sector thematic appliances - looking beyond nea… · v-guard - v-guard has expanded aggressively...

Sector Thematic

Appliances

Looking beyond near-term disruption

In the current unprecedented time, when COVID-19 has impacted all

consumption categories, consumer durables (CD) have also witnessed immense

pressure. In such a phase, where earnings may see high volatility in the near term,

we are trying to analyse the underlying strength of categories and companies. Our

CD universe has clocked 10x and 18x revenue and EBITDA in the past 17 years.

We believe the sector still has multi-year strong growth potential, which would

be driven by (1) penetration, (2) product diversification, (3) market share gains, (4)

shift from unorganised to organised, (5) high scope in rural and (6) largely

untapped global opportunity. The government’s consistent ‘Make in India’ push

is further making the sector attractive, opening up various possibilities of

manufacturing incentives. The sector is trading at 42x P/E (one-year forward),

having seen a sharp re-rating in the past 10 years (20x in 2010). We believe

category winners will further gain market share in the current phase and

command valuation premiums. We maintain our ADD rating on HAVELLS,

VOLTAS and CROMPTON and REDUCE rating on V-GUARD and

SYMPHONY. We initiate coverage on TTK PRESTIGE with an ADD.

Naveen Trivedi Appliances, FMCG & Alco Bev

[email protected]

+91-22-6171-7324

Aditya Sane Appliances, FMCG & Alco Bev

[email protected]

+91-22-6171-7336

27 July 2020 Sector Thematic

Appliances

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Looking beyond near-term disruption In the current unprecedented time, when COVID-19 has impacted all consumption categories, consumer durables (CD) have also witnessed immense pressure. In such a phase, where earnings may see high volatility in the near term, we are trying to analyse the underlying strength of categories and companies. Our CD universe has clocked 10x and 18x revenue and EBITDA in the past 17 years. We believe the sector still has multi-year strong growth potential, which would be driven by (1) penetration, (2) product diversification, (3) market share gains, (4) shift from unorganised to organised, (5) high scope in rural and (6) largely untapped global opportunity. The government’s consistent ‘Make in India’ push is further making the sector attractive, opening up various possibilities of manufacturing incentives. The sector is trading at 42x P/E (one-year forward), having seen a sharp re-rating in the past 10 years (20x in 2010). We believe category winners will further gain market share in the current phase and command valuation premiums. We maintain our ADD rating on HAVELLS, VOLTAS and CROMPTON and REDUCE rating on V-GUARD and SYMPHONY. We initiate coverage on TTK PRESTIGE with an ADD. COVID lockdown puts pressure on demand, supply chains: The lockdown

has put immense pressure on supply chains and consumer demand over thepast 3-4 months. The lockdown was imposed in the peak summer season,affecting the offtake of cooling products heavily. Trade partners wereconscious of building up inventory in May-June, thereby, trade inventory isnot alarming for RAC but high for air coolers (as per our channel checks).Other categories are gradually improving with sequential improvements inMay-June. However, growth in FY21 remains uncertain as the past twomonths have also witnessed channel filling.

Strong history; opportunity attraction the same: In the past 17 years, theCD universe (ex-recent listed companies like Dixon, Amber and Polycab)has posted 10x and 18x growth in revenue and EBITDA respectively. Mostcompanies have, in this period, capitalised on India’s rising per capitaincome, consumer attraction to branded goods, better availability ofelectricity, low penetration, and increasing avenues of consumer finance. Webelieve this growth trend for branded players would remain strong even inthe coming years. India’s structural story remains intact.

Prudent move from seasonal to secular business: Companies have focusedon multi-dimensional diversification to avoid high dependence onseasonality, region, trade channel, and price segment. The dependence onrevenue from a single quarter has reduced significantly over the years(link). Companies like Havells, V-Guard, TTK Prestige, and Orient Electrichave clocked revenue expansion of 40x/22x/21x/14x over the past 17 years. Itimproves predictability, which is essential for valuation re-rating.

Category classification into five buckets: In this thematic, we have brokendown the CD sector into five big buckets to get a clear understanding ofeach of them and analyse how companies are expanding their addressablemarkets. The top-15 listed consumer durable companies combinedcontribute ~Rs 700bn (40% of the universe’s size) with a high revenue mixfrom the cooling products and electrical goods buckets (link). We havefurther explained the revenue mix of companies from each bucket

Rich valuations to sustain: Although earnings can be volatile in the nearterm, rich valuations would sustain, in our view. Further, category winnershold the potential for quick turnarounds; therefore, the near-term disruptionoffers a good entry point.

Company CMP (Rs)

TP (Rs)

Reco.

Havells 604 610 ADD

Voltas 594 625 ADD

Crompton 252 275 ADD

V-Guard 169 157 REDUCE

Symphony 848 828 REDUCE

TTK Prestige 5,509 6,000 ADD

Sector P/E (12-month Rolling Forward)

CD Universe: Earnings vs. Valuation

Naveen Trivedi [email protected] +91-22-6171-7324

Aditya Sane [email protected] +91-22-6171-7336

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

50x

-40

-20

0

20

40

60

80

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

E

EPS Gr (%) P/E (x)(%)

Page | 2

Appliances: Sector Thematic

Focus Charts CD Universe: Revenue Performance CD Universe: EBITDA Performance

Source: Companies, Bloomberg, HSIE Research Source: Companies, Bloomberg, HSIE Research

CD Universe: Gross and EBITDA Margin CD Universe: EBITDA Performance

Source: Companies, HSIE Research Source: Companies, HSIE Research

CD universe: player-wise revenue performance CD universe: player-wise EBITDA performance


-60%

-10%

40%

90%

140%

-

20

40

60

80

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

EBITDA YoY Growth (%) Avg(Rs bn)

21%CAGR

-10%

-3%

4%

11%

18%

25%

32%

-

200

400

600

800

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

Revenue YoY Growth (%) Avg(Rs bn)

15%CAGR

0%

8%

16%

24%

32%

40%

Baja

j Ele

ct.

Joh-

Hita

chi

Cro

mpt

on

Whi

rlpoo

l

Vol

tas

V-G

uard

Blue

Sta

r

TTK

Orie

nt E

lect

Poly

cab

Hav

ells

IFB

Sym

phon

y

Am

ber

Dix

on

5 Yr CAGR 3 Yr CAGR 5 Yr Avg

0%

11%

22%

33%

44%

Baja

j Ele

ct.

Joh-

Hita

chi

Cro

mpt

on

Whi

rlpoo

l

Vol

tas

V-G

uard

Blue

Sta

r

TTK

Orie

nt E

lect

Poly

cab

Hav

ells

IFB

Sym

phon

y

Am

ber

Dix

on


0%

2%

4%

6%

8%

10%

12%

26.0%

28.0%

30.0%

32.0%

34.0%

36.0%

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

Gross Margin (%) EBITDA Margin (%)

-4%

-2%

0%

2%

4%

6%

8%

(10)

-

10

20

30

40

50

60

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

APAT NPM (%)(Rs bn)

Page | 3


CD aggregate growth

Source: Companies, HSIE Research Note: Excluding Amber and Dixon

Sector P/E (12-month Rolling Forward) CD Universe: Earnings vs. Valuation


CD universe: profit mix CD universe: market cap mix


9%

19% 18%15% 14%

16%

21%

10%

18%

12%

8%

-9%

12%

21%

16%13%

6%

-12%

-6%

0%

6%

12%

18%

24%1Q

FY1

8

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1QFY

20

2QFY

20

3QFY

20

4QFY

20

FY16

FY17

FY18

FY19

FY20

9%

19% 18%15% 14%

16%

21%

10%

18%

12%

8%

-9%

12%

21%

16%13%

6%

-12%

-6%

0%

6%

12%

18%

24%1Q

FY1

8

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1QFY

20

2QFY

20

3QFY

20

4QFY

20

FY16

FY17

FY18

FY19

FY20

Havells, 18%

Polycab, 17%

Whirlpool, 13%Voltas, 12%

Crompton, 11%

V-Guard, 5%

TTK , 5%

Dixon, 4%

Blue Star, 3%

Symphony, 3%

Amber, 3%

Orient Ele, 2%

Hitachi, 2% Bajaj Elec, 2%

IFB, 0%

Havells, 22%

Polycab, 7%

Whirlpool, 17%

Voltas, 12%

Crompton, 9%

V-Guard, 4%

TTK , 5%Dixon, 5%

Blue Star, 3%

Symphony, 4%

Amber, 3%Orient Ele,

2%


IFB, 1%

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

50x

-40

-20

0

20

40

60

80

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

E

EPS Gr (%) P/E (x)(%)

15

23

31

39

47

55

Jul-10 Jul-12 Jul-14 Jul-16 Jul-18 Jul-20

Appliance Sector P/E (x) 10 Years' Avg P/E (x)5 Years' Avg P/E (x) 3 Years' Avg P/E (x)

CurrentP/E: 42x

Page | 4


Valuation Summary

Companies MCap (Rs bn)

CMP (Rs) Reco.

TP (Rs)

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E

Havells 361 604 ADD 610 10.2 14.3 17.1 56.6 40.5 33.7 35.0 26.2 21.9 17.8 24.8 29.6

Voltas 196 594 ADD 625 13.1 19.7 22.5 45.3 30.1 26.5 39.8 25.4 18.8 16.1 25.2 30.4

Crompton 158 252 ADD 275 6.0 7.5 8.8 42.0 33.7 28.7 29.9 24.4 20.7 31.5 35.5 38.4

V-Guard 72 169 REDUCE 157 4.1 5.0 5.7 41.6 33.7 29.4 30.0 24.5 21.3 17.4 21.3 22.6

Symphony 59 848 REDUCE 828 19.0 26.3 31.5 44.7 32.2 27.0 36.1 25.5 22.1 25.8 38.3 45.4

TTK Prestige 76 5,509 ADD 6,000 137.2 163.2 187.4 40.2 33.8 29.4 25.7 21.3 18.3 20.8 25.0 27.0

Change in Estimate, Rating and TP

Company Old Rating New Rating Old TP New TP Old Target multiple (x)

New Target multiple (x)

Old EPS New EPS Est Chg (%)

FY21E FY22E FY21E FY22E FY21E FY22E

Havells ADD ADD 515 610 36 40 10.7 14.2 10.2 14.3 (4.5) 0.5

Voltas ADD ADD 551 625 28 32 13.1 19.3 13.1 19.7 0.1 2.3

Crompton ADD ADD 221 275 30 35 6.2 7.4 6.0 7.5 (3.2) 1.0

V-Guard REDUCE REDUCE 145 157 28 30 4.2 5.1 4.1 5.0 (2.3) (1.9)

Symphony REDUCE REDUCE 867 828 30 30 22.5 28.9 19.0 26.3 (15.7) (8.9)

TTK Prestige na ADD na 6,000 na 35 na na 137.2 163.2 na na

1QFY21E Preview

Companies NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs/sh)

1Q FY21E

QoQ (%)

YoY (%)

1Q FY21E

QoQ (%)

YoY (%)

1Q FY21E

QoQ (bps)

YoY (bps)

1Q FY21E

QoQ (%)

YoY (%)

1Q FY21E

4Q FY20

1Q FY20

Havells 14.2 (35.9) (47.7) 1.0 (59.2) (63.7) 7.1 (402) (311) 0.6 (67.3) (66.7) 0.9 2.8 2.8

Voltas 10.8 (48.3) (59.3) 0.5 (76.0) (84.2) 4.3 -492 -671 0.4 (72.4) (77.1) 1.3 4.9 5.9

Crompton 8.0 (21.8) (40.9) 0.9 (35.8) (53.7) 11.2 (244) (310) 0.6 (37.5) (49.1) 1.0 1.6 2.0

V-Guard 3.9 (27.6) (44.5) 0.3 (24.7) (52.2) 8.8 34 (141) 0.3 (21.7) (51.5) 0.6 0.8 1.2

Symphony 0.4 (71.3) (72.4) (0.0) (105.5) (111.3) (6.1) (3,795) (2,113) 0.1 (88.8) (79.9) 0.7 6.6 3.7

TTK Prestige

2.7 (29.7) (37.8) 0.3 (10.1) (43.8) 11.7 256 (126) 0.2 11.1 (36.5) 16.7 15.0 26.3

Aggregates 40.0 (37.5) (50.0) 3.0 (57.7) (67.3) 7.4 (357) (392) 2.2 (59.3) (63.9)

Source: Companies, HSIE Research

Page | 5


Contents CD Universe – Multi-year growth opportunity ............................................................... 6

Strong history, long term opportunity .......................................................................... 6 Catalysts of multi-year growth opportunity .............................................................. 11 CD companies becoming seasonal to secular business ............................................ 14 Indian consumption story remains intact................................................................... 15

CD Universe – FY21 a disruptive year ............................................................................. 16 Lockdown-led disruption continues in the near term .............................................. 16 COVID creating near term uncertainties ................................................................... 18 Mild summer with weak consumer offtake ............................................................... 19 Sector recovery expected in FY22 ................................................................................ 20

Category Mapping - Cooling and OEM were best in FY20 ......................................... 22 Category-wise revenue and EBIT performance ......................................................... 22

CD Universe: Sector Valuation ........................................................................................ 28 Sector valuation ............................................................................................................. 28 Stock returns .................................................................................................................. 29 CD universe: Company wise valuation trend ........................................................... 29 Companies P/E bands ................................................................................................... 30

Companies Havells............................................................................................................................. 32 Voltas ............................................................................................................................... 36 Crompton Consumer ................................................................................................... 40 Symphony ....................................................................................................................... 44 V-Guard Industries ........................................................................................................ 48 TTK Prestige .................................................................................................................. 52

Page | 6


CD Universe: Multi-year Growth Opportunity Strong history, long term opportunity Our Consumer Durable (CD) universe (excluding Telecom and IT) is around Rs 1,700bn, which has been growing at a pace of 10-12% over the past 10 years. We have classified this universe into five buckets: (1) Cooling Products, (2) Large Home Appliances, (3) Electrical Construction Material, (4) Electrical Goods, and (5) Kitchenware & KEA. The top-15 listed consumer durable companies combined contribute ~Rs 700bn (40% of the universe’s size) with high revenue mix from the Cooling Products and Electrical Goods buckets.

In this thematic, we are explaining each bucket, and companies’ revenue mix from each bucket. We will have a series of thematic on each bucket to further deep down our analysis (with unlisted companies) and to gauge future trends.

In the past 17 years, the CD universe (ex-recent listed companies like Dixon, Amber and Polycab) has posted 10x and 18x growth in revenue and EBITDA respectively. Companies in the Electrical Construction Material and Electrical Goods buckets which have diversified in other buckets too have done better than single bucket play (barring Symphony). These companies focused on creating one umbrella brand (like Havells, Crompton, and V-Guard) under which they successfully entered other categories. Focus on asset light business model also supported faster growth and expansion in RoCE.

Recap of the past 17 years: Havells, Symphony, V-Guard and TTK capitalised most

Companies Revenue (Rs mn) EBITDA (Rs mn)

FY03 FY20 Growth (x) FY03 FY20 Growth (x)

Voltas 12,555 76,581 6 357 6,867 19

Whirlpool 11,979 59,925 5 646 6,733 10

Blue Star 5,820 53,602 9 762 2,828 4

Crompton 5,339 45,120 8 535 5,965 11

Bajaj Electricals 4,396 49,872 11 41 2,083 51

Havells 2,394 94,283 40 267 10,241 38

Johnson Hitachi 1,982 21,974 11 (93) 1,722 Na

IFB 1,556 26,370 17 (56) 1,208 Na

Orient Electric 1,488 20,618 14 161 1,765 11

V-Guard 1,106 24,820 22 102 2,553 25

TTK Prestige 982 20,730 21 (58) 2,635 Na

Symphony 204 11,030 54 1 2,120 2,280

Aggregate 49,802 504,924 10 2,665 46,719 18 Source: Companies, HSIE Research

We believe the ongoing COVID-19 issue, which has impacted all consumption categories, is also putting immense pressure on the consumer durables segment. In a phase where earnings are expected to see high volatility in the near term, we are trying to examine the underlying strength of categories and companies. In the table (CD universe: multi-year growth opportunity and threat), we have shared our thoughts on each company’s opportunity and threat to understand the multi-year growth opportunity better.

Page | 7


CD universe: Five buckets and companies’ presence

Particulars

Cooling Products

Large Home Appliances

Electrical Construction

Material

Electrical Goods

Kitchenware & KEA

Other Total

RAC, Air Cooler

Ref, W/M, M/W, TV

Panels, etc

Cables, Lighting,

Switchgears, Switches, etc

Fan, Water Heater, Pump,

etc

Mixer, Cooker, KEA, Water Purifier, etc

AC, Air Cooler Ref, W/M, M/W,

TV Panels

Cables, Lighting,

Switchgears, Switches

Fan, Water Heater, Pump,

etc

Mixer, Cooker, KEA, Water

Purifier, Small Appliances

Size (Rs bn) 200 320 820 145 215 1,700 5 Yr Mkt Growth (%) 13-14% 9-10% 10-11% 10-11% 10-11% Category EBITDAM (%) 8-9% 8-9% 10-11% 10-11% 13-15% Penetration Low Medium High High Medium Seasonality High Medium Low Medium Low Opp. from Unorganised Low Low High High High MNC Threat High High Low Low Low

Havells Rev (Rs bn) 12 4 56 18 4 0 94 Rev Mix (%) 13% 4% 59% 20% 4% 0% 100%

Polycab Rev (Rs bn) 1 - 73 7 - 9 90 Rev Mix (%) 1% 0% 81% 8% 0% 10% 100%

Voltas Rev (Rs bn) 38 2 - - - 36 76 Rev Mix (%) 50% 3% 0% 0% 0% 47% 100%

Whirlpool Rev (Rs bn) 4 57 - - 3 - 63 Rev Mix (%) 6% 90% 0% 0% 4% 0% 100%

Blue Star Rev (Rs bn) 18 - - - 5 31 54 Rev Mix (%) 34% 0% 0% 0% 9% 57% 100%

Crompton Rev (Rs bn) 0 - 11 31 3 0 45 Rev Mix (%) 1% 0% 25% 69% 6% 0% 100%

Bajaj Electricals Rev (Rs bn) - - 10 9 12 19 50 Rev Mix (%) 0% 0% 20% 18% 24% 38% 100%

V-Guard Rev (Rs bn) - - 8 16 1 - 25 Rev Mix (%) 0% 0% 32% 64% 4% 0% 100%

Johnson Hitachi Rev (Rs bn) 16 7 - - - - 23 Rev Mix (%) 70% 30% 0% 0% 0% 0% 100%

TTK Prestige Rev (Rs bn) - - - - 19 - 19 Rev Mix (%) 0% 0% 0% 0% 100% 0% 100%

Orient Electric Rev (Rs bn) - - 6 13 2 - 21 Rev Mix (%) 0% 0% 28% 61% 11% 0% 100%

IFB Rev (Rs bn) 3 20 - - - 4 28 Rev Mix (%) 11% 73% 0% 0% 0% 16% 100%

Symphony Rev (Rs bn) 11 - - - - - 11 Rev Mix (%) 100% 0% 0% 0% 0% 0% 100%

Amber Rev (Rs bn) 30 9 - - - - 40 Rev Mix (%) 76% 24% 0% 0% 0% 0% 100%

Dixon Rev (Rs bn) - 25 11 - - 8 44 Rev Mix (%) 0% 57% 26% 0% 0% 17% 100%

Total 134 125 175 94 48 106 683 % of total 20% 18% 26% 14% 7% 16% % of category size 57% 39% 21% 65% 22% 40%


Page | 8


CD universe: multi-year growth opportunity and threat Company Opportunity Threat

Havells

- Lloyd provided an entry in Cooling Products and Large Home Appliance; it expanded the Havells addressable market by Rs 500bn.

