Havells India: Getting Deeper Into Homes..

Institutional Equity Research
CMP* (Rs) 559
Havells India Upside/ (Downside) (%)

Bloomberg Ticker HAVL IN
16
BUY
Capital Goods | India
Market Cap. (Rs bn) 349 Target Price: Rs650
Free Float (%) 40
Initiating Coverage | June 11, 2018 Shares O/S (mn) 625
Getting Deeper into Homes...

Havells India – founded in 1983 – is one of the largest electrical equipment companies in India. Share price (%) 1 mth 3 mth 12 mth
It owns some of the most prestigious Indian brands like Havells, Lloyd, Crabtree, Standard
Absolute performance 0.9 10.0 9.6
Electric and Promptech, while ~90% of revenue comes from in-house production. We believe
Relative to Nifty 0.4 4.9 (2.0)
incremental scalability post Lloyd acquisition and launch of premium products would help
Havells to report improved performance in the long-term, while likely up-tick in discretionary
spend over the medium-term. We initiate coverage on Havells with a BUY rating and Target Shareholding Pattern (%) Mar'18 Dec’17
Price of Rs650 (Valuing at 38x FY20 earnings). Promoter 59.6 61.6
Vast Product Basket – Strategic Focus on Household Segment Public 40.4 38.4
Over the years, Havells has shifted its focus to household segment (B2C) from industrial
switchgear and Cables & Wire segment (B2B). Its consumer-facing offerings are spread across 1 Year Stock Price Performance
domestic switchgear, lighting, fans and other household electrical and appliances. Though 600
Havells is ranked amongst Top-5 organised and large players, we envisage enough headroom 580
for meaningful expansion in market share by taking away share from the unorganised players. 560
540
Portfolio Expansion & Niche Strategy to Drive Growth 520
Over the last two decades, Havells continued to focus on new consumer-centric products and 500
acquisition to drive growth. It has significantly strengthened its management team by adding 43 480
employees of leadership grade. With a view to creating technological platform to support sales/ 460
capital efficiencies and improve employee capabilities, it has focused on platforms like IOT and 440
Mar-18
Sep-17
Dec-17
Jan-18
Feb-18
Apr-18
Nov-17
May-18
Aug-17
Aug-17
Oct-17
Jun-18
Jun-17
Jul-17
home automation.
Note: * CMP as on June 11, 2018
Lloyd Acquisition – New Growth Avenue
Foraying into fast growing consumer durable segment, Havells acquired consumer durable
business of Lloyd Electric – the third largest player in room AC segment – for Rs16bn. Lloyd
– which enjoys ~12% market share and ranked amongst Top-5 players in room AC market –
derives ~75% of sales from ACs, while the rest comes from TVs and washing machines. With this
acquisition, Havells enter into big-ticket consumer durable business.
Outlook & Valuation

Looking ahead, we expect Havells’ revenue and PAT to clock 15% and 24% CAGR, respectively
through FY18-20E led by new products, up-tick in industrial activity and acquisition of Lloyd’s CD
business. With strong cash flow from core business and healthy balance sheet in place, we
believe incremental scalability post Lloyd acquisition and launch of premium products would
help Havells to report improved performance in the long-term, while likely up-tick in discretionary
spend over the medium-term. We initiate coverage on Havells with a BUY rating and Target
Price of Rs650.
Key Financials (Rs mn) FY17 FY18 FY19E FY20E

Sales 65,861 82,603 92,833 108,337
EBITDA 8,340 10,493 12,152 14,700
Net Profit 5,967 7,006 8,665 10,691
EPS (Rs) 9.5 11.2 13.9 17.1 Research Analyst: Arafat Saiyed
DPS (Rs) 8.7 7.5 6.9 8.6
Contact: 022 3320 1192
P/E (x) 58.5 49.9 40.3 32.7
Email: Arafat.Saiyed@relianceada.com
P/B (x) 10.7 9.3 8.4 7.4
EV/EBITDA (x) 39.3 31.8 27.1 22.1
Research Analyst: Rupesh Sankhe
ROE (%) 16.5 19.1 20.8 22.7
Contact: (022) 3320 1606
Dividend Yield (%) 1.5 1.3 1.2 1.5
Email: rupesh.sankhe@relianceada.com
Source: Company, RSec Research
1
CMP* (Rs) 559
Havells India Upside/ (Downside) (%) 16 BUY

Initiating Coverage | India Target Price: Rs650
Investment Rationale
Vast Product Basket – Strategic Focus on Household Segment
Over the years, Havells has shifted its focus to household segment (B2C) from industrial
switchgear and cables & wire segment (B2B). Its consumer-facing offerings are spread
across domestic switchgear, lighting, fans and other household electrical and appliances,
while with the acquisition of Lloyd, the Company has forayed into $15bn consumer durable
segment.
Exhibit 1: Products profile

