetration

India has seen rapid growth in providing Electricity Access. Government initiatives like Metering of Houses, focus on reducing Transmission Loss of Electricity and also the Programmes like ‘Deendayal Upadhyaya Gram Jyoti Yojana' (DDUGJY) are creating many opportunities in New Geographies for supply of Electrical Products.

(vi) Increasing Local Manufacturing

Currently, over 90% of Havells’ Products are manufactured In-house, providing the company adequate levers for Cost control.

(M) Risk/Concerns

(i) Economic Slowdown

Slowdown in the Indian Economy due to current Global Developments and Situations and due to other factors like Credit crunch in the Financial Markets, Subdued Exports, declined Consumer Consumption, Unemployment etc.. adversely impact the Growth of the company in the Short-term as well as in Long-term.

(ii) Slower Than Expected Pick-up In Housing

Demand for New Housing has been sluggish since couple of years. Continued weak Demand for Housing could impact the Demand for Electrical Goods as well as the demand of other Consumer Durables.

(iii) Commodities Prices

As a substantial portion of the Revenue of the Company is dependent on consumption of Commodities like Copper and Aluminium. The high volatility in the prices of these essential Commodities may impact the Sales of the company.

(iv) Increase In Competition

In view of growth potential in Electrical and Durables Industries with relatively low-entry barriers, recent trend witnessed New Players entering the space which intensify the Competitive Landscape.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.