- MNC players are serving large Home Appliance (Ref, W/M, M/W). Havells can capitalise on this opportunity by aggressively pushing Lloyd as an Indian product. New Lloyd plant gives better visibility to this theme.

- Several small players still drive kitchenware & KEA. Havells can expand this category and has enough room for market share gain.

- Covid-19 led disruption can impact recovery time for core categories.

- Chinese players have disrupted TV panels market over the last 3 years. Most prominent players have lost market share. It is expected that Chinese players will disrupt the RAC and other large home appliance categories in the medium term. Havells is trying to make Lloyd into a mass premium brand. Thereby, Chinese competition can impact Lloyd’s growth path.

Voltas

- Market leader (24% share in MBOs) in under-penetrated RAC industry gives high visibility of multi-year growth

- Semi-urban and rural markets are the most populated and provide strong growth potential for RAC in the coming years. Voltas can be the outperformer in those markets, by being a mass premium brand, increasing distribution reach in smaller cities and with a consistent focus on its service.

- Volt-Beko provides a significant addressable market opportunity in a category dominated by a few MNCs. Strong manufacturing, coupled with the support of Beko, gives us visibility of high consumer acceptance. Voltas can leverage its distribution for Volt-Beko products.

- Chinese competition

- Higher focus on lowering the dependence of import will require higher in-house manufacturing and local suppliers. It may impact RoCE in the medium term.

- UCP margin was under pressure in the last 2 years led by high competitive pressure. Any incremental competitive pressure mainly from MNC players can be seen as a threat

- EMPS business may see pressure on revenue growth and margin in the near to medium term.

Crompton

- Being the market leader in highly penetrated Fan category may provide limited volume growth upside, but, market share gain and premiumisation scope can continue to drive growth for Crompton. We believe Fan category will eventually see consolidation and top 5 players will become stronger.

- Crompton has become number 2 player in LED lighting in a short period. Crompton’s high brand recall has played a key role in this success.

- Crompton has a high brand recall, but its Appliance revenues are still under indexed. Crompton can leverage its high brand recall and strong distribution network (market leader in high penetrated Fan category) for driving its Appliance business

- Havells and Orient have been aggressive in Fans; both companies can give healthy competition to Crompton

- Lighting margin has been very volatile for Crompton over the last 2 years led by high competitive pressure. Operating margin has stabilised in the last 6 months (with industry-wide price hike), but the predictability of healthy margin is still low.

V-Guard

- V-Guard has expanded aggressively in non-South markets to reduce the company’s dependence on South markets. Revenue mix of non-South was above 40% for the first time in FY20. This presents a huge untapped market for the company to grow into.

- V-Guard is the market leader in most core categories that it operates in the South markets. The company is also looking to consolidate its market share through strategic acquisitions.

- Expansion of distribution reach has been a key focus area for the management, and it envisages adding 3,000-5,000 new retailers each year for the next 5 years, with a higher focus on non-South markets.

- Growth slowed down for the company in FY20 as it faced significant competitive pressure across categories.

- Inventory with channel partners as well as the company increased in 4QFY20 and liquidation of this inventory will be a challenge.

- Channel inventory across the country is expected to shrink in FY21 on account of liquidity constraints, and channel preference for V-Guard in non-South markets remains low.

TTK Prestige

- Market leader in cookers with a growing rural presence and extensive distribution reach.

- TTK Prestige has also stated that the company will be able to stop imports from China in 2020, which will provide it with a stable supply chain.

- Management has continued to focus on product innovation, and the company has a strong presence in E-commerce.

- Shifting of the supply chain from China to India can impact margins adversely.

- Competitive intensity in pressure cookers is high, and since it is a highly penetrated category, the scope for driving growth through penetration is low.

Symphony

- As the market leader in Air Coolers (50% share in the organised market), it could be the key beneficiary of category shifting towards branded air cooler.

- The high share of unorganised players (~70% volume) in Air Coolers provides significant market potential as consumers shift from unorganised to organised players.

- Centralised air cooling is a big opportunity with almost no competition. Symphony can tap this opportunity.

- International subsidiaries provide strong cross-selling opportunities in Mexico, Australia and the US.

- Multiple companies including Voltas, Blue Star and V-Guard have entered Air Coolers, and competitive intensity is likely to increase.

- Air Coolers have a high dependence on summer, and any disruption in April and May can impact revenues for the entire year as Symphony sells during the non-season quarters.

Page | 9


Company Opportunity Threat

Whirlpool

- Strong presence in large home appliances with a dominant market share. Most categories are under-penetrated with a large addressable market.

- Pricing strategy by Whirlpool has been efficient, and the company has seen strong market share gains over the last 3-5 years across most categories.

- Whirlpool also has a strong distribution network, which has aided market share gain.

- Strong domestic players, such as Voltas (Volt-Beko) and Havells (Lloyd) are foraying into the large home appliances category. These players have strong balance sheets and robust distribution networks, which could drive up the competitive intensity in this category.

Blue Star

- Blue Star has a strong presence in RAC with >10% market share and the company has witnessed sustained healthy market share over the years.

- Industrial cooling from the agriculture sector forms a significant part of the UCP segment for Blue Star. With agri economy expected to outperform other sectors, order inflow for Blue Star can recover faster than earlier expected.

- Inventory levels remained high on account of the loss of sales during prime season for channel partners.

- Execution in projects business will be under pressure due to labour mobility issues.

Polycab

- Increase in work from home will lead to an increase in requirement for high-speed internet and better connectivity. It will drive demand for cables & wires over the medium term.

- International and export markets will also present opportunities as global companies look to diversify away from Chinese alternatives.

- Competitive intensity in cables & wires is high in India.

- Volatility in commodity prices can impact margins negatively.

Johnson Hitachi

- Strong brand franchise in RAC which is being used in other large home appliance. The company can do well in Ref which has high replacement demand

- Stiff competition in RAC can impact Hitachi which is not among the first choice for consumers

- Voltas and Havells entry in the large home appliance can impact many players including Hitachi

Amber

- The shift of manufacturing in India as a result of reducing cost and initiatives like Atmanirbhar Bharat will aid Indian OEMs. Govt. incentives can be a big booster for an OEM player like Amber

- Opportunities also exist in the International markets as global companies look to diversify their supply chains and reduce reliance on markets like China.

- Large addressable market due to the growth of consumer durables and smartphones in India driven by penetration.

- Fluctuating commodity prices could put margins under pressure.

- Several companies are opting to set up their own manufacturing plants to improve efficiency.

Bajaj Electricals

- Growth in the consumer products division has been consistent, and the company has a strong presence in non-Metro towns. The rural economy is expected to grow faster than the urban economy in FY21, and Bajaj could be a key beneficiary as a result.

- Increased home cooking will lead to a higher demand for kitchen appliances, where Bajaj enjoys a dominant position.

- Company has high revenue mix from Fans, CD and lighting where the impact is expected to be lower than other categories in FY21.

- EPC business will continue to be a drag on growth as slower order inflow and execution impact the company.

- Competitive intensity in Kitchen Appliances, Fans, and Lighting is impacting market share.

Orient Electric

- Orient enjoys a healthy market share in Fans, and product innovation has continued to drive revenue growth for the company.

- Orient has also diversified into other consumer durable categories, and small appliances are expected to gain salience and drive revenue growth in the medium term.

- Any interruption in the premiumisation trend can put margins under pressure for Orient.

- Any high intensity in lighting can impact its EBIT margin

IFB

- IFB is the market leader in front load washing machines and carries premium brand recall for consumers. Company is trying to leverage the brand franchise to other products which are adding to its addressable market.

- Diversification into newer categories and product innovation can be key drivers for growth in the company.

- The entry of Voltas and Havells in large home appliance can impact IFB in other segments where the company is trying being a more prominent player.

Dixon

- The shift of manufacturing in India as a result of reducing cost and initiatives like Atmanirbhar Bharat will aid Indian OEMs. Govt. incentives can be a big booster for an OEM player like Dixon

- Opportunities also exist in the International markets as global companies look to diversify their supply chains and reduce reliance on markets like China.

- Large addressable market due to the growth of consumer durables and smartphones in India driven by penetration.

- Fluctuating commodity prices could put margins under pressure.

- Several companies are opting to set up their own manufacturing plants to improve efficiency.


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CD universe: Comparative Analysis

Companies

STOCK DETAILS P&L (Rs bn) BS (Rs bn) CF (Rs bn) VALUATION

MCap

(Rs bn)

CMP

(Rs)

STOCK

RETURN (%) PROM.

STAKE

(%)

REV GM EBITDA EBITDAM

(%) APAT

3 YR CAGR (%)

FY17-20 NW

GROSS

DEBT CASH NWC

NWC

Days

Core

CE ROE ROIC OCF FCF

FCF

3 YR

Cum

P/E

(X)

EV/EBITDA

(X)

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(X)

3

M

6

M

1

YR

3

YR

5

YR Rev

EBIT

DA PAT

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20

FY

21E

FY

22E

FY

20

FY

21E

FY

22E

FY

20

FY

21E

FY2

2E

> Rs 100bn

Havells 379 604 11 (6) (16) 27 96 60 94 38 10 11 7.3 15 8 7 43.0 0.4 11.1 0.9 3 36.9 17 21 8.2 4.7 (0.0) 49 57 41 34 35 26 3.7 4.1 3.3

Whirlpool 288 2,268 22 (8) 52 95 208 75 60 39 7 11 4.8 15 11 15 25.5 - 16.6 0.5 4 9.0 20 43 3.8 0.8 5.2 60 63 46 40 42 33 4.5 4.8 4.0

Voltas 197 594 22 (18) 3 19 88 30 77 27 7 9 5.5 8 6 2 42.8 2.2 23.7 12.4 59 21.9 13 22 4.6 3.8 2.7 35 45 30 28 40 25 2.6 3.1 2.4

Crompton 158 252 12 (6) 7 19 na 26 45 31 6 13 4.4 5 7 15 14.7 3.5 5.9 2.3 18 12.3 30 39 4.2 3.7 9.6 36 42 34 26 30 24 3.5 3.8 3.2

Polycab 124 835 14 (19) 40 na na 69 88 31 11 13 7.7 17 33 49 38.5 1.2 3.2 18.3 76 37.4 20 22 2.3 (0.6) 10.6 16 21 16 11 13 10 1.4 1.5 1.3

Rs 50bn -100bn

TTK Prestige 76 5,509 22 (9) (8) 3 65 70 21 42 2.6 13 1.9 6 7 14 13.1 0.2 3.9 3.9 100 8.8 16 20 2.5 2.0 3.5 40 40 34 28 26 21 3.5 3.5 3.0

V-Guard 73 169 1 (25) (26) (6) 155 63 25 32 2.5 10 1.8 6 7 7 9.9 0.1 1.5 5.2 76 8.6 19 20 1.4 0.6 1.7 41 42 34 28 30 24 2.9 3.0 2.5

Dixon 88 7,648 76 75 na na na 36 44 12 2.2 5 1.2 21 35 36 5.4 0.8 1.0 1.8 15 6.3 26 26 2.4 1.3 0.4 73 67 44 40 37 26 2.0 1.8 1.4

Symphony 60 848 (5) (33) (30) (40) (9) 75 11 47 2.1 19 1.8 13 2 2 6.4 1.7 4.4 1.1 35 3.7 28 42 1.6 0.3 2.7 33 45 32 27 36 25 5.1 6.5 5.3

Johnson-Hitachi 58 2,124 4 (12) 34 6 40 74 22 36 1.7 8 0.8 5 1 1 6.9 1.6 0.2 4.6 76 9.2 13 9 1.4 0.3 (0.9) 69 76 64 34 38 32 2.7 3.0 2.5

Rs 20bn - Rs 50bn

Bajaj Electricals 47 416 24 12 5 26 54 63 50 33 2.1 4 (0.1) 5 (5) na 13.5 7.4 1.0 13.8 101 21.2 (1) (8) 6.0 6.0 (2.2) (460) 63 32 26 23 20 1.1 1.1 1.0

Blue Star 47 489 (12) (41) (34) (27) 47 39 54 25 2.8 5 1.4 7 8 5 7.8 4.5 2.9 2.1 14 9.2 17 14 4.6 3.8 4.8 33 38 28 17 20 16 0.9 1.0 0.9

Amber 47 1,482 39 10 88 na na 44 40 17 3.1 8 1.6 34 33 95 11.6 3.2 1.2 3.5 32 15.2 15 14 2.9 1.5 (0.1) 28 43 24 16 17 12 1.2 1.3 1.0

Finolex Cables 42 272 20 (18) (8) (26) 67 36 29 28 3.8 13 3.9 6 (1) (1) 30.0 0.0 11.8 6.5 83 19.9 14 13 2.6 2.6 5.7 11 14 11 8 6 6 1.0 1.3 1.1

Orient Electric 39 182 (1) (14) 21 na na 39 21 33 1.8 9 0.8 15 14 11 3.6 0.9 0.1 3.0 59 5.1 24 21 1.3 0.8 2.4 49 45 33 22 23 19 1.9 1.9 1.6

KEI Industries 33 369 31 (33) (20) 58 262 41 49 31 5.0 10 2.6 23 23 40 15.1 3.2 2.1 10.8 81 16.6 22 25 (0.1) (0.9) 5.3 13 17 11 7 8 6 0.7 0.8 0.6

Hawkins 22 4,107 (12) (4) 44 31 61 56 7 57 1.0 15 0.7 9 12 15 1.4 0.3 0.5 0.8 44 1.2 56 63 0.7 0.6 1.1 30 29 25 21 20 17 3.2 3.1 2.7

La Opala 22 195 3 10 11 (23) (9) 66 3 84 1.0 39 0.8 5 6 11 5.5 0.0 0.0 3.3 116 5.7 17 14 0.7 0.4 1.2 26 - - 21 - - 8.0 - -

<Rs 20bn

IFB Industries 16 388 (9) (44) (46) (47) (23) 75 26 43 1.2 5 0.2 6 (9) (32) 6.5 2.9 2.8 0.9 12 7.5 4 4 1.9 (0.7) (0.8) 65 (133) 28 13 15 12 0.6 0.6 0.6

Surya Roshni 7 124 22 (37) (39) (59) (15) 63 55 23 3.5 6 1.0 12 4 6 12.4 10.3 0.0 12.7 96 24.0 9 8 2.9 2.4 3.4 7 - - 5 - - 0.3 - -

Butterfly 2 129 21 (53) (19) (31) (31) 65 7 43 0.4 6 0.0 19 (9) (25) 1.9 1.6 0.0 1.7 100 3.5 2 8 0.2 0.1 0.3 58 - - 9 - - 0.6 - -

Source: Bloomberg, Companies, HSIE Research

Page | 11


Catalysts of multi-year growth opportunity We believe CD sector has multi-dimensional growth potential and it gives us the confidence on longevity of growth potential. The main catalysts of the multi-year growth opportunity are (A) Penetration, (B) production diversification, (C) market share gain, (D) shift from unorganised to organised, (E) high scope in rural and (F) large untapped global opportunity.

A. Low penetration leaves plenty of headroom for growth: Most consumer durable categories are urban-centric with low penetration levels. In fact, their penetration in rural areas is quite low. However, electrification in rural areas is likely to drive higher penetration over the next few years. Additionally, rapid migration of labour and capital from urban areas to rural areas will also drive the consumption of consumer durables in rural areas. We believe there is massive headroom for growth, and the existing players with a strong distribution reach in rural areas would be the key beneficiaries.

China Penetration Story for Appliance Low penetration of appliance in India vs. global

Source: Amber RHP, HSIE Research Source: Industry, Amber RHP, HSIE Research

B. Category and product diversification (FCF redeployment) new growth drivers: Market-leading consumer durable companies have a high focus on working capital management, which has led to a healthy generation of FCF. Reinvestment opportunities for FCF present themselves in the form of product diversification. Companies like Havells (Lloyd) and Voltas (Volt-Beko) have already built a presence across most categories in consumer durables. We expect this trend to accelerate as more companies diversify their portfolios and enter new categories.

Moreover, most consumer durable companies are currently highly dependent on single categories. Most players (Voltas, Symphony, and Blue Star) with a dominant presence in cooling products, except for Whirlpool, do not have any significant presence in other categories. Similarly, companies in the ECM and electrical goods category, like Orient Electric, V-Guard and Crompton, have a low presence in cooling products or large home appliances. As companies seek to find new drivers for growth and reduce seasonal dependence, we expect greater diversification and product innovation.

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5%

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India Global

Page | 12


C. Strong becoming stronger: COVID-19 will inflict challenges upon all players in the industry in the form of low demand, pressure on margins, and supply chain constraints. The ability to support channel partners, reconstruct supply chains, and manage overheads will play a key role in FY21. Companies that are market leaders with strong balance sheets will be able to overcome these challenges better. Hence, we expect companies to consolidate market share and strengthen their position. Bolt-on acquisitions are also a possibility as smaller players find it difficult to survive through the liquidity constraints.