Market Size Market Revenue Ranking Penetration Peers
(Rs bn) Share (%) FY17 (Rs bn)
Switchgear 15
MCB 20 27-28 1 High Legrand, Schneider
Switches 22 14-15 3 Medium Panasonic, Legrand
Cables & Wires 24
Domestic 80 16 3 Low Finolex, Polycab
Industrials 120 10 3 Low Polycab, KEI
Lighting & Fixtures 65 10-14 10 2-4 Medium Philips, Crompton, Bajaj, Wipro
Electric Consumer Durable 14
Fans 70 15 3 High Crompton, Orient, Usha
Water heaters 15 9 4-5 Low Racold, AO Smith
Other appliances 50 2-3 Low Bajaj, Philips
Source: Company, Industry, RSec Research
I. Switchgear Segment
India’s household switchgear market is relatively consolidated with a few large players.
Havells is the market leader in domestic switchgear market with >50% market share.
Though the Company is ranked amongst Top-5 organised and large players, we envisage
enough headroom for meaningful expansion in market share by taking away share from
the unorganised players.
Exhibit 2: FY11 Revenue Mix: largely B2B Exhibit 3: FY18 Revenue Mix: Shift to B2C from B2B
Electrical
consumable Lloyd 17
durables 16 Switchgears 17
Switchgears
25
Lighting and
fixtures 15 Electrical
consumable
durables 19
Cable and
wires 32
Cable and Lighting and
wires 43 fixtures 14
2
CMP* (Rs) 559

Exhibit 4: Operating Margin Trend (FY11-18) Exhibit 5: Significant Improvement in RoCE

45.0 400
39.1 349
40.0 37.0 350
35.0
300
30.0 28.8
27.6 26.8
250
25.0
(%)
191
19.0 200
(%)
20.0 18.4
16.3 167
15.0 150 128 121

10.0 7.3 100 86
5.0 49
50 37
- 17.3
- -
Switchgears Cable & wires Lighting & fixtures Electrical consumable Lloyd -
durables Switchgears Cable & wires Lighting & fixtures Electrical consumable Lloyd
durables
FY11 FY18
FY11 FY18
Over the last couple of years, Havells has strengthened its switchgear range with the launch
of several new concepts including unified base and independent door in distribution board
category, wide range of distribution board and new category of “Reo Armour” primarily
targeted towards rural markets. Notably, Havells continues to remain strong in this segment
with ~25% share in Reo switchgear segment and ~14% share in Reo switch segment.
Expecting this new affordable segment to drive the growth, the Company looks forward to
clock Rs3bn revenue (Rs2bn from “Reo switchgear” and Rs1bn from “Reo switch”).
Exhibit 6: Strategy in MCB & Electric Wire Industry Exhibit 7: B2B Sales: Commercial & Industry
MCB & EWA Segment Cables Flexible Cables

Expanding to Non Enhancing share of B2B Focus on west India
Residential sales through distribution
model.
Expand market share Increase share of export Target south market with
from 10% to 30% in 3 revenue from 2% to 10% specific regional policies
year of total sales
Enter new price Enhance market share Increase direct connect
segments in western region from in towns with population
12% to 20% of total sales above 50K
Focus on new product Entry into EHV cable Continue focus on
categories, applications market Project, B2B & telecom
– 10% of portfolio in next tower business
2-3 years
Strengthen West and Continued thrust on Increase capacity of
South regions with network expansion Multi Core/Higher Sizes
specific policies & Flat Cable.
3
CMP* (Rs) 559

Exhibit 8: Client-mix in Electrical Wire Accessories (EWA) Segment Exhibit 9: Industry Growth in FY17
Other
4% 14 13
12
Govt/Infra 10
Healtcare 11%
4% 8
6 5
Hospitality 4
4
(%)
8%
Residential 2
52%
0
Commercial (2)
21%
(4)
(3)
(6)
LV HV Control Cables
Havells continues to be the market leader in household switchgear market with >50%
market share, while in MCB and switch segments it enjoys ~28% and 15% market share,
respectively. Switchgear segment – the cash cow for Havells – also offers the highest
margin and RoCE. The key competitors are especially the MNCs i.e. Legrand and Schneider
who rather more active in industrial segment compared to household segment. Again,
most competitors do not typically offer full range of household electrical needs.
Exhibit 10: Switchgear – 9% Revenue CAGR over FY11-18 Exhibit 11: Switchgear – Sharp margin expansion in last 4 years
20,000 22.0 25 8,000 42
20.3
20 7,000 39.6 39.3
16,000 39.0 40
15.0 15.0
13.1 6,000 38.2
15 37.5
10.0 37.0 38
12,000 5,000
10 36.1
(Rs mn)
(Rs mn)
5.8 4.9
(%)
4.3 4,000 36
(%)
8,000 5 34.3
3,000 33.9
0 33.1 34
(4.1) 2,000
4,000
(5) 32
1,000
- (10) - 30
FY19E
FY20E
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
FY19E
FY20E
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
Switchgears Growth (%) Switchgears EBIT Margin (%)
II. Cables & Wires Segment

Havells entered in Cables & Wires segment in 1996 by acquiring a sick manufacturing plant
at Alwar, Rajasthan, followed by acquisition of Standard Electricals in late 1990s. Notably,
though this segment contributes the largest chunk to Havells’ revenue, it offers the lowest
margin. This business also gets a reasonable contribution from industrial segment largely
SMEs, which witnessed a sharp slump led by slowdown in investment cycle over the last
couple of years. However, growth in domestic wires business extended support to the
segment albeit partially. We believe that entry into EHV cable market along with continued
focus on improving B2B revenue, network expansion, enhancing market share in western
region to 20% augurs well for Havells.
4
CMP* (Rs) 559