Categories like cooling products and large home appliances have an urban-centric focus. With companies expanding their distribution reach in rural areas, and rural incomes receiving a boost in the form of government incentives and migration of labour and capital, rural demand is expected to play a bigger role in driving growth over the next few years. Existing players can capitalise on this growth by expanding their distribution reach and driving penetration.

Company Revenue mix Distribution Others

Havells

- Modern Trade: 20% - Metros: 40% - Rural: 1.5% (Rs 1,200 mn) - B-B (including B-G): 30% - B-B in wires (including B-G): 50%

- Rural direct reach (towns): 2,000 - Rural direct reach (outlets): 21,000 - Rural distributors: 1,700 - Total retailers: 1,30,000 - Direct dealers: 9,000 - Total dealers: 11,200

- Target rural distributors (FY22): 3,000 - % of procurement from domestic suppliers: 78%

Voltas

- Inverter volume mix (overall): 50% - Inverter volume mix (split): 65% - E-commerce (RAC): 10% - Semi-urban/rural volume mix (RAC, industry wide): 50%

- Total touch-points: 15,000 N/A

Crompton

- B-B in lighting (including B-G): 50% - B-G in lighting: 25% (half of B-B) - B-C business split: Lamps: 30% Battens: 35% Panels: 35%

- Total retailers: 1,00,000 - Total distributors: 3,500

N/A

V-Guard

- Chennai: 5% - Tamil Nadu: 15% - Kerala: 22% - East: 15% - Metros: 15% - E-commerce: 4% - MT (stabilizers): 3% - B-B: 3% - CSD: 10%

- Target yearly retailer addition: 3,000-5,000 - Imported SKUs in total sales: 7% - Own manufacturing in total sales: 55% - Ceiling fans in total fan sales (Industry wide): 65% - In-house and outsource mix was at 43% and 57% in FY20 - Non-south contributed 41% of FY20 revenue

Symphony - E-commerce: 15% - Semi-urban/Rural mix within dealers: 41%

- Total dealers: 30,000 - Towns covered: 5,000

N/A

TTK Prestige

- General Trade: 50% - Prestige Smart Kitchen: 17% - Modern Trade: 18% - E-commerce: 15% - Rural: 6% (Rs 1,150mn)

- Total retailers: 20,000 - Total distributors: 400

- SKUs prevalent in rural areas: 10 - SKUs prevalent in urban areas: 700


Page | 13


D. Shift from unorganised to organised: The companies in the unorganised sector will be impacted severely by COVID-19 as liquidity constraints and low demand restrict their ability to stay operational. Their inability to meet demand and maintain production at earlier levels will drive consumers towards becoming organised players. The existing market leaders are in a prime position to benefit from this shift as consumers will prefer trusted brands.

E. Underserved rural India by big players: Unorganised players largely dominate rural markets in India. Big, organised players are still in the process of creating a strong distribution reach in rural areas, and the revenue contribution from these markets is low. This presents a sizeable addressable market for these companies as growth in rural economy and consumption is expected to be ahead of urban in FY21.

F. Untapped global opportunity: COVID-19 has paralysed many industries around the world as a high dependence on Chinese exports has led to an abrupt halt in their supply chains. Globally, companies are looking to diversify away from China to reduce their dependence on a single market. This presents Indian players a golden opportunity to capture market share in the international and export markets. The shift away from China could lead to increased production and manufacturing in India, which would drive growth, going forward.

Page | 14


CD companies becoming seasonal to secular business Several consumer durable categories are highly dependent on a single season. The sales of cooling products, fans, and refrigerators have a high dependence on summers, while sales in segments like water heaters, air purifiers are dependent on winters. For companies operating in these categories, therefore, this dependence on a short period of time each year has led to severe volatility in revenue growth. As a result, they are seen shifting towards more secular categories.

Voltas has entered large home appliances via Volt-Beko, and the company plans to expand the brand in the next few years. It has already launched a series of refrigerators and washing machines. In the case of Lloyd, Havells has announced it plans to expand its presence in large home appliances to reduce the reliance of the brand on its RAC business. We expect other companies to follow suit as the opportunity to drive penetration in these categories, combined with the prospect of lower seasonality in revenues, presents an attractive proposition.

HAVELLS Qtr Revenue Mix VOLTAS Qtr Revenue Mix V-GUARD Qtr Revenue Mix

SYMPHONY Qtr Revenue Mix WHIRLPOOL Qtr Revenue Mix BLUE STAR Qtr Revenue Mix

HITACHI Qtr Revenue Mix TTK Qtr Revenue Mix ORIENT Qtr Revenue Mix


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Page | 15


Indian consumption story remains intact Despite near term challenges, we believe the Indian consumption story remains intact. Demand for consumer durables saw a strong revival in 4QFY20 before the lockdown. The economy showed indications of a recovery supported by government initiatives and the boost in demand indicated that the consumer appetite for products in these categories remains strong. Although recovery is now expected to be delayed and gradual, we are optimistic that the Indian consumption story remains alive due several levers such as (1) Government initiatives to boost liquidity, (2) continued emphasis on rural electrification, (3) increased FDI providing support to businesses, (4) shift of manufacturing and production units from China to India driven by initiatives like Atmanirbhar Bharat, and (5) evolving consumer preferences.

Evolution of the Household-income Profile in India

Source: Voltas AR, HSIE Research

High Growth Potential Industry

Source: Havells PPT (CEAMA and Frost and Sullivan) , HSIE Research

Page | 16


CD Universe: FY21 a disruptive year Lockdown-led disruption continues in the near term Earlier, we expected that FY21 would be the year of a demand revival, particularly from electrical construction materials. The key challenges of FY20 were trade liquidity and B-B. With the base becoming favourable, the ask was limited from macros to clock healthy growth for the sector.

We expected some categories, which had struggled in FY20, to show mean reversion in growth. However, COVID-19 has changed the entire expectation. Nobody is expecting a recovery as of now. Instead, one is wondering which business has the potential to recover from the COVID-19 impact.

In the new normal, there may be a structural change in some of the categories in which some will be beneficiaries while others will be laggards. Cooling products (RAC, air cooler, and fan) were impacted by the lockdown, which hit these categories during the peak of the summer season. Most companies were focusing on liquidating trade inventory. Thereby, the near-term performance of cooling products will be weak. Other categories, too, which were impacted by lockdown, have been facing various challenges like labour, liquidity, and slow execution. Overall, now we expect the CD universe to deliver weak numbers in FY21.

CD Universe: Operational Performance Revenue (Rs mn) 4QFY19 1QFY20 1QFY20 2QFY20 3QFY20 4QFY20 FY16 FY17 FY18 FY19 FY20 Havells 25,184 27,535 27,120 22,303 22,699 22,161 53,783 61,353 81,386 100,593 94,283 Voltas 14,918 20,628 26,540 14,219 14,925 20,896 57,198 60,328 64,044 71,241 76,581 Crompton 10,303 12,069 13,468 10,758 10,713 10,181 35,869 38,955 40,797 44,789 45,120 V-Guard 5,943 7,397 6,994 6,193 6,266 5,366 18,623 20,856 23,117 25,664 24,820 Symphony (Stand.) 1,590 1,380 1,600 1,950 2,070 1,540 4,149 6,639 6,874 5,240 7,160 Whirlpool 12,115 13,552 19,742 13,935 12,712 13,536 34,764 39,408 48,394 53,993 59,925 Blue Star 10,990 15,958 15,755 12,495 12,359 12,994 37,980 43,852 47,408 52,348 53,602 Polycab 20,280 24,636 19,330 22,419 25,073 21,294 52,024 55,001 67,703 79,856 88,300 Johnson Hitachi 4,349 6,655 9,519 3,766 4,360 4,329 16,405 19,173 21,854 22,413 21,974 TTK Prestige 5,520 4,449 4,336 5,736 5,461 3,835 14,992 16,035 17,465 19,680 19,368 Amber 5,181 11,960 12,359 6,232 7,884 13,152 10,890 16,519 21,281 27,520 39,628 Bajaj Electricals 21,565 17,594 12,926 10,709 12,736 12,922 45,701 42,457 46,870 66,389 49,293 Orient Electric 4,204 6,377 5,683 4,347 4,957 5,631 12,961 14,146 15,998 18,644 20,618 IFB 6,663 6,197 6,747 6,925 6,986 4,857 15,009 17,584 22,205 26,571 26,370 Dixon 7,940 8,588 11,469 14,020 9,938 8,574 13,894 24,570 28,416 29,844 44,001 Total 156,745 184,974 193,588 156,007 159,140 161,268 424,243 476,877 553,810 644,784 671,041

CD Universe: Covid led lockdown massively impacted 4Q (20-25% impact in 4Q), Voltas, Symphony, Amber shines Revenue YoY Gr (%) 4QFY19 1QFY20 1QFY20 2QFY20 3QFY20 4QFY20 FY16 FY17 FY18 FY19 FY20

Havells 28 9 4 2 (10) (20) 3 14 33 24 (6) Voltas 9 1 24 0 0 1 10 5 6 11 7 Crompton 10 7 12 4 4 (16) 11 10 8 11 1 V-Guard 12 12 10 4 5 (27) 7 15 15 12 (3) Symphony (Stand.) (27) (11) 103 32 30 12 20 20 4 (24) 37 Whirlpool 26 8 20 18 5 (0) 6 13 23 12 11 Blue Star 18 19 4 21 12 (19) 23 15 8 10 2 Polycab na 17 15 24 24 (14) 11 6 23 18 11 Johnson Hitachi 15 6 20 9 0 (35) 6 17 14 3 (2) TTK Prestige 23 7 4 4 (1) (14) 10 8 15 16 (2) Amber 53 73 75 89 52 10 (11) 51 29 29 44 Bajaj Electricals 89 10 14 (32) (41) (27) 8 (7) 10 42 (26) Orient Electric 21 2 31 17 18 (12) 9 9 13 17 11 IFB 25 18 14 5 5 (22) 19 17 26 20 (1) Dixon 17 44 94 90 25 (0) 16 77 16 5 47 Total 27 15 23 18 6 (11) 10 14 18 18 7

Page | 17


CD Universe: Negative oplev impacted EBITDA Margin in 4Q EBITDA Margin (%) 4QFY19 1QFY20 1QFY20 2QFY20 3QFY20 4QFY20 FY16 FY17 FY18 FY19 FY20 Havells 11.7 11.4 10.2 10.5 11.9 11.1 14.1 13.4 12.9 11.8 10.9 Voltas 7.8 7.0 11.0 7.4 6.5 9.2 7.6 9.6 10.3 8.6 9.0 Crompton 12.2 14.0 14.2 12.0 12.8 13.6 11.9 12.4 13.0 13.1 13.2 V-Guard 7.6 10.6 10.2 12.5 9.5 8.4 9.6 10.1 8.1 8.6 10.2 Symphony (Stand.) 30.2 29.7 15.0 31.3 32.4 31.8 36.7 31.3 32.0 25.8 28.1 Whirlpool 8.2 12.2 15.2 10.5 7.8 9.4 10.6 12.0 11.4 11.8 11.2 Blue Star 3.9 6.9 7.3 5.9 4.6 2.9 5.7 5.1 5.8 6.6 5.3 Polycab 15.8 9.9 10.6 12.1 13.5 14.1 9.4 8.7 10.8 11.9 12.9 Johnson Hitachi (0.7) 11.6 11.6 0.5 7.4 6.3 7.5 8.7 9.1 7.3 7.8 TTK Prestige 15.5 14.4 13.0 15.1 15.2 9.2 12.3 12.2 13.4 14.5 13.5 Amber 5.6 9.5 9.4 5.9 6.9 7.7 10.4 7.9 8.6 7.7 7.8 Bajaj Electricals 6.4 3.9 6.2 2.2 5.3 2.6 5.7 5.7 6.2 5.1 4.2 Orient Electric 6.4 11.1 7.8 5.0 9.1 11.6 6.6 7.0 8.5 7.6 8.6 IFB 4.7 2.4 4.3 7.2 5.5 0.3 4.6 5.7 7.1 4.8 4.6 Dixon 4.9 4.4 4.6 4.5 5.2 6.5 4.2 3.7 3.9 4.5 5.1

CD Universe: Revenue/EBITDA declined by 11/13% YoY in 4Q; Voltas, Symphony, Polycab and Dixon were outliers EBITDA Gr (%) 4QFY19 1QFY20 1QFY20 2QFY20 3QFY20 4QFY20 FY16 FY17 FY18 FY19 FY20

Havells 12 (12) (12) (11) (9) (22) 6 9 27 13 (14) Voltas 1 (43) 20 (2) (16) 33 6 34 15 (8) 12 Crompton 8 2 15 4 9 (18) - 13 10 10 2 V-Guard (9) 106 53 56 32 (42) 34 17 6 3 11 Symphony (Stand.) (45) (17) 2,300 36 40 20 51 2 6 (39) 49 Whirlpool 9 23 24 32 (8) (20) 16 27 14 12 8 Blue Star (0) 81 (16) 27 35 (66) 42 3 24 25 (18) Polycab - (29) 19 26 6 23 11 (2) 52 31 19 Johnson Hitachi (131) 4 31 (62) na (65) (11) 37 19 (18) 5 TTK Prestige 28 11 1 7 (3) (45) 19 6 21 22 (9) Amber 20 67 104 169 87 (10) 11 15 41 16 45 Bajaj Electricals 96 (49) 2 (70) (50) (52) 196 (8) 21 16 (39) Orient Electric 2 (15) 66 28 68 (8) 39 16 37 3 25 IFB (14) (60) (8) 18 23 (89) (20) 45 58 (20) (5) Dixon 50 37 104 93 32 49 72 55 23 20 65 Total 16 2 42 20 8 (13) 34 16 26 11 7

APAT 4QFY19 1QFY20 1QFY20 2QFY20 3QFY20 4QFY20 FY16 FY17 FY18 FY19 FY20

Havells 1,957 2,007 1,740 1,814 1,995 1,772 5,106 5,967 7,035 7,854 7,320 Voltas 865 1,417 1,941 1,117 880 1,610 3,729 5,182 5,765 5,223 5,547 Crompton 797 1,118 1,224 1,111 1,043 998 2,356 2,875 3,238 3,727 4,376 V-Guard 337 592 525 497 429 325 1,118 1,446 1,601 1,733 1,776 Symphony (Stand.) 430 330 260 570 580 464 1,230 1,746 1,837 1,179 1,874 Whirlpool 606 1,041 1,907 1,248 732 874 2,489 3,099 3,540 4,071 4,761 Blue Star 160 606 810 418 249 98 1,083 1,231 1,506 1,863 1,575 Polycab 1,965 1,417 1,353 1,938 2,214 2,151 1,847 2,330 3,586 5,003 7,656 Johnson Hitachi (76) 423 636 (6) 135 72 500 813 1,002 859 840 TTK Prestige 568 438 365 673 609 209 1,195 1,181 1,496 1,903 1,855 Amber 40 668 643 122 248 628 241 221 623 948 1,641 Bajaj Electricals 639 285 174 (330) 155 - 1,075 1,022 1,642 1,671 (1) Orient Electric 118 386 189 49 191 358 na na 640 693 787 IFB 187 57 103 216 143 (182) 314 516 793 566 247 Dixon 176 165 236 430 263 276 286 476 609 634 1,205 Source: Companies, HSIE Research

Page | 18


COVID creating near term uncertainties Unprecedented times need unprecedented actions. Humanity is witnessing one

of its toughest challenges in the form of COVID-19. Globally, the situation has been escalating multifold. India is not an exception to this, and despite several government initiatives, we are seeing a rise in the death toll.

The impact of COVID-19 began in India in early March, when consumers began hoarding necessities and channel partners for Consumer Durables companies began stocking up, fearing supply chain constraints. However, the sudden lockdown in the third week of March caught everyone off-guard.

Channel inventory levels were precariously high, despite companies losing out on the key channel filling period towards the end of March, and retailers were unable to reduce inventory due to restrictions on opening shops. Since shops have started to reopen in May (with the lockdown being lifted), demand has been strong, and inventory levels are seen as gradually normalising.

Despite the strong demand in May and June, the impact on 1QFY21 is expected to be high as sales of cooling products are highly dependent on the offtake in April, which was impacted. Additionally, a weaker and more erratic summer has also impacted demand. While Northern markets opened up relatively quickly, the Western and Southern markets were the most impacted.

The mass migration of labour from urban areas to rural areas is expected to have a significant impact on demand trends, going forward. While construction activity in urban areas remains muted, small projects and renovations have resumed in rural areas and Tier 2, 3, 4 cities. These projects are driving demand for ECM and electrical goods. Companies with a strong rural presence are expected to benefit in this period as consumers prefer trusted brands. They also have the opportunity to gain market share from unorganised players, who are facing severe liquidity constraints.

Sales for large home appliances and consumer durables are expected to remain weak as several states have revoked relaxations and are once again moving towards complete lockdowns. However, with large sections of consumers relying on home cooking and avoiding domestic help for household chores, sales for kitchen appliances could see robust demand.

The pandemic has brought significant changes in the salience of various channels. Where once modern trade was posting strong growth, revival for the channel appears to be nowhere on the horizon as consumers continue to avoid large stores. On the other hand, e-commerce and GT have witnessed stronger traction, and mom-and-pop stores are expected to grow ahead of MT in the near term. E-commerce has seen rapid growth, owing to a relatively contactless shopping experience and convenience. We expect a large chunk of new consumers acquired to be permanent, and the channel will continue to gain salience across industries.

Page | 19


Mild summer with weak consumer offtake 2019 saw robust growth for cooling products owing to a strong summer. Companies witnessed growth across most markets in the country. To assess summer 2020, we ran a 25 city weather data study across India along with dealer checks.

Pan India: On a pan-India basis, the summer was cooler than the summers of 2019 and 2018. However, temperatures were highly erratic in most parts of the country, and the fluctuation continued until the onset of monsoon. We observed that summer 2020 (up to 30 June-20) was significantly cooler vs. that of 2018 (-2.25°C average high temperature). The cooler temperatures were observed across the country as North (-3.43°C YoY), West (-2.50°C YoY), East (-3.55°C YoY) all witnessed a milder summer. However, summer in the South was slightly better as the average high temperature was lower slightly by 0.27°C vs 2018, while the average low temperature was higher by 0.56°C. Summer has now ended across all regions.

North region: The North region witnessed an erratic summer as temperatures remained lower than average for most of March and April with periodic spikes. The month of May saw higher than average temperatures in the first two weeks. Thereafter, the region cooled slightly over the rest of the month. North markets were among the quickest to reopen in the country, and demand for cooling products has been robust. However, the sharp drop in temperatures in June and the onset of monsoon have hit prospects of a revival in sales of cooling products.

West region: West witnessed significantly cooler summer, with occasional spikes in temperatures. A few pockets in the West witnessed harsh weather. However, the region was the worst hit by the lockdown as enforcement was strict and supply chains were blocked for most of the season. Relaxations did not begin until the third week of May, by which point the season was almost over. The early onset of monsoon also dented the possibility of recovery of lost sales.

South region: Summer in the South was weaker compared to the 10-year average and 2019. Additionally, the South region saw lockdowns and restrictions on movement begin earlier than the rest of the country. As a result, all cooling appliances saw very low offtake for most of the season. Growth was strong on days when certain states permitted sales. However, as the channel inventory was high before the lockdown, the demand was not sufficient to normalise the same.

East region: East witnessed a milder summer. Other disruptions such as a cyclone also disrupted the possibility of an uptick in offtake.

Overall summer has been delayed and milder 1 Mar -30 June Pan-India North West East South

Day High: 2020 vs. 10 Yr Avg (1.13) (1.66) (0.82) (2.43) (0.43)

Day High: 2020 vs 2019 (1.60) (2.14) (1.09) (2.65) (1.29)

Day Low: 2020 vs. 2019 (0.57) (0.49) (0.66) (1.06) (0.26)

Day High: 2020 vs 2018 (2.25) (3.43) (2.50) (3.55) (0.07)

Day Low: 2020 vs. 2018 (0.27) (0.58) (0.13) (1.45) 0.56

Source: Bloomberg, Accuweather, HSIE Blue represents lower temperature and Red represents higher

Households (HHs) by Region Region HHs (mn no.) Mix of HHs

North 87.2 28% West 61.9 20% South 71.8 23% East 85.2 28% India 306.2 100% Source: Census 2011, HSIE Research Pan-India: Daily YoY Chg in High Temp.

North Region: Daily YoY Chg in High Temp.

West Region: Daily YoY Chg in High Temp.

South Region: Daily YoY Chg in High Temp.

East Region: Daily YoY Chg in High Temp.

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Page | 20


Sector recovery expected in FY22 The long-term history of the CD sector has been robust, with 15/21% CAGR in revenue/EBITDA in the past 20 years. Most companies have capitalised on India’s rising per capita income, consumer affluence and inclination towards branded goods, better availability of electricity, low penetration, and greater availability of consumer finance. We believe that the growth trend for branded players will remain strong in the coming years, and near-term issues will not have a material impact on India’s structural story.

CD Universe: Revenue Performance CD Universe: EBITDA Performance


CD Universe: Gross and EBITDA Margin CD Universe: EBITDA Performance


Note: The CD universe described above comprises 15 companies, i.e. Havells, Voltas, Crompton Consumer, V-Guard, Symphony, TTK Prestige, Whirlpool, Johnson-Hitachi, Blue Star, Polycab, Dixon, Amber, IFB Industries, Orient Electric and Bajaj Electricals.

-60%

-10%

40%

90%

140%

-

20

40

60

80

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

EBITDA YoY Growth (%) Avg(Rs bn)

21%CAGR

-10%

-3%

4%

11%

18%

25%

32%

-

200

400

600

800

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

Revenue YoY Growth (%) Avg(Rs bn)

15%CAGR

0%

2%

4%

6%

8%

10%

12%

26.0%

28.0%

30.0%

32.0%

34.0%

36.0%

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

Gross Margin (%) EBITDA Margin (%)

-4%

-2%

0%

2%

4%

6%

8%

(10)

-

10

20

30

40

50

60

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

APAT NPM (%)(Rs bn)

Page | 21


CD universe: player-wise revenue performance CD universe: player-wise EBITDA performance


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Page | 22


Category Mapping: Cooling and OEM were best in FY20 Category-wise revenue and EBIT performance Summer 2019 was harsh, especially with the heatwave extending the summer

until July in the North region. Thereby, the cooling category clocked strong growth in 9MFY20 before the lockdown impacted channel filling opportunity in 4QFY20.

Growth in consumer durables was ahead of most other categories in 9MFY20. However, weak sentiments, coupled with the lockdown, severely impacted 4QFY20. The category has shown strong growth over the past five years. However, with consumers cutting back on discretionary expenditure, recovery is expected to be delayed and gradual.

Lighting was the most impacted category, both on revenue and margin front, in 4QFY20. Price pressure impacted both revenue and margin in lighting while volume was healthy in FY20.

The OEM players also enjoyed high demand for RAC and higher indigenous manufacturing.

Categories 1Q FY18

2Q FY18

3Q FY18

4Q FY18

1Q FY19

2Q FY19

3Q FY19

4Q FY19

1Q FY20

2Q FY20

3Q FY20

4Q FY20

LTM Avg (%)

FY16 FY17 FY18 FY19 FY20 5 Yr Avg (%)

(A) Cooling Products Revenue Gr (%) 7 15 30 5 (2) 3 10 2 27 10 6 (3) 10 17 24 11 2 10 13 EBIT Gr (%) (9) 31 51 4 10 (34) (29) (25) 28 (2) 20 (8) 12 (1) 28 9 (17) 12 6 (B) Consumer Durables

Revenue Gr (%) 4 23 16 20 23 14 26 10 20 13 7 (7) 7 10 9 16 17 7 12 EBIT Gr (%) (11) 32 19 26 46 12 18 3 20 14 11 (23) 7 31 21 15 19 7 18 (C) Lighting & Fixtures

Revenue Gr (%) 1 20 19 17 22 10 12 20 7 (5) (0) (26) (8) 8 16 17 14 (8) 9 EBIT Gr (%) 14 20 21 47 15 (7) 2 10 4 (9) (5) (34) (13) (3) 38 26 4 (13) 11 (D) Cables and Wires

Revenue Gr (%) 26 12 12 18 17 25 24 13 9 15 11 (12) 5 10 9 20 15 5 12 EBIT Gr (%) 20 16 21 22 23 (15) 16 (4) 6 31 (4) (1) 6 19 11 30 18 6 17 (E) OEM

Revenue Gr (%) na 15 (21) 5 1 (3) 31 61 84 90 37 6 46 4 66 21 17 46 31 EBIT Gr (%) na 20 (46) 26 (1) (38) 31 61 122 166 61 (2) 56 91 28 35 14 56 45

CD aggregate growth

Source: Companies, HSIE Research Note: Excluding Amber and Dixon

9%

19% 18%15% 14%

16%

21%

10%

18%

12%

8%

-9%

12%

21%

16%13%

6%

-12%

-6%

0%

6%

12%

18%

24%

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1QFY

20

2QFY

20

3QFY

20

4QFY

20

FY16

FY17

FY18

FY19

FY20

Page | 23


(A) Performance of cooling products Cooling products saw robust growth in FY20, led by a harsh summer in 2019

and expectations of a strong summer in 2020. The competitive landscape was dominated by Voltas, with 29% YoY revenue growth, as the company saw itself become the market leader in inverter RAC and grew its overall market share.

Lloyd’s performance was impacted adversely by low channel confidence and demand, and the company saw a consistent revenue decline in 9MFY20. The hope of a revival in 4QFY20 was smashed by the lockdown and Lloyd clocked a 14% YoY revenue decline in FY20.

The premiumisation trend in RAC was strong in FY20, with most players seeing EBIT margins expand.

Symphony continued to dominate the air cooler market with 39% YoY growth in revenue in FY20. The growth was driven by low channel inventory in FY19, extended and robust summer in 2019, and high channel confidence.

Cooling Products 1Q

FY18 2Q

FY18 3Q

FY18 4Q

FY18 1Q

FY19 2Q

FY19 3Q

FY19 4Q

FY19 1Q

FY20 2Q

FY20 3Q

FY20 4Q

FY20 FY16 FY17 FY18 FY19 FY20

Revenue (Rs mn)

Voltas (UCP) 12,117 4,078 5,422 10,645 11,911 4,410 5,259 9,976 17,488 5,256 6,005 11,989 25,210 30,469 32,261 31,556 40,737

Blue Star (UCP) 8,613 3,151 3,210 5,914 8,308 3,431 3,915 7,036 9,069 3,772 4,202 5,963 15,658 19,974 20,887 22,690 23,006

Symphony 1,097 1,805 2,080 1,232 650 1,420 1,400 1,200 1,480 1,890 1,780 1,360 3,679 5,918 6,213 4,670 6,510

Havells-Lloyd 2,672 2,698 2,930 5,841 7,081 2,579 3,572 5,324 6,520 1,800 3,004 4,579 13,842 18,746 14,141 18,556 15,903

Johnson - Hitachi 8,628 3,175 3,774 6,277 7,941 3,469 4,349 6,655 9,519 3,766 4,360 4,329 16,405 19,173 21,854 22,413 21,974 V-Guard (Stabilizer+Inverter) 2,268 1,648 1,293 2,077 2,405 1,614 1,525 2,055 2,828 1,676 1,538 1,503 5,627 6,648 7,286 7,599 7,545

Total 35,394 16,554 18,708 31,986 38,295 16,922 20,021 32,245 46,904 18,159 20,889 29,723 80,421 100,927 102,642 107,483 115,675

YoY Gr. (%)

Voltas (UCP) 1 15 32 (2) (2) 8 (3) (6) 47 19 14 20 2 21 6 (2) 29

Blue Star (UCP) 16 12 28 19 (10) 9 22 19 9 10 7 (15) 18 28 17 9 1

Symphony (18) 26 27 (18) (41) (21) (33) (3) 128 33 27 13 20 21 5 (25) 39

Havells-Lloyd 20 11 16 - 14 (4) 22 (9) (8) (30) (16) (14) 59 35 11 6 (14)

Johnson - Hitachi 6 11 45 13 (8) 9 15 6 20 9 0 (35) 6 17 14 3 (2) V-Guard (Stabilizer+Inverter)

4 27 15 13 11 (2) 18 (1) 18 4 1 (27) 3 18 14 6 (1)

Total 7 15 30 5 (2) 3 10 2 27 10 6 (3) 17 24 11 2 10

EBIT Margin (%)

Voltas (UCP) 14.1 12.4 13.0 17.2 12.5 6.3 8.5 10.4 13.1 8.8 10.1 14.6 13.4 14.5 14.7 10.3 12.6

Blue Star (UCP) 9.5 5.0 4.9 11.6 11.4 2.4 2.4 10.4 10.9 3.2 1.8 7.3 10.4 8.4 9.2 8.2 7.1

Symphony 22.6 41.1 43.3 36.2 1.5 32.4 36.4 35.8 20.3 36.5 37.1 38.2 40.9 37.4 37.6 30.2 33.3

Havells-Lloyd 14.7 19.5 16.4 22.0 19.4 18.5 14.9 15.0 16.1 (2.3) 7.8 9.7 19.0 17.1 10.6

Johnson - Hitachi 10.6 (0.8) (1.0) 9.7 9.2 (1.5) (3.2) 10.0 10.3 (2.7) 4.0 2.4 4.7 6.0 6.7 5.3 5.3 V-Guard (Stabilizer+Inverter)

10.6 16.4 11.1 7.0 9.3 12.6 14.6 14.8 17.5 16.9 15.9 14.1 13.6 13.0 10.9 12.5 16.4

EBIT Gr (%)

Voltas (UCP) (4) 24 62 3 (13) (45) (37) (43) 54 67 36 69 (3) 30 8 (31) 57

Blue Star (UCP) 0 (21) 53 1 16 (48) (41) 7 4 46 (19) (40) - 4 15 (4) (13)

Symphony (30) 27 27 (15) (96) (38) (43) (48) 2,900 50 29 126 5 47 5 (48) 79

Havells-Lloyd 248 (10) 11 (38) (23) (109) (56) (44) na na na 18 (47)

Johnson - Hitachi (12) (81) (69) 63 (21) 103 272 9 35 90 (225) (84) (24) 50 26 (18) (3) V-Guard (Stabilizer+Inverter)

(28) 31 31 (37) (7) (25) 55 110 122 40 10 (30) 33 13 (8) 19 30

Page | 24


(B) Performance of Consumer Durables Consumer Durables saw sustained growth in 9MFY20, as penetration improved

and several companies entered new categories. Product innovation and increasing distributor reach were vital in driving growth.

Bajaj Electricals, Orient Electric, and Whirlpool were the outperformers in FY20, clocking 13/12/11% YoY growth, ahead of the industry average.

Companies like Crompton and Havells saw comparatively muted growth of 5/6% YoY, partly due to a high base and increasing competitive intensity.

Consumer Durables

1Q FY18

2Q FY18

3Q FY18

4Q FY18

1Q FY19

2Q FY19

3Q FY19

4Q FY19

1Q FY20

2Q FY20

3Q FY20

4Q FY20

FY16 FY17 FY18 FY19 FY20

Revenue (Rs mn)

Whirlpool 14,640 11,597 9,580 12,577 16,511 11,815 12,115 13,552 19,742 13,935 12,712 13,536 34,399 39,408 48,319 53,993 59,925

Bajaj Electricals 4,695 5,141 6,002 6,446 5,969 6,423 7,606 7,410 7,834 6,977 8,579 7,457 25,975 23,142 22,285 27,408 30,846

Crompton 8,061 6,219 6,117 7,884 9,248 7,128 7,116 8,644 10,729 7,881 7,870 7,411 25,721 28,817 28,281 32,136 33,890

Havells (ECD) 3,583 3,215 4,158 4,646 5,040 4,805 5,785 5,331 6,235 5,506 5,814 4,603 11,264 13,783 15,602 20,962 22,158

TTK Prestige 3,770 5,480 4,870 4,360 4,450 5,910 5,980 4,666 4,591 6,142 5,923 4,019 15,594 16,839 18,480 21,006 20,675

IFB (Home App.) 4,054 5,105 4,378 4,234 4,882 5,406 5,564 5,046 5,655 5,859 5,761 3,807 12,290 14,742 18,104 20,897 21,081

Orient Electric 2,553 2,258 2,416 4,954 3,257 2,435 2,847 4,758 4,291 2,832 3,248 4,545 - - 12,181 13,296 14,916

V-Guard (CD) 1,057 1,630 1,488 1,563 1,330 1,821 1,838 1,790 1,534 1,750 2,020 1,441 4,999 5,085 5,738 6,779 6,745

Hawkins 808 1,632 1,393 1,694 1,207 1,727 1,747 1,847 1,421 1,926 1,933 1,460 5,713 5,398 5,526 6,528 6,739

Total 43,221 42,277 40,401 48,360 51,895 47,469 50,598 53,043 62,032 52,807 53,859 48,279 135,954 147,213 174,516 203,004 216,976

YoY Gr. (%)

Whirlpool 15 37 18 24 13 2 26 8 20 18 5 (0) 6 15 23 12 11

Bajaj Electricals (14) 1 12 15 25 25 27 15 31 9 13 1 na (11) 6 23 13

Crompton (9) 11 7 10 23 15 16 10 16 11 11 (14) na 11 5 16 5

Havells (ECD) 2 11 33 29 43 49 39 15 24 15 1 (14) 11 22 21 30 6

TTK Prestige 4 20 15 22 25 8 23 7 4 4 (1) (14) 10 8 15 16 (2)

IFB (Home App.) 17 41 15 20 20 6 27 19 16 8 4 (25) 20 20 23 15 1

Orient Electric - na na na 28 8 18 (4) 32 16 14 (4) na na na 9 12

V-Guard (CD) (7) 24 23 24 31 12 24 15 15 (4) 10 (19) 19 737 16 20 (1)

Hawkins (13) 20 11 8 50 6 25 9 18 12 11 (21) 6 (6) 2 18 3

W. Avg. Gr. (%) 4 23 16 19 23 14 26 10 20 12 7 (8) 10 35 15 17 7

EBIT Margin (%)

Whirlpool 14 10 9 11 15 10 8 12 15 11 8 9 11 12 11 12 11

Bajaj Electricals 1 6 7 6 7 6 7 6 7 5 8 6 5 4 5 7 7

Crompton 18 18 18 22 19 19 19 19 20 19 20 20 na 17 19 19 20

Havells 23 28 30 27 28 27 24 26 28 25 26 25 25 25 27 26 26

TTK Prestige 11 12 13 12 12 13 14 13 11 14 14 7 11 11 12 13 12

IFB (Home App.) 2 9 5 5 3 5 4 (0) 2 6 2 (9) 2 4 5 3 -

Orient Electric 7 11 11 16 10 10 11 14 10 9 12 16 na na 12 11 12

V-Guard (CD) (1) 11 4 (2) 3 6 3 7 4 11 6 2 15 3 4 5 6

Hawkins 7 14 13 12 13 15 11 11 15 18 16 9 12 14 12 13 15

EBIT Gr (%)

Whirlpool 10 36 2 21 23 1 16 17 19 22 1 (23) 20 31 15 17 6

Bajaj Electricals (87) 150 4 52 1,181 29 41 22 30 (4) 28 4

(18) 10 66 16

Crompton (12) 27 14 16 27 21 19 (2) 21 12 18 (12)

9 15 9

Havells (11) 9 52 33 74 44 15 9 22 7 6 (17) 11 22 20 31 5

TTK Prestige 1 16 40 39 28 25 31 12 (0) 5 (6) (56) 22 4 24 24 (13)

IFB (Home App.) (54) 90 (2) 559 88 (46) (4) na (12) 42 (39) na (41) 143 49 (41) -

Orient Electric na na na na 83 4 16 (20) 39 6 34 11

2 21

V-Guard (CD) na 44 (23) na na (36) (26) na 72 61 138 (70) 104 80 23 54 25

Hawkins (63) 25 8 (2) 181 15 3 5 33 30 61 (37) 37 10 (6) 23 21

Page | 25


(C) Performance of Lighting and fixtures Lighting segment struggled in FY20 as B-B orders slumped due to the economic

slowdown. Additionally, pricing pressure was high in the B-C category, and companies continued to reduce prices until Feb 2020. Although volumes in B-C remained healthy, the impact on margins was significant.