Exhibit 12: Cable & Wire Segment –10% Revenue CAGR over FY11-18 Exhibit 13: Cable & Wire Segment – Margin Expansion Continues
35,000 35 5,600 16.8 18
29.3 16.0
30,000 30 14.1 16
4,800
25 12.1 12.6 12.2 14
25,000 4,000 11.0 12
20
20,000 15.3 14.0 3,200 9.1
13.8 13.7
(Rs mn)
10
(Rs mn)
12.3 15 7.9
(%)
(%)
10.0 7.3
15,000 8.8 2,400 8
6.2 10
10,000 6
5 1,600
4
5,000 (2.8) 0 800
2
- (5) - 0
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
FY19E
FY20E
FY19E
FY20E
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
Cable and wires Growth (%) Cable and wires EBIT Margin (%)
We expect this segment to clock 12% CAGR over FY18-20, as the household demand for
cables and wires continues remain robust while the industrial demand for cables and
wires is expected to witness meaningful growth with the visible signs of pick-up in industrial
activities. Backed by steady uptick in capex in core manufacturing sectors, augmentation of
power T&D infrastructure, Smart City projects, Metros, thrust on renewable energy, faster
infrastructural development (highways, railways, ports, mines), we believe the demand for
cable and wires will witness exponential growth.
III. Lighting & Fixtures Segment

Market size of India’s lighting industry – which consumes 20% of the total power consumption
– is pegged at Rs176bn, which we expect lighting & fixtures segment of Havells to clock 16%
CAGR in revenue over FY18-20. In past couple of years, India’s lighting segment has witnessed
a shift to LED lights from CFLs. Thus, Havells currently focuses on LED lights, which contributes
>80% of lighting sales. On the backdrop of government’s thrust on local manufacturing of
LED lights, Frost & Sullivan expects the LED lighting market to grow to Rs350bn from Rs53bn
by FY22 (46% CAGR). Being the only Indian manufacturer of fixtures, Havells is the market
leader in this high-margin segment and ranked amongst Top-5 players in lighting sector.
Exhibit 14: Lighting & Fixtures – 14% Revenue CAGR over FY11-18 Exhibit 15: Margin on Track after Dip in FY16
18,000 37 5,000 31
28.5
27.8 27.8
15,000 30 4,000 26.6 26.4
27
24.8
12,000 23
3,000 23.8 23.6
22.8
(Rs mn)
9,000 16 23
(%)
2,000
6,000 9
18.4
19
1,000
3,000 2
- (5) - 15
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
FY19E
FY20E
FY19E
FY20E
Lighting and fixtures Growth (%) Lighting and fixtures Margin (%)
5
CMP* (Rs) 559

Exhibit 16: Key Trends in LED Lighting in India
Key growth drivers Key barriers Emerging trends
Awareness among domestic consumer Entry of new entrants & unorganized players IOT compliant lighting solutions in smart cities
leading to glitches in LED functionality impacts
customer confidence
Investment in Infrastructure development like High dependence on import for LED lighting, Rapid conversion of CFLi & GLS to LED lamps in
road , Metro and commercial spaces Contributing to ~ 60 % of Volumes domestic Lighting Markets
Government is supporting adoption of LED Specifiers management & ESCOs will

lighting through various Policies & Regulations influence decision making
IV. Electrical Consumable Durables (ECD) Segment

The ECD segment is the fastest-growing segment for Havells in terms of revenue with
margin of 26-27%. The segment clocked ~20% CAGR during FY11-18 led by introduction of
new products and rising market share in premium fan segment. Looking ahead, we expect
the segment to clock 16% CAGR through FY18-20%.
Havells currently enjoys 16% market share in electric fans segment, which it intends to
increase to 20% in next 3 years. Its range of super premium fans includes “Octet” with 8
blades, “Futuro” (Wi-Fi-controlled and Bluetooth-enabled) and “Efficiencia” (energy-efficient
BLDC fans). Notably, the Company is the largest player in premium fans segment with 25%
share, while other players i.e. Crompton, Orient and Bajaj continued its focus on mass
categories.
Exhibit 17: Leading player in Fan and Water heater Exhibit 18: Market Share is likely to rise in next 3 years
Product Market Market Positioning Existence Competitors Electonic Consumer Durable

Size Share Years Product Market share Time Frame Market
(Rs bn) (%) target (%) Size (Rs bn)
Crompton,
Fans 70 16 Top 3 13 Electric Fans 20 3 Years 70
Usha, Bajaj
Racold,
Water
15 14 Top 3 5 V-Guard, AO, Water Heater 20 3 Years 15
heaters
Bajaj
Small Bajaj, Philips Small Domestic 10 3 Years 50
50 4-5 5
Appliances Appliance
Crompton,
Pumps 35 3-4 2
CRI, Kirloskar
Havells sells a wide range of water heater i.e. storage water heaters, instant water heaters,
instant gas water heaters and solar water heaters. Looking ahead, it aims to become Top-2
player in this segment and gain 20% market share with increased focus of southern and
western markets.
6
CMP* (Rs) 559

Exhibit 19: Growth Strategy of Fans: 4 Pillars of Growth
ff First Mettalic, ES, Electro ff Fully integrated

Fans Manufacturing . plant
ff Technology ff Quality
ff Aesthetics ff Consistency
Products Manufacturing
Channel Communication
ff Existing tier 1-2 ff Reginal focus

ff Expansion tier 3-4
ff Association with Cricket
ff Alternate channels like
-MFR, E-Com, ff Focus on BTL
ff Institutions,projects
7
CMP* (Rs) 559

Portfolio Expansion & Niche Strategy to Drive Growth

Over the last two decades, Havells continued to focus on new products and acquisition
to drive growth. On the backdrop of rising disposable income, Havells continues to focus
on consumer-centric products. It has significantly strengthened its management team by
adding 43 employees of leadership grade. With a view to creating technological platform
to support sales/capital efficiencies and improve employee capabilities, it has focused on
platforms like IOT and home automation.
Exhibit 20: Key Acquisitions & JVs Exhibit 21: Launches of New Products
Year Product Acquisition/ Company

JV
1983 Energy meters Acquisition Towers and Transformers
1987 MCB JV Christian Geyer, Germany
1997 Cables & wires Acquisition Surya Cables
Customized Electric Control &
1997 Acquisition
packaged solutions Switchboards
1998 High-end meters JV DZG, Germany
2000 Electronic meters Acquisition Duke Arnics Electronics
2000 Switchgear, lighting Acquisition Standard Electricals
2001 MCCB Acquisition Crabtree India
2007 Lighting Acquisition Sylvania, Germany
2008 Motors JV Lafert, Spain
Promptec Renewable
2016 Streetlights Acquisition
Energy Solutions
2017 Consumer durable Acquisition Lloyd
Exhibit 22: Industry Size Exhibit 23: Product Penetration

700 70
600 60
600 60
500 50
400
(Rs bn)
320 337 40
300 30
238 30
200
180
200
132 120 20
96
100 72 65
39 10
10
5
-
0
Colour TV Refrigerators Washing Machine Room AC
Colour TV Refrigirators Washing Machine Room AC
2011 2018 2021E Penetration (%)
8
CMP* (Rs) 559

Exhibit 24: Key Milestone

Year Expansion Remark
1st expansion Beyond Switchgear
1996 Forayed in Cables and Wire business Acquired a sick manufacturing unit in Alwar
Constitute 40% of Havells buisness
2000 Acquisition of Standard Electricals Was amongst top 5 switchgear brands with strong South footprints
Launched ‘consumer facing’ fans and lighting
2003 Consumer centric product extension
Focus on brand and its affinity with channel/customers
Shift to large scale and efficient production
2004 Baddi Plant Commisioned European quality; Chinese costs
12 plants; 93% in-house production
A bold decision to provide a superior quality experience to consumers
2005 No ‘Economy Segment’ fans
Premiumization trend initiated
An audacious acquisition with a 50-country footprint
2007 Acquisition of Sylvania 2008 global recession led to significant losses
Stabilized operations in 2011, profitable since then
2012 Introduction of Water Heaters
2013 Introduction of Domestic Appliances
2013 Introduction of Pumps
Decision driven by changing industry dynamics
2015 Sylvania divestment
A time bound divestment with receipt of ~Rs 1200 crores
2016 Introduction of Air cooler
2017 Introduction of Water Purification
A foray into high potential Large Consumer durables
2017 Lloyd Acquistion
Aligned with ‘Deeper into Homes’
Havells continues to maintain strong focus on expanding distribution network, which

consists of 7,500 direct dealer, 1 lakh retailers and >2 lakh electricians. Notably, the
Company intends to deepen its penetration in Tier-II/III cities/towns and expand footprints
in western and southern India.
Havells launched “Galaxy Stores” in 2011 to offer an exclusive one-stop shop for entire
portfolio of household electrical products. Though these stores operate on franchisee
model, Havells take care of design, standardisation and after-sales customer care. Havells
has expanded the Galaxy Stores to 400 currently from 79 in FY11. The company expects to
add another 200 galaxy stores in next 3 years.
Exhibit 25: Havells has 400+ Galaxy Store Exhibit 26: Galaxy Contributes 18% of Non-Industrial Revenue
450 20 19
403 18
400 375
350 16
300 270 12
12
250 220
200
(%)
200
135 8
150
100 79
4
50
0 0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY13 FY16 FY17
9
CMP* (Rs) 559

Lloyd Acquisition – New Growth Avenue

Foraying into fast growing $15bn consumer durable segment, Havells acquired the
consumer durable business of Lloyd Electric & Engineering – the third largest player in room
AC segment – for an enterprise value of Rs16bn. Lloyd had a network of >10,000 direct/
indirect dealers spread across 34 sales branches, 485 authorised service centres and 31
company-owned service centres. Lloyd – which enjoys ~12% market share and ranked
amongst Top-5 players in room AC market – derives ~75% of sales from ACs, while the rest
comes from TVs and washing machines. With this acquisition, Havells has enter into big-
ticket consumer durable business.
Exhibit 27: Foray into Consumer Durable Segment Lloyds Acquisition
Clocking 28% CAGR, Lloyd’s consumer durable business stood at Rs14bn in FY18 from
Rs4.1bn in FY13. It had >10,000 touch points and >900 service points spread across India.
Looking ahead, Havells aims to healthy revenue growth few years by introducing new
products, expanding existing AC product portfolio, washing machines and LED TVs and
increasing dealer network and targeting large format stores.
10
CMP* (Rs) 559