Havells and Crompton both struggled in the Lighting space as pricing pressure in B-C and slowdown in B-B weighed heavy on revenue. Both companies clocked revenue decline in 2QFY20 and 3QFY20. COVID-19 provided a further jolt to the segment and Havells and Crompton posted a revenue decline of 12/11% YoY in FY20. However, Crompton’s performance in 4QFY20 was better than the competition as the company saw a revenue decline of 19% YoY compared to 31/33% YoY decline in Havells/Orient Electric.

Orient Electric posted 7% YoY growth in FY20, despite the disruption in 4QFY20. The company has clocked strong growth since entering the segment in FY18.

EBIT margins were impacted for all players due to the price decrease. However, B-C lighting saw a return to price increase in March 2020 and margins for the segment are expected to remain stable in the near term.

Lighting & Fixtures

1Q FY18

2Q FY18

3Q FY18

4Q FY18

1Q FY19

2Q FY19

3Q FY19

4Q FY19

1Q FY20

2Q FY20

3Q FY20

4Q FY20 FY16 FY17 FY18 FY19 FY20

Revenue (Rs mn)

Havells 2,053 2,419 2,700 3,068 2,573 2,856 3,189 3,816 2,712 2,591 3,046 2,646 7,931 9,720 10,240 12,434 10,995

Crompton 2,748 3,378 3,265 3,379 2,791 3,250 3,188 3,425 2,739 2,877 2,843 2,770 10,148 11,296 12,770 12,653 11,229

Orient Electric 752 1,000 1,047 1,276 1,075 1,296 1,358 1,619 1,392 1,514 1,709 1,086 - - 4,074 5,348 5,702

Total 5,552 6,797 7,012 7,723 6,439 7,402 7,734 8,861 6,844 6,982 7,598 6,502 18,078 21,016 27,084 30,435 27,926

YoY Gr. (%)

Havells (11) 21 21 20 25 18 18 24 5 (9) (4) (31) 8 23 13 16 (12)

Crompton 10 25 23 21 10 (4) (2) 11 (2) (11) (11) (19) - 11 20 4 (11)

Orient Electric - - - - 43 30 30 27 30 17 26 (33) - - - 31 7

W. Avg. Gr. (%) 1 20 19 17 22 10 12 20 7 (5) (0) (26) 8 16 17 14 (8)

EBIT Margin (%)

Havells 30 31 29 32 28 30 30 26 28 30 29 29 24 27 30 28 29

Crompton 8 13 14 11 7 6 9 11 5 5 7 7 na 9 12 8 6

Orient Electric 5 5 13 10 11 6 11 15 10 7 13 11 - - 8 11 10

EBIT Gr (%)

Havells 5 18 11 34 14 14 24 0 9 (8) (7) (23) (3) 38 18 12 (9)

Crompton 50 25 42 96 (15) (52) (38) 5 (25) (27) (31) (51)

47 (27) (36)

Orient Electric

177 73 9 100 22 30 56 (50)

70 2

Page | 26


(D) Performance of Cables & Wires Cables & Wires struggled in FY20 due to economic slowdown and weak

sentiment.

Polycab and KEI were the outperformers with 7/19% YoY growth in revenue while Havells, V-Guard and Finolex all saw 7% YoY revenue decline. The decline in Havells was partly due to the high YoY growth of 24% that the company clocked in FY19.

Despite product innovation and improving distributor reach, growth for V-Guard slowed down in FY20 after the company clocked strong growth in FY19.

Cables and Wires 1Q FY18

2Q FY18

3Q FY18

4Q FY18

1Q FY19

2Q FY19

3Q FY19

4Q FY19

1Q FY20

2Q FY20

3Q FY20

4Q FY20 FY16 FY17 FY18 FY19 FY20

Revenue (Rs mn)

Polycab na na na 21,102 16,826 18,119 20,280 24,636 19,330 22,419 25,073 21,294 52,024 55,001 67,703 91,459 88,116

KEI 6,170 5,967 7,004 8,125 7,000 8,103 8,789 9,744 8,549 9,983 10,995 10,332 19,112 22,372 27,265 39,271 39,859

Havells 6,363 5,693 6,256 7,689 7,499 7,665 8,203 8,979 7,785 8,213 7,121 6,823 21,866 23,793 26,001 32,098 29,942

V-Guard (Elec Seg) 2,366 2,361 2,454 2,946 2,614 2,541 2,579 3,552 2,632 2,768 2,709 2,422 8,078 9,409 10,126 11,660 10,530

Finolex 6,740 6,880 6,568 7,960 7,912 7,140 7,508 8,217 8,077 7,158 7,024 6,514 23,603 24,448 28,151 30,476 28,773

Total 21,638 20,900 22,282 47,821 41,852 43,568 47,359 55,128 46,373 50,541 52,921 47,385 124,683 135,024 159,246 187,901 197,403

YoY Gr. (%)

Polycab - - - - - - - 13 8 21 18 (12) 20 7 23 11 7

KEI 39 7 20 24 13 36 25 20 22 23 25 6 12 17 22 23 19

Havells 19 2 3 13 18 35 31 17 4 7 (13) (24) 1 9 9 24 (7)

V-Guard (Elec Seg) 4 15 26 5 15 8 5 21 1 9 5 (32) 8 (24) 12 12 (7)

Finolex 22 22 7 12 17 4 14 3 2 0 (6) (21) 0 4 15 9 (7)

W. Avg. Gr. (%) 24 12 12 15 16 24 22 14 8 15 12 (12) 11 6 19 15 5

EBIT Margin (%)

Polycab na na na 17 10 11 17 10 11 10 12 15 7 7 10 12 12

KEI 11 13 11 9 10 10 12 11 10 10 12 11 12 12 11 11 11

Havells 13 20 17 17 17 14 16 18 17 18 18 12 14 14 17 16 16

V-Guard (Elec Seg) 3 8 11 8 7 6 6 10 5 10 8 8 7 10 7 7 8

Finolex 19 21 16 16 18 13 16 17 15 19 16 21 15 17 18 16 17

EBIT Gr (%)

Polycab

(35) 27 15 (15) 36 16 2 61 30 11

KEI 24 20 7 (4) 6 9 34 47 22 24 28 9 14 19 10 24 20

Havells 19 43 23 51 49 (6) 21 20 1 41 (4) (47) 17 5 35 19 (6)

V-Guard (Elec Seg) (65) 18 71 (10) 174 (21) (41) 48 (28) 82 35 (45) 34 4 (15) 11 (3)

Finolex 36 (1) 24 26 8 (35) 13 9 (16) 50 (8) (3) 25 23 19 (3) 2

Page | 27


(E) Performance of OEM Indian OEMs saw strong growth in FY20. The impact of lockdown on the

segment in 4QFY20 was also low as pre-lockdown growth offset the COVID-19 disruption. Revenue growth has remained consistently high for this segment for the past four years with the penetration of consumer durables improving in India, and more companies opting for local manufacturing over imports.

Amber and Dixon both clocked robust 47/44% YoY growth in FY20, while their EBIT margins also improved significantly.

OEM 1Q

FY18 2Q

FY18 3Q

FY18 4Q

FY18 1Q

FY19 2Q

FY19 3Q

FY19 4Q

FY19 1Q

FY20 2Q

FY20 3Q

FY20 4Q

FY20 FY16 FY17 FY18 FY19 FY20

Revenue (Rs mn)

Dixon 6,846 8,788 6,778 5,978 5,927 7,389 7,940 8,588 11,469 14,020 9,938 8,574 13,894 24,570 28,416 44,015 44,001

Amber 6,241 2,650 3,384 6,920 7,081 3,298 5,181 11,960 12,359 6,232 7,884 13,152 10,890 16,519 21,281 38,436 39,628

Total 13,086 11,438 10,162 12,898 13,008 10,687 13,121 20,548 23,829 20,252 17,822 21,726 24,784 41,089 49,697 82,452 83,629

YoY Gr. (%)

Dixon - 19 0 (2) (13) (16) 17 44 94 90 25 (0) 16 77 16 5 47

Amber - - (64) 12 13 24 53 73 75 89 52 10 (11) 51 29 29 44

W. Avg. Gr. (%)

- 15 (21) 5 1 (3) 31 61 84 90 37 6 4 66 21 17 46

EBIT Margin (%) Dixon 2.7 3.5 3.3 3.8 3.6 3.8 4.2 3.6 3.9 3.9 4.2 5.2 3.6 3.3 3.4 3.8 4.2

Amber 7.4 4.3 3.9 8.2 6.0 (0.4) 2.5 8.1 7.8 2.5 4.2 6.1 7.6 5.5 6.3 5.5 5.7

EBIT Gr (%)

Dixon

20 (2) 45 16 (11) 50 37 112 98 26 44 91 60 20 17 65

Amber

(69) 20 (8) (112) (0) 70 127 (1,231) 151 (17)

9 49 12 49

Page | 28


CD Universe: Sector Valuation The sector is trading at 42x P/E (one-year forward), having seen a sharp re-rating in the past 10 years (20x in 2010). We believe category winners will further gain market share in the current phase and command valuation premiums. Although earnings can be volatile in the near term, rich valuations would sustain, in our view. Further, category winners hold the potential for quick turnarounds; therefore, the near-term disruption offers a good entry point.

Sector P/E (12-month Rolling Forward) CD Universe: Earnings vs. Valuation


CD universe: profit mix CD universe: market cap mix


Havells, 18%

Polycab, 17%

Whirlpool, 13%Voltas, 12%

Crompton, 11%

V-Guard, 5%

TTK , 5%

Dixon, 4%

Blue Star, 3%

Symphony, 3%

Amber, 3%

Orient Ele, 2%


IFB, 0%

Havells, 22%

Polycab, 7%

Whirlpool, 17%

Voltas, 12%

Crompton, 9%

V-Guard, 4%

TTK , 5%Dixon, 5%

Blue Star, 3%

Symphony, 4%

Amber, 3%Orient Ele,

2%


IFB, 1%

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

50x

-40

-20

0

20

40

60

80

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

E

EPS Gr (%) P/E (x)(%)

15

23

31

39

47

55

Jul-10 Jul-12 Jul-14 Jul-16 Jul-18 Jul-20

Appliance Sector P/E (x) 10 Years' Avg P/E (x)5 Years' Avg P/E (x) 3 Years' Avg P/E (x)

CurrentP/E: 42x

Page | 29


Stock returns Companies 1M (%) 3M (%) 6M (%) 12M (%) 3Yr (%) 5Yr (%)

Voltas 8.8 22.3 (17.7) 2.7 18.6 87.5

Blue Star (3.3) (12.2) (41.5) (33.8) (26.6) 47.1

Symphony (5.4) (5.2) (32.8) (29.9) (39.5) (9.0)

Johnson-Hitachi (12.6) 3.7 (12.0) 34.4 6.3 40.2

Whirlpool 9.0 22.3 (7.6) 52.1 95.5 208.2

IFB Industries (7.1) (8.9) (44.2) (45.6) (46.9) (22.8)

Havells 1.3 11.2 (6.1) (16.0) 26.9 96.2

V-Guard (4.8) 0.6 (25.1) (26.1) (5.6) 155.4

Polycab (0.6) 14.4 (19.3) 40.1 N/A N/A

Crompton 6.7 12.0 (6.3) 6.9 19.3 N/A

Bajaj Electricals 0.8 24.2 12.1 5.1 26.2 54.4

Orient Electric (1.7) (1.4) (14.3) 20.7 N/A N/A

Finolex Cables (4.5) 20.0 (18.2) (8.4) (26.2) 67.1

KEI Industries 4.4 30.6 (32.8) (20.0) 57.9 262.0

Surya Roshni 6.3 22.3 (37.4) (38.7) (59.4) (15.3)

TTK Prestige 7.9 22.3 (8.5) (8.5) 3.5 65.3

Butterfly (5.9) 21.4 (53.0) (19.2) (30.6) (31.3)

La Opala 7.5 3.0 10.0 11.0 (23.0) (9.4)

Hawkins 0.4 (12.2) (4.3) 43.8 30.6 61.1

Dixon 24.9 75.5 74.8 235.1 N/A N/A

Amber (5.6) 38.7 10.1 87.8 N/A N/A

BSE Consumer Durables Index 5.4 13.3 (17.0) (3.8) 35.6 93.4

Nifty 50 6.3 21.6 (9.1) (1.2) 11.7 30.6

Source: Bloomberg, HSIE Research Note: Green indicates out-performance to Nifty 50 during the respective period Red indicates under-performance to Nifty 50 during the respective period CD universe: Company wise valuation trend

P/E (x) 1 Yr Fwd P/E (x) Current P/E Premium (Discount)

10 Yr Avg 5 Yr Avg 3 Yr Avg Current 10 Yr Avg 5 Yr Avg 3 Yr Avg

Havells 34 46 53 53 57% 15% 0%

Voltas 26 31 38 39 53% 26% 3%

Crompton na 37 37 38 na 4% 2%

Symphony 39 57 63 40 4% -29% -36%

V-Guard 31 43 52 39 28% -10% -24%

TTK Prestige 36 41 42 38 5% -7% -9%

Blue Star 24 40 44 34 41% -15% -23%

Orient Electric na na 44 40 na na -8%

Whirlpool 33 42 47 56 73% 34% 19%

Johnson-Hitachi 48 60 68 72 49% 20% 5%

Dixon na na 37 58 na na 55%

Amber na na 26 34 na na 33%

Hawkins 29 28 26 28 -2% 2% 8%

Polycab na na 18 23 na na 27%

Appliances 31 36 40 42 36% 17% 5%


Page | 30


CD Companies P/E Bands HAVELLS P/E Band VOLTAS P/E Band CROMPTON P/E Band

SYMPHONY P/E Band V-GUARD P/E Band TTK P/E Band

BLUE STAR P/E Band ORIENT ELECT P/E Band WHIRLPOOL P/E Band

JOHNSON-HITACHI P/E Band DIXON P/E Band AMBER P/E Band

J

Source: Bloomberg, Companies, HSIE Research

10.x

24.x

38.x

52.x

66.x

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

Jul-1

5

Jul-1

6

Jul-1

7

Jul-1

8

Jul-1

9

Jul-2

0

P/E 3 Yr Avg P/E5 Yr Avg P/E 10 Yr Avg P/E

10.x

24.x

38.x

52.x

66.x

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

Jul-1

5

Jul-1

6

Jul-1

7

Jul-1

8

Jul-1

9

Jul-2

0


20.x

30.x

40.x

50.x

60.x

May

-16

Oct

-16

Mar

-17

Aug

-17

Jan-

18

Jun-

18

Nov

-18

Apr

-19

Sep-

19

Feb-

20

Jul-2

0

P/E 3 Yr Avg P/E5 Yr Avg P/E

0.x

40.x

80.x

120.x

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

Jul-1

5

Jul-1

6

Jul-1

7

Jul-1

8

Jul-1

9

Jul-2

0


0.x

11.x

22.x

33.x

44.x

55.x

66.x

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

Jul-1

5

Jul-1

6

Jul-1

7

Jul-1

8

Jul-1

9

Jul-2

0


0.x

12.x

24.x

36.x

48.x

60.x

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

Jul-1

5

Jul-1

6

Jul-1

7

Jul-1

8

Jul-1

9

Jul-2

0


0.x

11.x

22.x

33.x

44.x

55.x

66.x

Jul-1

8Se

p-18

Nov

-18

Jan-

19M

ar-1

9M

ay-1

9Ju

l-19

Sep-

19N

ov-1

9Ja

n-20

Mar

-20

May

-20

Jul-2

0

P/E 3 Yr Avg P/E

0.x

11.x

22.x

33.x

44.x

55.x

66.x

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

Jul-1

5

Jul-1

6

Jul-1

7

Jul-1

8

Jul-1

9

Jul-2

0


10.x24.x38.x52.x66.x80.x94.x

108.x122.x136.x150.x

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

Jul-1

5

Jul-1

6

Jul-1

7

Jul-1

8

Jul-1

9

Jul-2

0


0.x

20.x

40.x

60.x

80.x

100.x

Sep-

17N

ov-1

7Ja

n-18

Mar

-18

May

-18

Jul-1

8Se

p-18

Nov

-18

Jan-

19M

ar-1

9M

ay-1

9Ju

l-19

Sep-

19N

ov-1

9Ja

n-20

Mar

-20

May

-20

Jul-2

0

P/E 3 Yr Avg P/E

0.x

12.x

24.x

36.x

48.x

60.x

Jan-

18A

pr-1

8Ju

n-18

Aug

-18

Oct

-18

Dec

-18

Feb-

19A

pr-1

9Ju

n-19

Aug

-19

Oct

-19

Dec

-19

Feb-

20A

pr-2

0Ju

n-20

P/E 3 Yr Avg P/E

10.x

24.x

38.x

52.x

66.x

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

Jul-1

5

Jul-1

6

Jul-1

7

Jul-1

8

Jul-1

9

Jul-2

0


Page | 31


Companies

27 July 2020 Company Update

Havells India


Best in the pack to face sector headwinds Havells saw a weaker FY20 with revenue/EBITDA declining by 6/14% YoY as compared to 25/17% CAGR during FY16-FY19. Milder category growth (trade liquidity, slow construction activity), weak Lloyd growth and COVID-led lockdown impacted FY20 performance. Although the recovery in May and June is encouraging, the near-term performance would remain challenging owing to industry-led headwinds. The company had achieved many miles for Lloyd recovery in FY20 but lockdown during the peak season played a dampener. RAC has seen industry-wide challenges. Apart from long-term revenue growth multiplier (40x in 17 years), Havells also outperformed its peers after demonetisation and GST. Havells may see near-term challenges, but we continue to believe that it is best in the pack. Besides, the company will be able to rationalise its cost to support margin in FY21. We cut our EPS estimates by -4/+1% for FY21/22 to factor in the near-term pressure. We roll forward our target price to Jun-22 and value Havells at 40x P/E (36x earlier) to derive a target price of Rs 610. Maintain ADD. Near-term impact on revenue, share gain story remains intact: The

lockdown impacted the channel filling opportunity in March, which impacted 4QFY20 massively (-20% YoY). April was also impacted by lockdown, but May has seen a gradual recovery. June is expected to be close to normal with support from channel filling opportunity. The company was operating at 80-90% capacity utilisation in June. B-C business is expected to be normal, but B-B may take some time for a full recovery. Rural is expected to do well, and the company can capitalise on its distribution expansion in the last few years. Metros contribute 40% of sales, but we expect mix will change towards Tier 1 and Tier 2 cities. Havells market share gain will be further strengthened as marginal/regional players are more impacted.