Strong Financials
Havells India’s PAT surged by 38% YoY in 4QFY18, aided by higher margin across segments.
Revenue grew by 38% YoY to Rs25.4 bn mainly driven by Lloyd (ex-Lloyd: +7% YoY), 35%
growth in Lighting & Fixtures and 17% growth in ECD segment. EBITDA margin rose by
160bps YoY to 14.1%, with healthy margin in ECD (+440bps to 30.9% on higher utilisation)
and Cables & Wires (+560bps YoY to 17.1% on higher realisation) segments.
For FY18, Havells reported 25% growth in revenue at Rs82.6 bn, and 17% growth in PAT at
Rs7 bn, while stabilising the margin at 12.7%.
Lloyd Revenue up 11% YoY to Rs18.7bn in FY18: Lloyd’s revenue grew by 11% YoY to Rs18.7bn in
FY18, whilst it remained flat at Rs5.8bn in 4QFY18 owing to pre-buying in the previous quarter
ahead of revised efficiency norms. The Management is looking for low double-digit growth
in revenue in FY19E led by delayed summer and rains in North India. It expects to sustain the
current margin of 8% in FY18, which is expected to expand thereafter. Lloyd intends to adopt
omni-channel strategy similar to Havells with increasing presence in modern retail formats.
11
CMP* (Rs) 559

4QFY18 Segmental Performance

Switchgears: Switchgear sales grew by just 5% YoY in 4QFY18 (flat in FY18) impacted by low
demand in new construction and real estate projects. The growth was led by new orders
from Hyundai Electric and B2B sales. Contribution margin rose by just 20bps YoY to 38.6%
on the back of low-margin exports.
Exhibit 28: Switchgear – Revenue up 5% YoY Exhibit 29: Switchgear – Margin up 20bps YoY
4,800 32 1,800 41.6 41.3 43
25.4 40.1
4,000 1,500 39.2 39.0
24 38.3 37.9 38.3 38.4 38.6 40
37.3
3,200 14.7 1,200 36.5 36.6 36.7
11.4 16 37
(Rs mn)
(Rs mn)
2,400 8.0 900 34.3
5.9 7.1
3.9 5.2 8 34
2.1
1,600 0.4 1.7 (0.5)
600
(4.6)(4.5) (3.4) 0 29.7 31

800 (5.1) 300
- (8) - 28
2Q FY15
3Q FY15
4Q FY15
2Q FY16
3Q FY16
4Q FY16
2Q FY18
3Q FY18
4Q FY18
2Q FY17
3Q FY17
4Q FY17
1Q FY15
1Q FY16
1Q FY18
1Q FY17
1Q FY15
1Q FY16
1Q FY18
2Q FY15
3Q FY15
4Q FY15
2Q FY16
3Q FY16
4Q FY16
2Q FY18
3Q FY18
4Q FY18
1Q FY17
2Q FY17
3Q FY17
4Q FY17
Switchgear Sales Sales growth (%, RHS) Switchgear EBIT Margin (%)
Looking ahead, we expect switchgear segment to clock 11% CAGR over FY18-20 on the
back of new products launches, leveraging tie-up and strengthening western and southern
operations
Cables: Revenue improved 13% YoY led by 6% YoY and 7% YoY growth in volume and value
in 4QFY18, respectively owing to sharp improvement in underground cables and household
wires. Revenue grew by 9% in FY18 purely driven by pricing, as volume remained flat.
Margin improved by 420bps YoY to 17.1%.
Exhibit 30: Cables & Wires – Revenue up 13% YoY Exhibit 31: Cables & Wires – Strong YoY Margin Expansion
10,000 40 1,500 23
32.1
19.9
8,000 30 1,200 20
21.4 19.5
17.5 18.6 17.4 17.1 17.1
13.4 20
6,000 11.3 900 17
(Rs mn)
(Rs mn)
6.1 7.0 14.7 14.2

4.2
1.8 1.8
10 13.6 14.1
12.7 12.9
4,000
(5.0)
600
12.0 11.8 12.1 12.6 11.9 11.9
14
0 11.0
(8.4)
(10.9) 300 11
2,000 (10)
- (20) - 8
1Q FY15
1Q FY16
1Q FY18
2Q FY15
3Q FY15
4Q FY15
2Q FY16
3Q FY16
4Q FY16
2Q FY18
3Q FY18
4Q FY18
1Q FY17
2Q FY17
3Q FY17
4Q FY17
1Q FY15
1Q FY16
1Q FY18
2Q FY15
3Q FY15
4Q FY15
2Q FY16
3Q FY16
4Q FY16
2Q FY18
3Q FY18
4Q FY18
1Q FY17
2Q FY17
3Q FY17
4Q FY17
Cable & Wire Sales Sales growth (%, RHS) Cable & Wire EBIT Margin (%)
12
CMP* (Rs) 559

Looking ahead, we expect this segment to clock 12% CAGR over FY18-20 on the back of
robust household and industrial demand.
Lighting: Lighting revenue grew by 20% YoY led by strong replacement demand for
technology upgrade to LEDs and wide distribution reach. The Management is looking at
~30% margin in FY19E, from 30.9% in 4QFY18 led by adjustments of warranty provisioning.
Exhibit 32: Lighting – Revenue up 20% YoY Exhibit 33: Lighting – Margin at All-time High
3,600 28.6 27.7 32 1,200 30.9 32
23.3 1,000 30
3,000 21.0 20.4 24 28.5 28.6 28.5
27.6 27.3
2,400 15.2 15.6 800 26.9 26.6 27.0 28
13.9 26.0
11.6 16 25.7
(Rs mn)
(Rs mn)
1,800 7.7 600 24.6 24.5 24.9 26