Recovery signs in Lloyd were encouraging: Lloyd was impacted massively in FY19 (2% growth) although the RAC industry grew strongly. Price hike in RAC and stiff Chinese competition in TV Panels impacted the entire show. It raised various questions on Havells’ strategy for Lloyd. However, the company took several corrective actions: (1) lowered the price for RAC, (2) demonstrated Lloyd’s new plant to trade partners to boost their morale, and (3) launched several new products. It was going well for Lloyd before COVID led lockdown impacted the RAC industry. We are encouraged after seeing initial signs of Lloyd turnaround and have confidence that it will perform much better in the coming years. Entry into newer segments such as Ref and W/M will also drive growth for Lloyd when sentiment revives.

Cost savings to drive margin: Cost rationalisation will maintain Havells margins despite negative operating leverage. The company displayed its ability to weather the current headwinds by posting a healthy 11% EBITDA margin in 4QFY20.

Financial Summary (Rs mn) FY19 FY20 FY21E FY22E FY23E Net Revenue 100,677 94,292 85,342 103,322 115,858

EBITDA 11,838 10,274 9,888 13,025 15,338

APAT 7,873 7,330 6,396 8,927 10,730

EPS (Rs) 12.6 11.7 10.2 14.3 17.1

P/E (x) 45.9 49.3 56.6 40.5 33.7

EV/EBITDA (x) 29.5 34.2 35.0 26.2 21.9

Core RoCE (%) 26.8 21.2 17.8 24.8 29.6

Source: Company, HSIE Research

ADD CMP (as on 24 July 2020) Rs 607

Target Price Rs 610

NIFTY 11,194

KEY CHANGES

OLD NEW

Rating ADD ADD

Price Target Rs 515 Rs 610

EPS % FY21E FY22E

-4% 1%

KEY STOCK DATA

Bloomberg code HAVL IN

No. of Shares (mn) 626

MCap (Rs bn) / ($ mn) 380/5,077

6m avg traded value (Rs mn) 1,317

52 Week high / low Rs 766/447

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) 15.4 (2.6) (12.8)

Relative (%) (6.3) 5.8 (13.5)

SHAREHOLDING PATTERN (%)

Mar-20 June-20

Promoters 59.52 59.50

FIs & Local MFs 8.27 9.64

FPIs 23.04 21.95

Public & Others 9.17 8.91

Pledged Shares 0.07 0.09

Source : BSE

Naveen Trivedi [email protected] +91-22-6171-7324 Aditya Sane [email protected] +91-22-6171-7336

Page | 33

Havells: Company Update

Key Assumptions Particulars FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Havells Revenue Growth (%)

Cables and Wires 6.2 13.8 13.7 1.0 8.8 9.3 24.0 (7.4) (9.8) 16.8 10.0

Consumer Durables 38.0 8.1 20.5 11.0 22.4 21.0 30.0 5.7 (4.8) 19.8 14.0

Switch Gears 20.3 13.1 4.9 1.0 10.5 7.0 21.0 (5.1) (11.0) 16.0 10.0

Lighting & Fixtures 20.0 8.3 2.8 8.0 22.6 12.8 16.0 (11.6) (7.7) 16.5 10.4

Total Revenue 16.9 11.7 11.0 4.0 14.1 37.0 24.0 (6.3) (9.5) 21.1 12.1

Lloyd revenue growth (%) - - - - - 11.0 2.3 (14.3) (15.0) 40.0 16.0

Contribution Margin (%)

Cables and Wires 9.1 11.0 12.1 14.2 13.7 16.8 16.1 16.3 15.0 16.0 16.5

Consumer Durables 25.1 27.0 25.1 25.5 25.3 26.9 26.2 25.9 25.3 26.1 26.6

Switch Gears 33.9 36.3 36.5 39.5 39.9 39.6 40.1 38.5 37.5 38.7 38.9

Lighting & Fixtures 23.6 24.8 26.6 24.2 27.3 30.5 28.1 29.1 29.0 29.5 30.0

Total EBIT 20.7 22.5 22.7 24.0 24.5 24.8 23.7 22.7 22.5 23.4 23.9

Lloyd EBITDA margin (%) - - - - - 8.0 5.3 -5.9 3.0 6.2 7.5

Recent Performance Particulars (Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ(%) FY20 FY19 YoY(%)

Net Revenue 22,161 27,535 (19.5) 22,699 (2.4) 94,283 1,00,593 (6.3)

Material Expenses 14,146 17,382 (18.6) 13,718 3.1 58,432 62,859 (7.0)

Employee Expenses 1,989 2,217 (10.3) 2,195 (9.4) 8,992 8,329 8.0

ASP Expenses 325 1,030 (68.5) 773 (58.0) 3,209 3,842 (16.5)

Other Operating Expenses 3,249 3,757 (13.5) 3,323 (2.2) 13,410 13,720 (2.3)

EBITDA 2,453 3,149 (22.1) 2,690 (8.8) 10,241 11,843 (13.5)

Depreciation 625 392 59.4 553 13.1 2,054 1,487 38.2

EBIT 1,828 2,757 (33.7) 2,137 (14.5) 9,187 11,632 (21.0)

Other Income 195 311 (37.1) 239 (18.3) 1,145 1,277 (10.3)

Interest Cost 46 61 (25.1) 53 (12.5) 186 159 16.6

PBT 1,977 3,006 (34.2) 2,324 (14.9) 8,989 11,473 (21.7)

Exceptional item - - na - na - - na

PBT after exceptional 1,977 3,006 (34.2) 2,324 8,989 11,473 (21.7)

Tax 205 1,000 (79.5) 329 (37.6) 1,669 3,620 (53.9)

RPAT 1,772 2,007 (11.7) 1,995 (11.2) 7,320 7,854 (6.8)

Exceptional (net of taxes) - - na - na - - na

APAT 1,772 2,007 (11.7) 1,995 (11.2) 7,320 7,854 (6.8)

EPS (adjusted) 2.8 3.2 (11.7) 3.2 (11.2) 11.7 12.6 (6.8)

As a % of net sales Q4FY20 Q4FY19 YoY(bps) Q3FY20 QoQ(bps) FY20 FY19 YoY(bps)

Material Expenses 63.8 63.1 71 60.4 340 62.0 62.5 (51)

Employee Expenses 9.0 8.1 92 9.7 (69) 9.5 8.3 126

ASP Expenses 1.5 3.7 (228) 3.4 (194) 3.4 3.8 (42)

Other Operating Expenses 14.7 13.6 102 14.6 2 14.2 13.6 58

EBITDA Margin (%) 11.1 11.4 (37) 11.9 (78) 10.9 11.8 (91)

Tax Rate (%) 10.4 33.3 (2,288) 14.2 (378) 18.6 31.5 (1,298)

APAT Margin (%) 8.0 7.3 71 8.8 (79) 7.8 7.8 (4)

Page | 34


Financials Income Statement (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Net Revenues 53,783 61,353 81,386 100,677 94,292 85,342 103,322 115,858 Growth (%) 3.8 14.1 37.0 23.7 (6.3) (9.5) 21.1 12.1 Material Expenses 31,735 36,485 49,808 62,873 58,351 52,563 63,203 70,876 Employee Expense 3,708 5,004 6,497 8,373 8,996 9,008 9,909 10,900 ASP Expense 1,788 1,906 3,076 3,843 3,209 2,546 3,611 4,050 Distribution Expense 1,917 2,215 2,717 3,425 3,430 2,987 3,668 4,113 Other Expenses 7,086 7,501 8,795 10,325 10,031 8,350 9,906 10,581 EBITDA 7,549 8,241 10,493 11,838 10,274 9,888 13,025 15,338 EBITDA Growth (%) 8.0 9.2 27.3 12.8 (13.2) (3.8) 31.7 17.8 EBITDA Margin (%) 14.0 13.4 12.9 11.8 10.9 11.6 12.6 13.2 Depreciation 1,049 1,196 1,395 1,494 2,179 2,524 2,669 2,856 EBIT 6,500 7,045 9,098 10,345 8,095 7,363 10,355 12,482 Other Income 2,717 765 1,289 1,278 1,120 1,305 1,632 1,868 Interest 127 122 240 161 197 129 70 25 PBT 9,090 7,688 10,147 11,461 9,017 8,539 11,918 14,325 Total Tax 1,970 2,298 3,022 3,588 1,687 2,143 2,991 3,596 PAT 7,120 5,390 7,125 7,873 7,330 6,396 8,927 10,730 Adjusted PAT 5,141 5,967 7,036 7,873 7,330 6,396 8,927 10,730 APAT Growth (%) 10.6 16.1 17.9 11.9 (6.9) (12.7) 39.6 20.2 EPS 8.2 9.5 11.3 12.6 11.7 10.2 14.3 17.1 EPS Growth (%) 10.5 16.0 17.9 11.8 (6.9) (12.7) 39.6 20.2


Balance Sheet Year End (March) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E SOURCES OF FUNDS

Share Capital - Equity 625 625 625 626 626 626 626 626 Reserves 28,912 32,111 36,766 41,297 42,422 45,689 50,235 56,584 Total Shareholders Funds 29,537 32,736 37,392 41,922 43,048 46,315 50,861 57,210 Long Term Debt - - 810 405 - - - - Short Term Debt 444 1,981 270 540 405 305 - - Total Debt 444 1,981 1,080 945 405 305 - - Net Deferred Taxes 863 1,138 2,070 3,168 2,865 2,865 2,865 2,865 Other Non Current Liabilities 100 137 471 587 1,642 1,642 1,642 1,642 TOTAL SOURCES OF FUNDS 30,943 35,990 41,012 46,622 47,960 51,127 55,369 61,717 APPLICATION OF FUNDS

Net Block 11,773 12,476 13,017 14,335 18,994 17,970 17,301 16,945 Goodwill - 182 14,835 14,708 14,533 15,200 15,200 15,200 CWIP 306 747 366 2,553 929 515 515 515 Non Current Investments 3,096 2,274 417 16 16 16 16 16 LT Loans & Advances 631 259 276 356 531 366 366 366 Other Non Current Assets 305 136 176 1,005 1,020 1,020 1,020 1,020 Total Non-current Assets 16,111 16,072 29,087 32,974 36,024 35,087 34,418 34,062 Inventories 7,844 9,284 16,217 19,190 18,719 16,367 19,815 22,219 Debtors 1,576 2,285 3,254 4,242 2,489 2,806 3,397 3,809 Other Current Assets 925 804 1,432 1,795 1,947 1,790 2,104 2,323 Cash & Equivalents 14,973 20,992 15,262 12,877 11,069 15,459 20,210 26,815 Total Current Assets 25,318 33,365 36,164 38,104 34,223 36,422 45,527 55,167 Creditors 4,363 6,296 16,340 15,601 14,141 12,799 15,495 17,375 Other Current Liabilities & Provns 6,123 7,151 7,899 8,856 8,146 7,583 9,081 10,136 Total Current Liabilities 10,486 13,446 24,239 24,456 22,287 20,381 24,576 27,511 Net Current Assets 14,832 19,919 11,925 13,647 11,937 16,040 20,951 27,656 TOTAL APPLICATION OF FUNDS 30,943 35,991 41,012 46,621 47,961 51,127 55,369 61,717


Page | 35


Cash Flow Statement (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Reported PBT 9,142 7,688 10,028 11,461 9,017 8,539 11,918 14,325 Non-operating & EO Items (2,014) 512 (204) (69) 308 - - - Interest Expenses (450) (889) (249) (652) (644) (129) (70) (25) Depreciation 922 1,196 1,395 1,494 2,179 2,524 2,669 2,856 Working Capital Change (911) 1,323 2,556 (4,639) (215) 190 (614) (456) Tax Paid (1,446) (2,052) (2,450) (2,469) (2,398) (2,143) (2,991) (3,596) OPERATING CASH FLOW ( a ) 5,243 7,778 11,077 5,126 8,248 8,982 10,913 13,104 Capex (1,741) (2,369) (15,888) (4,996) (3,592) (1,753) (2,000) (2,500) Free Cash Flow (FCF) 3,502 5,410 (4,811) 130 4,655 7,229 8,913 10,604 Investments 2,412 (722) 5,028 6,002 (2,509) (667) (500) (500) Non-operating Income (1,427) 816 843 876 625 - - - INVESTING CASH FLOW ( b ) (756) (2,275) (10,017) 1,882 (5,477) (2,420) (2,500) (3,000) Debt Issuance/(Repaid) (434) 1,533 (901) (209) (540) (296) 57 263 Interest Expenses (62) (93) (197) (134) (52) 129 70 25 FCFE 3,129 7,035 (5,514) 56 4,167 6,804 8,900 10,843 Share Capital Issuance 41 93 147 180 242 - - - Dividend (4,511) (2,256) (2,632) (3,016) (6,413) (3,129) (4,381) (5,006) Others - - - - (397) - - - FINANCING CASH FLOW ( c ) (4,965) (724) (3,583) (3,180) (7,159) (3,297) (4,254) (4,718) NET CASH FLOW (a+b+c) (478) 4,780 (2,523) 3,829 (4,388) 3,266 4,159 5,386 EO Items, Others 12,692 13,828 12,236 (34) - - - - Closing Cash & Equivalents 750 5,548 3,026 12,911 11,069 14,959 19,210 24,690

Key Ratios KEY RATIOS FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E PROFITABILITY (%)

GPM 41.0 40.5 38.8 37.5 38.1 38.4 38.8 38.8 EBITDA Margin (%) 14.0 13.4 12.9 11.8 10.9 11.6 12.6 13.2 EBIT Margin 12.1 11.5 11.2 10.3 8.6 8.6 10.0 10.8 APAT Margin 13.2 8.8 8.8 7.8 7.8 7.5 8.6 9.3 RoE 19.3 19.2 20.1 19.9 17.3 14.3 18.4 20.0 RoIC (or Core RoCE) 27.8 35.5 33.9 26.8 21.2 17.8 24.8 29.6 RoCE 18.7 18.1 18.7 18.2 15.8 13.1 16.9 18.5 EFFICIENCY

Tax Rate (%) 27.9 27.8 30.1 31.3 18.7 25.1 25.1 25.1 Fixed Asset Turnover (x) 3.4 3.4 4.1 4.4 3.2 2.7 3.1 3.2 Inventory (days) 53.2 55.2 72.7 69.6 72.5 70.0 70.0 70.0 Debtors (days) 10.7 13.6 14.6 15.4 9.6 12.0 12.0 12.0 Other Current Assets (days) 6.3 4.8 6.4 6.5 7.5 7.7 7.4 7.3 Payables (days) 29.6 37.5 73.3 56.6 54.7 54.7 54.7 54.7 Other Current Liab & Provns (days) 41.0 43.5 36.2 32.8 32.3 32.4 32.1 31.9 Cash Conversion Cycle (days) (0.4) (7.4) (15.7) 2.1 2.6 2.5 2.6 2.6 Net D/E (x) (0.4) (0.5) (0.4) (0.3) (0.2) (0.3) (0.4) (0.4) Interest Coverage (x) 56.5 69.0 42.8 72.0 46.7 67.3 172.4 574.0 PER SHARE DATA (Rs)

EPS 8.2 9.5 11.3 12.6 11.7 10.2 14.3 17.1 CEPS 9.9 11.5 13.5 15.0 15.2 14.3 18.5 21.7 Dividend 6.0 3.5 4.0 4.5 4.0 5.0 7.0 8.0 Book Value 47.3 52.4 59.8 67.0 68.8 74.0 81.3 90.4 VALUATION

P/E (x) 70.2 60.5 51.4 45.9 49.3 56.6 40.5 33.7 P/BV (x) 12.2 11.0 9.7 8.6 8.4 7.8 7.1 6.4 EV/EBITDA (x) 45.9 41.5 33.1 29.5 34.2 35.0 26.2 21.9 EV/Revenues (x) 6.4 5.6 4.3 3.5 3.7 4.1 3.3 2.9 OCF/EV (%) 1.5 2.3 3.2 1.5 2.3 2.6 3.2 3.9 FCF/EV (%) 1.0 1.6 (1.4) 0.0 1.3 2.1 2.6 3.2 FCFE/Mkt Cap (%) 0.9 2.0 (1.5) 0.1 1.2 1.9 2.5 3.0 Dividend Yield (%) 1.0 0.6 0.7 0.8 0.7 0.9 1.2 1.4



Voltas


FY20 a dream year for UCP Voltas has seen a dream year for its UCP business, which clocked 29/57% YoY growth in revenue/EBIT in FY20 as compared to 8/-1% CAGR in FY16-19. Apart from a healthy show in 9MFY20, the company surprised the street by posting robust growth in its UCP business in 4QFY20. Cooling products have seen a massive impact (more at primary than at retail level) in 1QFY21 due to the lockdown, but our channel checks suggest market share gain for Voltas. The dominance will be driven by the broad range offered by the company, discounting by dealers, and a strong preference among consumers for Indian products. The RAC market was the most impacted among the CD categories as the lockdown was in the peak season. Thereby, 1Q is expected to be a weaker quarter for Voltas for both RAC and EMPS. Despite the near-term disruption, our long term thesis on Voltas remains the same. Market leadership (~24% share) in under-penetrated RAC category along with an entry in other large home appliances through Volt-Beko gives it multi-year growth visibility. We roll forward our target price to Jun-22 and value Voltas on a SoTP basis, arriving at an implied P/E of 32x (UCP 38x, EMPS 15x, EPS 12x P/E and Volt-Beko 1x EV/Revenue) to derive a target price of Rs 625. Maintain ADD. Dominance in RAC continues: Voltas continued its dominance in the RAC

segment in 4QFY20, expanding its market share by 50bps YoY to 24.2%. This was particularly heartening as the company also became the No. 1 player in Inverter ACs (beating LG). Our channel checks indicate that despite weak demand in RAC, the demand for Voltas has been strong where markets have opened up. Higher share from North region, aggressive price strategy and higher demand for Indian products supported the growth for Voltas in May-June. Trade inventory and weaker consumption sentiment may impact the company’s near-term performance, but we expect it to recover quickly.

Projects remain under pressure: EMPS business for Voltas saw a sharp decline of 18% YoY in 4QFY20 as a result of a slowdown in project execution. Key geographies for Voltas such as the Middle East have been adversely impacted due to lockdowns, resulting in slower execution. Labour availability is also a concern as India (urban to rural) as well as the Middle East (return of expats) has witnessed significant migration of labour. Further, stress on these economies is likely to limit spending on projects. Hence, we expect the EMPS business to remain under pressure in FY21.

Volt-Beko a ray of hope: Voltas set up a new factory for manufacturing projects under its JV named Volt-Beko. The company has continued to scale the brand and intends to drive its growth through the online channel. The brand offers a complete range of refrigerators and has witnessed market share gains in frost-free refrigerators as well as washing machines.

Financial Summary (Rs mn) FY19 FY20 FY21E FY22E FY23E Net Revenue 71,241 76,581 61,923 77,397 86,644 EBITDA 6,117 6,867 4,770 7,432 9,932 APAT 5,223 5,547 4,336 6,533 7,429 EPS (Rs) 15.8 16.8 13.1 19.7 22.5 P/E (x) 37.6 35.4 45.3 30.1 26.5 EV/EBITDA (x) 32.1 28.5 39.8 25.4 18.8 Core RoCE (%) 27.6 22.1 16.1 25.2 30.4 Source: Company, HSIE Research


Target Price Rs 625

NIFTY 11,194

KEY CHANGES OLD NEW

Rating ADD ADD


EPS % FY21E FY22E

0% +2%

KEY STOCK DATA

Bloomberg code VOLT IN


MCap (Rs bn) / ($ mn) 196/2,626

6m avg traded value (Rs mn) 1,331



3M 6M 12M

Absolute (%) 21.9 (17.9) 2.4

Relative (%) 0.1 (9.6) 1.6


Mar-20 June-20



FPIs 9.87 10.71



Source : BSE


Page | 37

Voltas: Company Update

Key Assumptions Particulars (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Revenue

UCP 25,105 25,210 30,469 32,261 31,556 40,737 31,292 39,948 45,141 YoY (%) 22% 2% 21% 6% -2% 29% -23% 28% 13% EMPS 22,085 28,288 26,550 28,452 36,191 32,461 27,269 33,787 37,503 YoY (%) -18% 23% -6% 7% 27% -10% -16% 24% 11% EPS 3,601 3,706 3,318 3,099 3,117 3,317 3,250 3,538 3,863 YoY (%) -20% 3% -10% -7% 1% 6% -2% 9% 9% Net Revenues 50,782 57,198 60,328 63,803 70,846 76,308 61,583 77,023 86,232 YoY (%) -2% 15% 5% 6% 11% 8% -19% 25% 12% EBIT Margin (%)

UCP 13.9% 13.4% 14.5% 14.7% 10.3% 12.6% 11.4% 12.5% 13.0% EMPS 1.0% 1.9% 3.2% 6.5% 7.7% 5.2% 2.5% 6.2% 6.2% EPS 30.0% 30.4% 28.8% 32.0% 33.7% 29.9% 31.8% 31.8% 31.7% Total 9.6% 8.8% 10.3% 11.9% 10.0% 10.2% 8.5% 10.6% 10.9%

Recent Performance (Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ (%) FY20 FY19 YoY (%)

Net Sales 20,896 20,628 1.3 14,925 40.0 76,581 71,241 7.5 Material Expenses 14,912 15,790 (5.6) 10,655 40.0 55,549 52,622 5.6 Employee Expenses 1,776 1,664 6.7 1,734 2.4 6,717 6,419 4.7 Other Operating Expenses 2,288 1,732 32.1 1,561 46.6 7,448 6,083 22.4 EBITDA 1,920 1,443 33.1 976 96.8 6,867 6,117 12.3 Depreciation 82 59 38.3 80 2.2 320 240 33.3 EBIT 1,838 1,384 32.8 895 105.3 6,547 5,877 11.4 Interest Cost 61 106 (43.1) 57 5.6 211 330 (36.0) Other Income 605 572 5.7 543 11.4 2,306 1,863 23.8 PBT (before exceptional) 2,382 1,849 28.8 1,381 72.6 8,642 7,410 16.6 Shareof profit / (loss) of jv and associates -195 -193 na -187 na -687 -518 na PBT 2,188 1,656 32.1 1,193 83.3 7,955 6,892 15.4 Exceptional item (20) - na - na (512) (118) na PBT (after exceptional) 2,167 1,656 30.9 1,193 81.6 7,443 6,774 9.9 Tax 572 239 139.9 314 82.5 2,233 1,635 36.5 Reported PAT 1,595 1,417 12.5 880 81.4 5,211 5,139 1.4 Adjustment 17 0 na 0 na 339 85 na APAT 1,612 1,417 13.7 880 83.3 5,549 5,223 6.2 EPS (adjusted) 4.9 4.3 13.7 2.7 83.3 16.8 15.8 6.2

As a % of Revenue Q4FY20 Q4FY19 YoY (bps) Q3FY20 QoQ (bps) FY20 FY19 YoY (%)

Material Expenses 71.4 76.5 -518 71.4 -3 72.5 73.9 -133 Employee Expenses 8.5 8.1 43 11.6 -312 8.8 9.0 -24 Other operating expenses 10.9 8.4 256 10.5 49 9.7 8.5 119 EBITDA Margin (%) 9.2 7.0 219 6.5 265 9.0 8.6 38 Tax Rate (%) 26.2 14.4 1176 26.3 -12 28.1 23.7 434 Net Profit Margin (%) 7.7 6.9 83 5.9 181 7.2 7.3 -9


Page | 38


Financials Consolidated Income Statement (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Net Revenues 57,198 60,328 64,044 71,241 76,581 61,923 77,397 86,644 Growth (%) 13.0 5.5 6.2 11.2 7.5 (19.1) 25.0 11.9 Material Expenses 40,871 42,359 45,675 52,622 55,549 45,134 56,500 63,252 Employee Expenses 6,351 6,184 5,867 6,419 6,717 7,063 7,910 8,859 SG&A Expenses 5,646 6,001 5,875 6,083 7,448 4,957 5,555 4,600 Total Expenses 52,869 54,545 57,417 65,124 69,714 57,154 69,965 76,711 EBIDTA 4,330 5,783 6,626 6,117 6,867 4,770 7,432 9,932 EBIDTA Margin (%) 7.6 9.6 10.3 8.6 9.0 7.7 9.6 11.5 EBIDTA Growth % 5.6 33.6 14.6 (7.7) 12.3 (30.5) 55.8 33.6 Depreciation 264 245 244 240 320 365 427 492 EBIT 4,066 5,539 6,383 5,877 6,547 4,404 7,005 9,441 Other Income 1,367 1,997 1,727 1,863 2,306 2,098 2,400 2,530 Interest 158 160 119 330 211 169 161 153 PBT (before associate income) 5,275 7,375 7,991 7,410 8,642 6,334 9,244 11,818 Share of Loss/(Profit) in Associates 62 (193) 38 (518) (687) (535) (510) (606) PBT (before exceptional item) 5,337 7,183 8,029 6,892 7,955 5,798 8,735 11,212 Exceptional 289 11 20 (118) (512) - - - PBT 5,626 7,194 8,049 6,774 7,443 5,798 8,735 11,212 Tax (Incl Deferred) 1,696 2,004 2,270 1,635 2,233 1,459 2,198 2,500 RPAT 3,931 5,189 5,779 5,139 5,211 4,339 6,536 8,712 Adjustment (202) (8) (14) 85 336 - - - APAT 3,729 5,182 5,765 5,223 5,547 4,336 6,533 7,429 APAT Growth (%) 6.6 39.0 11.3 (9.4) 6.2 (21.8) 50.7 13.7 Adjusted EPS (Rs) 11.3 15.7 17.4 15.8 16.8 13.1 19.7 22.5 EPS Growth (%) 6.6 39.0 11.3 (9.4) 6.2 (21.8) 50.7 13.7

Consolidated Balance Sheet Consolidated BS (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E SOURCES OF FUNDS

Share Capital 331 331 331 331 331 331 331 331 Reserves 27,780 32,735 38,721 40,769 42,471 46,477 52,183 58,123 Total Shareholders Funds 28,111 33,066 39,052 41,100 42,802 46,808 52,514 58,454 Minority Interest 267 285 317 348 365 365 365 365 Long Term Debt - - - - 54 54 54 54 Short Term Debt 2,707 1,709 1,423 3,147 2,124 2,024 1,924 1,824 Total Debt 2,707 1,709 1,423 3,147 2,179 2,079 1,979 1,879 Net Deferred Taxes (310) (198) (46) (993) (715) (715) (715) (715) Other Non-current Liabilities & Provns 821 916 883 854 1,008 815 1,018 1,140 TOTAL SOURCES OF FUNDS 31,595 35,779 41,629 44,455 45,639 49,351 55,161 61,123 APPLICATION OF FUNDS

Gross Block 5,218 5,165 5,262 5,766 6,329 7,579 8,829 10,079 Accumulated Dep 2,890 2,889 3,013 3,059 3,379 3,744 4,170 4,662 Net Block 2,327 2,276 2,248 2,707 2,951 3,835 4,659 5,417 CWIP 13 6 41 157 263 263 263 263 Goodwill 723 723 723 723 723 723 723 723 Investments in joint ventures and associates 793 586 1,558 2,102 2,776 3,026 3,276 3,526 Other Non-current Assets 1,283 907 1,271 2,302 2,818 2,279 2,848 3,189 Total Non-current Assets 5,140 4,498 5,842 7,991 9,530 10,126 11,769 13,117 Investments 18,665 22,093 25,978 21,756 20,657 21,657 22,657 23,657 Cash & equivalents 1,855 3,314 2,837 3,211 3,084 8,773 9,742 12,042 Inventories 7,247 9,070 8,130 10,907 14,689 9,331 11,663 13,056 Debtors 13,672 14,541 15,703 18,330 18,336 15,778 19,508 21,602 Other Current Assets 11,805 10,975 14,429 8,650 8,965 7,465 9,330 10,445 Total Current Assets 32,725 34,586 38,262 37,887 41,991 32,573 40,501 45,102 Creditors 17,488 19,946 21,764 23,745 26,889 21,573 26,751 29,710 Other Current Liabilities & Provns 9,301 8,766 9,525 2,647 2,735 2,205 2,757 3,086 Total Current Liabilities 26,789 28,711 31,289 26,392 29,624 23,778 29,508 32,796 Net Current Assets 5,936 5,875 6,973 11,496 12,367 8,795 10,993 12,306 TOTAL ASSETS 31,595 35,779 41,629 44,454 45,639 49,351 55,161 61,123


Page | 39


Cash Flow Statement Consolidated CF (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Reported PBT 5,626 7,194 8,049 6,774 7,443 5,798 8,735 11,212 Non-operating & EO items (1,436) (2,200) (2,194) (1,394) (378) (2,098) (2,400) (2,530) Interest Expenses 158 160 119 330 211 169 161 153 Depreciation 264 245 244 240 320 365 427 492 Working capital change (785) 692 (473) (6,456) (911) 3,572 (2,198) (1,313) Tax Paid (1,637) (1,819) (2,492) (2,708) (2,061) (1,459) (2,198) (2,500) OPERATING CASH FLOW ( a ) 2,190 4,272 3,253 (3,214) 4,625 6,346 2,526 5,513 Capex (160) (229) (331) (804) (832) (1,250) (1,250) (1,250) Free Cash Flow (FCF) 2,030 4,043 2,922 (4,019) 3,792 5,096 1,276 4,263 Investments (3,724) (1,286) (2,127) 3,785 (1,242) (1,250) (1,250) (1,250) Non-operating Income/(exp) 735 781 466 946 (31) 2,638 1,830 2,190 INVESTING CASH FLOW (b) (3,149) (733) (1,992) 3,927 (2,105) 138 (670) (310) Debt Issuance/(Repaid) 1,422 (998) (287) 1,724 (1,057) (100) (100) (100) Interest (146) (173) (120) (329) (212) (169) (161) (153) FCFE 3,307 2,873 2,515 (2,624) 2,523 4,828 1,015 4,010 Share Capital Issuance 0 - - - - - - - Dividend (793) (944) (1,407) (1,577) (1,627) (331) (827) (1,489) Others

(41) (193) 204 122

FINANCING CASH FLOW (c) 483 (2,115) (1,814) (183) (2,937) (792) (884) (1,620) NET CASH FLOW (a+b+c) (475) 1,424 (553) 531 (417) 5,692 972 3,583 Closing Cash & Equivalents 1,224 3,123 2,579 3,110 2,693 8,384 9,357 12,940

Key Ratios Key Ratios FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E PROFITABILITY %

GPM 28.5 29.8 28.7 26.1 27.5 27.1 27.0 27.0 EBITDA margin 7.6 9.6 10.3 8.6 9.0 7.7 9.6 11.5 APAT margin 6.5 8.6 9.0 7.3 7.2 7.0 8.4 8.6 RoE 14.0 16.9 16.0 13.0 13.2 9.7 13.2 13.4 Core RoCE (RoIC) 26.6 37.3 39.5 27.6 22.1 16.1 25.2 30.4 RoCE 12.6 15.9 14.9 13.0 13.4 9.9 13.3 15.8 EFFICIENCY

Tax Rate (%) 30.1 27.9 28.2 24.1 30.0 25.2 25.2 22.3 Fixed Asset Turnover (x) 24.4 26.4 28.0 24.9 23.8 15.1 15.7 15.3 Inventory (days) 46.2 54.9 46.3 55.9 70.0 55.0 55.0 55.0 Debtors (days) 87.2 88.0 89.5 93.9 87.4 93.0 92.0 91.0 Other Current Assets (days) 75.3 66.4 82.2 44.3 42.7 44.0 44.0 44.0 Payables (days) 111.6 120.7 124.0 121.7 128.2 127.2 126.2 125.2 Other Current Liab & Provns (days) 59.4 53.0 54.3 13.6 13.0 13.0 13.0 13.0 Cash Conversion Cycle (days) 37.9 35.5 39.7 58.9 58.9 51.8 51.8 51.8 Debt/EBITDA (x) 0.6 0.3 0.2 0.5 0.3 0.4 0.3 0.2 Net D/E (x) 0.0 (0.0) (0.0) (0.0) (0.0) (0.1) (0.1) (0.2) Interest Coverage (x) 25.7 34.5 53.5 17.8 31.0 26.1 43.6 61.8 PER SHARE DATA (Rs)


P/E (x) 52.7 37.9 34.1 37.6 35.4 45.3 30.1 26.5 P/BV (x) 7.0 5.9 5.0 4.8 4.6 4.2 3.7 3.4 EV/EBITDA (x) 45.6 33.7 29.4 32.1 28.5 39.8 25.4 18.8 EV/Revenues (x) 3.5 3.2 3.0 2.8 2.6 3.1 2.4 2.2 OCF/EV (%) 1.1 2.2 1.7 (1.6) 2.4 3.3 1.3 3.0 FCF/EV (%) 1.0 2.1 1.5 (2.0) 1.9 2.7 0.7 2.3 FCFE/Mkt Cap (%) 1.7 1.5 1.3 (1.3) 1.3 2.5 0.5 2.0 Dividend Yield (%) 0.4 0.6 0.7 0.7 0.2 0.4 0.8 1.1



Crompton Consumer


Standing strong Crompton, which was impacted by the COVID-led lockdown, clocked 16/18% revenue/EBITDA decline in 4Q. Fans and lighting both are necessity categories with a higher share of B-C, unlike cooling products and electrical construction material categories which are more impacted. It gives us hope that lockdown impact will be lesser, and recovery will be quicker than its peers for Crompton. Healthy agri economy can also drive Pumps and Fans in rural. FY21 may witness industry-led disruption for Crompton, but we remain confident on long term potential. Crompton has high brand recall along with strong distribution network (market leader in high penetrated Fan) which the company will be able to leverage for other appliance categories. Crompton is under indexed for appliances. Strong balance sheet and FCFs can be capitalised in market share gain and roll-out of newer products. We cut our EPS estimates by -3%/+1% for FY21/22 to factor in the near term demand pressure. We roll forward our TP to Jun-22 and value Crompton at 35x P/E (earlier 30x) to derive a TP of Rs 275. Maintain ADD. Expect outperformance in FY21: Higher share of B-C and presence in

necessity categories will result in outperformance for Crompton in FY21. The rural economy has seen a strong revival amid the lockdown due to less stringent conditions and migration of labour. ECD segment has already been outperforming its peers led by market share gain in Fans and healthy growth from appliances. GTM strategy has started benefiting company, and we expect more benefits to come after the ongoing disruption. Crompton can be aggressive for new product rollout and market share gain.

Lighting revival expected: B-B business for Crompton was impacted adversely due to the lockdown, and the company expects some price erosion in the near term. B-G business, which accounts for 50% of B-B, will be slow to recover. However. B-C lighting saw a substantial boost at the beginning of 4QFY20 as Crompton registered 37% volume growth in Jan/Feb 2020. We expect this recovery to resume from 2HFY21. Additionally, B-C lighting also saw pricing pressure ease up as companies took price increases for the first time since July 2019. However, given the weak sentiments, further price increases might be delayed by a few months. Lockdown will also present opportunities for market share gains as unorganised players will find it difficult to sustain through liquidity constraints. Hence, we expect Crompton’s Lighting business to emerge stronger and command a higher market share once recovery resumes.

Cost control to support margin: We expect Crompton management will be able to control cost efficiently to support the margin in the current challenging period.