6.3 5.4 8
1,200 1.7 400 22.5 24
0.3
(2.9) 0 21.4
600 200 22
(5.7)
- (8) - 20
1Q FY15
1Q FY16
1Q FY18
2Q FY15
3Q FY15
4Q FY15
2Q FY16
3Q FY16
4Q FY16
2Q FY18
3Q FY18
4Q FY18
1Q FY17
2Q FY17
3Q FY17
4Q FY17
1Q FY15
1Q FY16
1Q FY18
2Q FY15
3Q FY15
4Q FY15
2Q FY16
3Q FY16
4Q FY16
2Q FY18
3Q FY18
4Q FY18
1Q FY17
2Q FY17
3Q FY17
4Q FY17
Lighting & Fixtures Sales Sales growth (%, RHS) Lighting & Fixtures EBIT Margin (%)
Looking ahead, we expect lighting segment to clock 13% CAGR over FY18-20 led by
introduction of innovative products, and governments thrust on local manufacturing which
will help Havells to expand its products portfolio.
ECD: ECD revenue grew by a robust 20% YoY in 4QFY18 on the back of improved market
share in fans and water heaters segment led by new launches and increased deeper
penetration. Notably, fans revenue grew by 18% in FY18, while industry growth remained
flat. Water heater revenue grew by 10% YoY, while the industry witnessed a decline. Small
home appliances also gained traction albeit on low base. Havells launched new products
i.e. water purifiers in FY18, which witnessed encouraging initial response. Margins improved
by 270bps YoY to 27.2% in 4QFY18.
Exhibit 34: ECD – Revenue up 20% YoY Exhibit 35: ECD – Margin Declines on QoQ Basis
5,000 24.9 25.1 24.6 26.5 28 1,400 32
24.0
21.2 21.2 21.0 1,200 29.6
19.0 19.5 30
4,000 21
1,000 27.9 27.8
27.2 28
11.7 26.6
3,000 14 800
(Rs mn)
25.5 25.2
(Rs mn)
7.8 25.4 25.2 25.2

7.2 24.9 24.4 24.5 26
5.5 4.2 600
2,000 7 23.6
1.6 24
400 22.2
21.8
1,000 0 22
200
- (7) - 20
1Q FY15
1Q FY16
1Q FY18
2Q FY15
3Q FY15
4Q FY15
2Q FY16
3Q FY16
4Q FY16
2Q FY18
3Q FY18
4Q FY18
1Q FY17
2Q FY17
3Q FY17
4Q FY17
1Q FY15
1Q FY16
1Q FY18
2Q FY15
3Q FY15
4Q FY15
2Q FY16
3Q FY16
4Q FY16
2Q FY18
3Q FY18
4Q FY18
1Q FY17
2Q FY17
3Q FY17
4Q FY17
Electrical Consumer Durables Sales Sales growth (%, RHS) Electrical Consumer Durables EBIT Margin (%)
The segment clocked ~20% CAGR during FY11-18 led by introduction of new products and
rising market share in premium fan segment. Looking ahead, we expect the segment to
clock 16% CAGR through FY18-20%.
13
CMP* (Rs) 559

Outlook & Valuation

Looking ahead, we expect Havells’ revenue and PAT to clock 15% and 24% CAGR, respectively
through FY18-20E led by new products, up-tick in industrial activity and acquisition of Lloyd’s
CD business. With strong cash flow from core business and healthy balance sheet in place,
we believe incremental scalability post Lloyd acquisition and launch of premium products
would help Havells to report improved performance in the long-term, while likely up-tick in
discretionary spend over the medium-term. We initiate coverage on Havells with a BUY
rating and Target Price of Rs650.
Exhibit 36: Trading at 1+SD Exhibit 37: Continues PE Expansion

45 650 50
40 45
550
35 40
450
30 35
350 30
25
25
20 250
20
15 150
15
10
50 10
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-11
Nov-17
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-18
Mar-11
Jul-17
Mar-17
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Dec-17
Jun-11
Jun-17
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-18
Mar-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Mar-17
Sep-11
Sep-17
Fwd PE Mean 1+SD 1-SD Price TTM Mean PE
Exhibit 38: Revenue CAGR of 18% during FY10-18 Exhibit 39: EBITDA CAGR of 17% during FY10-18
120,000 30
18,000 14.0
25 25 13.6 13.6
100,000 25 13.3
15,000 13.5
13.1 13.1
80,000 20
16 17 17 12,000 12.7 13.0
12.6 12.7 12.7
12.6
(Rs mn)
14
(Rs mn)
60,000 13 12 15
12 9,000 12.5
11 10
40,000 10 6,000 11.8 12.0
108,337
42,250
82,603
92,833
24,735
57,754
20,000 5
52,387
36,156
65,861
28,817
47,197
3,000 11.5
10,493
14,700
12,152
3,406
8,340
7,549
4,557
5,357
3,108
6,416
6,991
- - - 11.0
FY19E
FY20E
FY10
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
FY10
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
FY19E
FY20E
Revenue Growth (%, RHS) EBITDA Margin (RHS)
Exhibit 40: PAT CAGR of 15% during FY10-18 Exhibit 41: ROE & ROCE
12,000 70 35
57 30
60 30
10,000 26 27
2424 25
50 25 24 24 23 24 23 23
22 22
8,000 20 20 21
40 19 19
20 18 17
29 16
(Rs mn)
6,000 26 30
22 24 23
15
17 17
20
4,000 10 10
6 10
2,000 (3) 5
10,691
2,282
3,054
4,649
5,096
8,665
7,006
5,967
4,787
2,415
3,714
-
-
- (10)
FY10
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
FY19E
FY20E
FY19E
FY20E
FY10
FY12
FY13
FY14
FY15
FY16
FY18
FY11
FY17
ROE (%) ROCE (%)

PAT Growth (%, RHS)

14
CMP* (Rs) 559

Key Risks
ff Lower consumption demand and lower discretionary spending.
ff Substantial rise in commodity prices and inability to pass on the same.
ff Delayed synergistic benefits of Lloyd integration.
Company Overview
Havells India – founded in 1983 – is one of the largest electrical equipment companies in
India. Its range of products and services includes industrial and household circuit protection
switchgear, industrial/domestic cables and wires, motors, fans, power capacitors, LED
lamps, lighting for domestic/commercial/industrial applications, modular switches,
wiring accessories, home and kitchen appliances and energy meters i.e. static and
electromechanical meters. It has 12 manufacturing plants across 7 locations in India and
23 branches/representative offices with >6,000 professionals in >50 countries. It has a
network of 7,500 direct dealers and 1 lakh retailers and owns 398 exclusive stores under the
brand Galaxy across India. Havells owns some of the most prestigious Indian brands like
Havells, LLoyd, Crabtree, Standard Electric and Promptech, while ~90% of revenue comes
from in-house production.
Exhibit 42: Top Management Exhibit 43: Shareholding
Members Designation Holding (%)
Anil Rai Gupta CMD QRG Enterprises 30.4
QRG Investments 11.0

Surjit Kumar Gupta Non Executive
Nalanda India Equity Fund 5.3
Ameet Kumar Gupta Executive Whole-time Director Gupta Vinod 5.0
Gupta Anil 4.9

Rajesh Kumar Gupta Group CFO
Gupta Surjit 4.6
Avinash Prakash Gandhi Independent Director Government Pension Fund - Global 2.8
Gupta Qimat Rai 2.2

Sunil Behari Mathur Independent Director
Norges Bank 2.1
Vijay Kumar Chopra Independent Director Capital Research Global Investor 1.4
Surendar Kumar Tuteja Independent Director Vanguard Group Inc 1.3
Blackrock Fund Advisors 1.2

Dr Adarsh Kishore Independent Director
Capital World Investors 1.2
Pratima Ram Independent Director Tiaa Cref Int Eq Fund 1.1
Sbi Funds Management 1.0

TV Mohandas Pai Non Executive, Non-Independent
Mirae Asset Global Inv India 1.0
Puneet Bhatia Non Executive, Non-Independent Dsp Blackrock Investment Manager 0.9
Gupta Shalini 0.6
15
CMP* (Rs) 559

Profit & Loss Statement

Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E
Net Sales 65,861 82,603 92,833 108,337
Total operating income 65,861 82,603 92,833 108,337
Growth (%) 14.0 25.4 12.4 16.7
Total Expenditure 57,521 72,110 80,680 93,638
Cost of Materials 36,485 49,808 56,758 65,761
Employee costs 5,008 6,497 7,241 8,125
Others 16,028 15,805 16,681 19,751
EBITDA 8,340 10,493 12,152 14,700
Growth (%) 10.5 25.8 15.8 21.0
EBITDA Margin (%) 12.7 12.7 13.1 13.6
Depreciation 1,196 1,395 1,492 1,596
EBIT 7,144 9,098 10,661 13,104
EBIT Margin (%) 10.8 11.0 11.5 12.1
Growth (%) 9.9 27.4 17.2 22.9
Interest 122 240 162 162
Other Income 1,243 1,170 1,537 1,907
Exceptional items (578) 119 - -
PBT 8,265 10,028 12,035 14,848
Growth (%) 17.0 21.3 20.0 23.4
Tax 2,298 3,022 3,370 4,158
Effective Tax rate (%) 27.8 30.1 28.0 28.0
Adjusted PAT 5,967 7,006 8,665 10,691
Fully Diluted EPS (Rs) 9.5 11.2 13.9 17.1
Growth (%) 17.1 17.4 23.7 23.4
Reported PAT 6,546 6,887 8,665 10,691
16
CMP* (Rs) 559

Balance Sheet
Share capital 625 625 625 625
Reserves 32,115 36,766 41,099 46,444
Net worth 32,740 37,391 41,724 47,069
Total borrowings 1,981 1,080 1,080 1,080
Long term liability & Provision 107 471 471 471
Deferred tax 1,138 2,070 2,070 2,070
Total liabilities 35,965 41,012 45,345 50,690
Gross block 16,862 27,885 29,837 31,926
Less: Acc. depreciation 2,108 3,503 4,995 6,591
Net block 14,754 24,382 24,842 25,334
CWIP 119 241 216 195
Goodwill - 3,105 3,105 3,105
Investments 4,450 955 955 955
Current assets 31,749 36,740 42,169 49,744
Inventories 9,284 16,217 16,532 17,809
Debtors 2,285 3,254 3,815 4,452
Cash 19,375 15,261 19,533 24,812
Loans and advances 60 80 254 297
Other Current Assets 744 1,929 2,035 2,375
Current liabilities 14,005 22,870 24,162 26,713
Provisions 1,102 1,541 1,780 1,929
Net current assets 16,642 12,330 16,227 21,101
Total Assets 35,965 41,012 45,345 50,690
17
CMP* (Rs) 559

Cash Flow Statement

PBT 8,265 10,028 12,035 14,848
Add: Depreciation 1,196 1,395 1,492 1,596
Add: Interest 122 240 162 162
Less: taxes paid (2,298) (3,022) (3,370) (4,158)
Add: other adjustments 2,869 3,628 - -
Less: working capital changes 2,385 198 375 404
Total operating cash flows 12,540 12,467 10,694 12,853
Cash flow from investing activity

Capital expenditure (3,446) (11,145) (1,928) (2,067)
Change in investments 177 3,495 - -
Change in Goodwill - (3,105) - -
Total investing cash flow (3,269) (10,754) (1,928) (2,067)
Cash flow from financing activity

Change in borrowings 1,981 (901) - -
Dividend (5,407) (4,687) (4,333) (5,345)
Interest payment (122) (240) (162) (162)
Total financing cash flow (3,548) (5,827) (4,495) (5,507)
Net change in cash 5,723 (4,114) 4,272 5,279

Opening cash & CE 13,652 19,375 15,261 19,533
Closing cash & CE 19,375 15,261 19,533 24,812
Key Ratios
Y/E Mar FY17 FY18 FY19E FY20E
Valuation Ratio (x)
P/E 58.5 49.9 40.3 32.7
P/CEPS 48.7 41.5 34.3 28.4
P/BV 10.7 9.3 8.4 7.4
Dividend yield (%) 1.5 1.3 1.2 1.5
EV/Sales 5.0 4.0 3.6 3.0
EV/EBITDA 39.3 31.8 27.1 22.1
Per Share Data (Rs)
EPS 9.5 11.2 13.9 17.1
Cash EPS 11.5 13.5 16.3 19.7
DPS 8.7 7.5 6.9 8.6
Book Value 52.5 59.9 66.9 75.4
Returns (%)
RoCE 23.3 25.0 26.9 29.6
RoE 16.5 19.1 20.8 22.7
Turnover ratios (x)
Asset Turnover (Gross Block) 3.9 3.0 3.1 3.4
Inventory / Sales (days) 51 72 65 60
Receivables (days) 13 14 15 15
Payables (days) 78 101 95 90
Cash conversion cycle (days) (13) (15) (15) (15)
18
CMP* (Rs) 559

Rating Guides
Rating Expected absolute returns (%) over 12 months
BUY >10%
HOLD -5% to 10%
REDUCE >-5%
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Institutional Equity Research

CMP* (Rs) 559

Havells India Upside/ (Downside) (%)

Getting Deeper into Homes...

Portfolio Expansion & Niche Strategy to Drive Growth 520

Outlook & Valuation

Key Financials (Rs mn) FY17 FY18 FY19E FY20E

Havells India Upside/ (Downside) (%) 16 BUY

Exhibit 1: Products profile

Source: Company, RSec Research

Havells India Upside/ (Downside) (%) 16 BUY

Exhibit 4: Operating Margin Trend (FY11-18) Exhibit 5: Significant Improvement in RoCE

15.0 150 128 121

Source: Company, RSec Research

MCB & EWA Segment Cables Flexible Cables

Source: Company, RSec Research

Havells India Upside/ (Downside) (%) 16 BUY

Source: Company, RSec Research

Switchgears Growth (%) Switchgears EBIT Margin (%)

Source: Company, RSec Research

II. Cables & Wires Segment

Havells India Upside/ (Downside) (%) 16 BUY

Source: Company, RSec Research

III. Lighting & Fixtures Segment

Source: Company, RSec Research

Havells India Upside/ (Downside) (%) 16 BUY

Exhibit 16: Key Trends in LED Lighting in India

Key growth drivers Key barriers Emerging trends

Government is supporting adoption of LED Specifiers management & ESCOs will

Source: Company, RSec Research

IV. Electrical Consumable Durables (ECD) Segment

Product Market Market Positioning Existence Competitors Electonic Consumer Durable

Source: Company, Industry, RSec Research

Havells India Upside/ (Downside) (%) 16 BUY

Exhibit 19: Growth Strategy of Fans: 4 Pillars of Growth

ff First Mettalic, ES, Electro ff Fully integrated

ff Existing tier 1-2 ff Reginal focus

Source: Company, RSec Research

Havells India Upside/ (Downside) (%) 16 BUY

Portfolio Expansion & Niche Strategy to Drive Growth

Year Product Acquisition/ Company

Source: Company, RSec Research

Exhibit 22: Industry Size Exhibit 23: Product Penetration

2011 2018 2021E Penetration (%)

Source: Company, Industry, RSec Research

Havells India Upside/ (Downside) (%) 16 BUY

Exhibit 24: Key Milestone

Havells continues to maintain strong focus on expanding distribution network, which

Source: Company, RSec Research

Havells India Upside/ (Downside) (%) 16 BUY

Lloyd Acquisition – New Growth Avenue

Exhibit 27: Foray into Consumer Durable Segment Lloyds Acquisition

Source: Company, RSec Research

Havells India Upside/ (Downside) (%) 16 BUY

Havells India Upside/ (Downside) (%) 16 BUY

4QFY18 Segmental Performance

(4.6)(4.5) (3.4) 0 29.7 31

Source: Company, RSec Research

6.1 7.0 14.7 14.2

Source: Company, RSec Research

Havells India Upside/ (Downside) (%) 16 BUY

1,800 7.7 600 24.6 24.5 24.9 26

Source: Company, RSec Research