Target Price Rs 275

NIFTY 11,194

KEY CHANGES OLD NEW

Rating ADD ADD


EPS % FY21E FY22E

-3% 1%

KEY STOCK DATA

Bloomberg code CROMPTON IN


MCap (Rs bn) / ($ mn) 158/2,105

6m avg traded value (Rs mn) 255



3M 6M 12M

Absolute (%) 14.3 (4.3) 9.1

Relative (%) (7.4) 4.0 8.4


Mar-20 June-20



FPIs 30.51 29.92



Source : BSE


Page | 41

Crompton Consumer: Company Update

Key Assumptions Particulars FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Revenue Growth (%)

Fans 13.0 9.0 -1.5 12.1 5.1 -9.0 15.0 11.0 Lighting 6.0 8.3 13.0 -0.8 -11.3 -11.0 18.0 13.0 Pump 13.0 9.0 -2.0 17.5 5.0 -8.0 12.5 12.5 Appliances 13.5 -40.8 60.0 25.0 10.0 5.0 18.0 20.0

Segmental Revenue Growth

Lighting Products na 10.9 20.0 3.7 -11.3 -11.0 18.0 13.0 Electric Consumer Goods na 10.9 5.0 15.9 5.5 -7.5 14.6 12.3 Total 11.0 11.8 8.0 11.3 0.7 -8.4 15.4 12.5

EBIT Margin (%)

Lighting Products na 8.8 11.5 8.4 6.1 7.0 7.5 8.0 Electric Consumer Goods na 17.1 18.9 19.2 19.9 19.3 19.7 19.8

Gross Margin (%) 28.9 28.6 29.9 29.5 30.7 30.9 31.4 31.9 ASP (% of sales) 1.92 2.58 2.59 2.04 2.19 3.18 3.35 3.35 Distribution (% of sales) 2.55 2.29 2.45 2.89 2.91 2.91 2.45 2.45 EBITDA Margin (%) 11.6 12.4 13.0 13.1 13.2 12.6 13.1 13.4 ETR (%) 33.3 33.4 33.3 28.3 15.9 25.2 25.2 25.2

Recent Performance Particulars (Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ(%) FY20 FY19 YoY(%) Net Revenue 10,181 12,069 (15.6) 10,713 (5.0) 45,120 44,789 0.7 Material Expenses 6,961 8,332 (16.5) 7,290 (4.5) 30,650 30,918 (0.9) Employee Expenses 706 765 (7.7) 774 (8.7) 3,110 2,919 6.5 Other Operating Expenses 1,129 1,286 (12.2) 1,281 (11.8) 5,395 5,094 5.9 EBITDA 1,384 1,685 (17.9) 1,369 1.1 5,965 5,858 1.8 Depreciation 82 33 148.5 64 27.7 268 129 107.8 EBIT 1,302 1,652 (21.2) 1,304 (0.2) 5,697 5,729 (0.6) Other Income 119 172 (30.7) 174 (31.5) 589 483 21.9 Interest Cost 83 143 (42.4) 87 (5.4) 407 596 (31.8) PBT 1,339 1,681 (20.4) 1,391 (3.7) 5,879 5,616 4.7 Exceptional item - - na - na - - na PBT after exceptional 1,339 1,681 (20.4) 1,391 (3.7) 5,879 5,616 4.7 Tax 341 265 28.8 (219) (255.6) 936 1,590 (41.2) RPAT 998 1,417 (29.5) 1,610 (38.0) 4,943 4,025 22.8 EO Items (Adj For Tax) - 299 na 567 na (567) (299) na APAT 998 1,118 (10.7) 1,043 (4.3) 4,376 3,727 17.4 EPS 1.59 1.78 (10.8) 1.66 (4.3) 6.98 5.95 17.4

As a % of net sales Q4

FY20 Q4

FY19 YoY

(bps) Q3

FY20 QoQ (bps)

FY20 FY19 YoY

(bps)

Material Expenses 68.4 69.0 (67) 68.0 33 67.9 69.0 (110)


Other Operating Expenses 11.1 10.7 44 12.0 (87) 12.0 11.4 58

EBITDA Margin 13.6 14.0 (37) 12.8 82 13.2 13.1 14

Tax Rate 25.5 15.7 972 (15.8) 4,121 15.9 28.3 (1,240)

APAT Margin 9.8 9.3 54 9.7 7 9.7 8.3 138


Page | 42


Financials Income Statement Particulars (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Net Revenues 18,117 39,009 40,797 44,789 45,120 41,348 47,718 53,687 Growth (%)

9.7 8.0 11.3 0.7 (8.4) 15.4 12.5

Material Expenses 12,889 27,838 28,600 31,557 31,252 28,575 32,729 36,585 Employee Expense 1,005 2,322 2,827 2,919 3,110 3,251 3,678 4,165 ASP Expense 348 1,007 1,056 912 989 1,315 1,599 1,798 Distribution Expense 462 894 999 1,294 1,313 1,204 1,169 1,315 Other expenses 1,319 2,101 2,005 2,250 2,487 1,801 2,302 2,628 EBITDA 2,095 4,846 5,310 5,858 5,969 5,203 6,242 7,196 EBITDA Growth (%)

15.7 9.6 10.3 1.9 (12.8) 20.0 15.3

EBITDA Margin (%) 11.6 12.4 13.0 13.1 13.2 12.6 13.1 13.4 Depreciation 63 110 126 129 268 276 330 360 EBIT 2,032 4,736 5,184 5,729 5,701 4,927 5,912 6,836 Other Income (Including EO Items) 178 220 308 483 589 605 749 878 Interest 355 655 637 596 407 379 244 187 PBT 1,577 4,250 4,854 5,616 5,883 5,153 6,417 7,527 Tax 525 1,419 1,617 1,590 936 1,297 1,615 1,894 RPAT 1,052 2,832 3,238 4,025 4,947 3,856 4,802 5,632 Adjustment 93 17 (0) (298) (571) - - - Adjusted PAT 1,145 2,849 3,238 3,727 4,376 3,856 4,802 5,632 APAT Growth (%)

24.4 13.7 15.1 17.4 (11.9) 24.5 17.3

EPS 1.8 4.5 5.2 5.9 7.0 6.0 7.5 8.8 EPS Growth (%)

24.4 13.7 15.1 17.4 (13.9) 24.5 17.3


Balance Sheet Particulars (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E SOURCES OF FUNDS

Share Capital - Equity 1,254 1,254 1,254 1,254 1,255 1,284 1,284 1,284 Reserves 810 3,924 6,642 9,730 13,423 16,529 20,528 25,036 Total Shareholders Funds 2,064 5,178 7,895 10,984 14,678 17,814 21,812 26,321 Long Term Debt 5,072 6,478 6,486 6,493 3,497 4,797 3,297 2,497 Short Term Debt 100 - - - - - - - Total Debt 5,172 6,478 6,486 6,493 3,497 4,797 3,297 2,497 Net Deferred Taxes (161) (295) (479) (597) (506) (506) (506) (506) Other Non-Current Liabilities 146 176 175 173 191 200 226 256 TOTAL SOURCES OF FUNDS 7,220 11,537 14,077 17,053 17,860 22,304 24,829 28,568 APPLICATION OF FUNDS

Tangible Assets 786 821 822 837 1,296 1,305 1,975 2,615 CWIP 1 1 6 10 199 - - - Goodwill 7,794 7,794 7,794 7,794 7,794 7,794 7,794 7,794 Other Non-Current Assets 178 186 274 393 445 483 519 555 Total Non-current Assets 8,759 8,801 8,896 9,035 9,734 9,582 10,288 10,965 Inventories 2,451 2,734 3,032 3,524 4,636 4,135 4,533 5,100 Debtors 3,569 4,728 5,536 5,660 4,587 4,204 4,851 5,458 Other Current Assets 743 687 855 976 1,320 1,282 1,456 1,626 Cash & Equivalents 900 3,888 5,452 6,724 5,866 10,905 12,665 15,501 Total Current Assets 7,664 12,037 14,876 16,883 16,409 20,526 23,506 27,685 Creditors 6,674 7,128 7,682 6,642 6,372 5,840 6,739 7,582 Other Current Liabilities 2,529 2,174 2,012 2,224 1,914 1,964 2,225 2,500 Total Current Liabilities 9,203 9,302 9,695 8,866 8,286 7,803 8,965 10,082 Net Current Assets (1,539) 2,736 5,181 8,018 8,123 12,723 14,541 17,603 TOTAL APPLICATION OF FUNDS 7,220 11,537 14,077 17,053 17,857 22,304 24,829 28,568


Page | 43


Cash Flow Statement Particulars (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Reported PBT 1,577 4,276 4,854 5,616 5,883 5,153 6,417 7,527 Interest Expenses 351 655 637 596 407 379 244 187 Depreciation 63 110 126 129 268 276 330 360 Working Capital Change 357 (548) (933) (1,202) (602) 439 (59) (226) Tax Paid (540) (1,466) (1,812) (1,994) (1,445) (1,297) (1,615) (1,894) OPERATING CASH FLOW ( a ) 1,757 3,126 3,154 3,014 4,211 4,950 5,317 5,953 Capex (15) (150) (135) (160) (494) (285) (1,000) (1,000) Free Cash Flow (FCF) 1,742 2,976 3,020 2,855 3,717 4,665 4,317 4,953 Investments - (3,233) (482) (1,675) 238 (500) (500) (500) Non-operating Income 40 190 286 262 240 (37) (37) (36) INVESTING CASH FLOW ( b ) 24 (3,193) (331) (1,714) (17) (822) (1,537) (1,536) Debt Issuance/(Repaid) (533) 56 - - (3,088) 1,300 (1,500) (800) Interest Expenses (351) (230) (634) (587) (586) (379) (244) (187) FCFE 898 (242) 2,190 713 520 5,048 2,036 3,430 Share Capital Issuance - - 7 38 52 83 321 321 Dividend - - (1,129) (1,312) (1,506) (803) (1,124) (1,445) Others

- - - - 9 26 30

FINANCING CASH FLOW ( c ) (883) (175) (1,755) (1,862) (5,128) 209 (2,521) (2,081) NET CASH FLOW (a+b+c) 898 (242) 1,069 (562) (934) 4,337 1,260 2,336 EO Items, Others - 41 8 212 (20) - - - Closing Cash & Equivalents 898 697 1,774 1,424 471 5,009 6,269 8,605

Key Ratios

FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E PROFITABILITY (%)


Tax Rate (%) 33.3 33.4 33.3 28.3 15.9 25.2 25.2 25.2 Fixed Asset Turnover (x) 3.7 4.5 4.6 5.0 4.6 4.1 4.3 4.5 Inventory (days) 24.7 25.6 27.1 28.7 37.5 36.5 34.7 34.7 Debtors (days) 36.0 44.2 49.5 46.1 37.1 37.1 37.1 37.1 Other Current Assets (days) 7.5 6.4 7.6 8.0 10.7 11.3 11.1 11.1 Payables (days) 67.2 66.7 68.7 54.1 51.5 51.5 51.5 51.5 Other Current Liab & Provns (days) 25.5 20.3 18.0 18.1 15.5 17.3 17.0 17.0 Cash Conversion Cycle (days) (24.6) (10.8) (2.4) 10.5 18.3 16.0 14.4 14.3 Net D/E (x) 2.1 0.5 0.1 (0.0) (0.2) (0.3) (0.4) (0.5) Interest Coverage (x) 5.7 7.2 8.1 9.6 14.0 13.0 24.2 36.5 PER SHARE DATA (Rs)

EPS 1.8 4.5 5.2 5.9 7.0 6.0 7.5 8.8 CEPS 1.9 4.7 5.4 6.1 7.4 6.4 8.0 9.3 Dividend - 1.5 1.8 2.0 - 1.3 1.8 2.3 Book Value 3.3 8.3 12.6 17.5 23.4 27.7 34.0 41.0 VALUATION

P/E (x) 69.0 55.4 48.8 42.4 36.1 42.0 33.7 28.7 P/BV (x) 38.3 30.5 20.0 14.4 10.8 9.1 7.4 6.1 EV/EBITDA (x) 38.7 33.1 29.9 26.9 26.1 29.9 24.4 20.7 EV/Revenues (x) 4.5 4.1 3.9 3.5 3.5 3.8 3.2 2.8 OCF/EV (%) 1.1 1.9 2.0 1.9 2.7 3.2 3.5 4.0 FCF/EV (%) 1.1 1.9 1.9 1.8 2.4 3.0 2.8 3.3 FCFE/Mkt Cap (%) 0.6 (0.2) 1.4 0.5 0.3 3.1 1.3 2.1 Dividend Yield (%) - 0.6 0.7 0.8 - 0.5 0.7 0.9



Symphony


Weathering the storm The COVID-led lockdown has impacted Symphony the same way as it has impacted the air cooler industry. The domestic air cooler industry has been significantly hit by the loss of sales during the summer of 2020. Symphony is a market leader in the branded air cooler market and sells the majority of air coolers in the non-season quarters. Hence, weaker consumer offtake for air cooler has resulted in higher trade inventory. It will not only impact 1Q but will also have an adverse impact in the coming quarters. International business will also see COVID led impact, but the impact will be lower than the domestic business. We remain confident about the long-term growth potential of the branded residential air cooler in India and overseas, along with Symphony’s capability to market share gain. However, near term pressure is likely to continue, and we believe the risk-reward at the moment remains unattractive. We cut our EPS by 16/9% for FY21/22 to factor in the near term demand pressure. We roll forward our TP to Jun-22 and value Symphony at 30x P/E to derive a TP of Rs 828. Maintain REDUCE. A strong brand in the largely unorganised market: Symphony’s brand

recognition is extremely high in the air cooler market. The company commands a 50% value market share in the organized market. Unorganized market share of ~70% is highest for any CD categories. With changing consumer preference towards branded products, we expect the air cooler market will also shift towards branded air cooler. In branded air cooler, apart from Symphony, other big players are Voltas, Bajaj, Kenstar, Orient, Crompton and Havells. These top 5-6 players will help in developing branded air cooler. With consumers’ rising buying trend from the futuristic channel (MT, Ecomm), it will further help Symphony in gaining share.

Cross-selling opportunities: Symphony has significant cross-selling opportunities through its subsidiaries in Mexico and Australia. The company began selling its Indian products in the Mexican and Australian markets in FY20. Additionally, CT, the Australian subsidiary, also has a strong presence in the US. Sale of air coolers and water heaters within the US could be a key driver for growth for CT, along with the expanding business in Australia.

Healthy margin, strong balance sheet: Symphony commands industry-leading operating margin at 30% in the domestic business. Asset light business model provides core RoCE of >100% for its domestic business. Company has been trying to diversify its revenues by entering newer geographies and through international acquisitions. Thereby, consolidated EBITDA margin and RoCE has gone down. Symphony has several unlock opportunities in commercial/industrial air cooling in India and cross-selling opportunity across geographies.


REDUCE CMP (as on 24 July 2020) Rs 846

Target Price Rs 828

NIFTY 11,194

KEY CHANGES

OLD NEW

Rating REDUCE REDUCE


EPS % FY21E FY22E

-16% -9%

KEY STOCK DATA

Bloomberg code SYML IN


MCap (Rs bn) / ($ mn) 59/791


52 Week high / low Rs 1,405/690


3M 6M 12M

Absolute (%) (6.7) (32.9) (30.1)

Relative (%) (28.4) (24.6) (30.8)


Mar-20 June-20



FPIs 5.28 4.86



Source : BSE


Page | 45

Symphony: Company Update

Key Assumptions Particulars FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Standalone

Volume Growth

India 14.1 21.3 13.3 5.3 (25.4) 38.1 (33.3) 35.3 13.0 Export (5.4) 16.0 12.4 (5.6) (20.9) 9.9 (3.8) 11.6 12.0 Total 10.8 20.6 13.2 3.9 (24.9) 34.5 (30.2) 31.9 12.9

Realisaiton Growth

India (9.2) (1.1) 6.4 (0.3) 0.8 0.9 0.5 - - Export 0.3 0.4 2.4 (3.0) 9.1 3.8 (0.1) (0.0) - Total (9.1) 0.8 6.0 (0.3) 1.5 1.6 (0.2) 0.0 0.0

Revenue Growth 2.5 19.7 20.0 3.5 (23.8) 36.6 (30.4) 31.9 12.9 Gross Margin (%) 52.9 54.9 53.3 53.5 50.2 50.3 50.1 50.4 50.4 Employee (%) 6.6 7.2 7.0 7.6 10.1 7.7 11.7 10.2 10.4 SG&A (%) 7.7 2.0 5.7 4.5 4.8 5.4 4.6 4.2 4.5 Other Expenses (%) 9.5 9.0 9.3 9.4 9.5 9.1 10.2 9.8 8.6 EBITDA Margin 29.1 36.7 31.3 32.0 25.8 28.1 23.6 26.2 26.9 Subsidiaries

Revenue Growth

IMPCO - (0.6) 24.0 9.1 (3.4) 17.5 (15.0) 12.0 5.0 MKE (China) na na na (8.0) 20.0 (23.6) (5.0) 6.0 5.0 CT (Australia)

(0.5) 1.2 6.0 8.0 9.0

EBITDA Margin

IMPCO 7.8 15.2 5.3 3.3 4.0 6.1 3.0 5.0 5.0 MKE (China) na na (18.9) (10.1) (2.1) (7.1) (5.0) 5.0 5.0 CT (Australia)

-2.5 6.8 8.0 8.0 8.0

Recent Performance Particulars (Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ(%) FY20 FY19 YoY(%) Net Revenue 1,540 1,380 11.6 2,070 (25.6) 7,160 5,240 36.6 Material Expenses 680 710 (4.2) 1,050 (35.2) 3,560 2,610 36.4 Employee Expenses 130 130 - 140 (7.1) 550 530 3.8 ASP Expenses 70 40 75.0 30 133.3 390 250 56.0 Other Expenses 170 90 88.9 180 (5.6) 650 500 30.0 EBITDA 490 410 19.5 670 (26.9) 2,010 1,350 48.9 Depreciation 20 10 100.0 10 100.0 60 40 50.0 EBIT 470 400 17.5 660 (28.8) 1,950 1,310 48.9 Other Income 140 100 40.0 110 27.3 540 389 38.8 Interest - - na - na - - na Exceptional (20) (200) na - na (20) (240) PBT 590 500 18.0 770 (23.4) 2,420 1,640 47.6 Tax 140 110 27.3 190 (26.3) 540 390 38.5 PAT 450 390 15.4 580 (22.4) 1,860 1,010 84.2 Adjustment 14 (60) - 14 169 APAT 464 330 40.6 580 (20.0) 1,874 1,179 59.0 EPS (Adjusted) 6.6 4.7 40.6 8.3 (20.0) 26.8 16.9 59.0

As a % of net sales Q4FY20 Q4FY19 YoY(bps) Q3FY20 QoQ(bps) FY20 FY19 YoY(bps)

Material Expenses 44.2 51.4 (729) 50.7 (657) 49.7 49.8 (9) Employee Expenses 8.4 9.4 (98) 6.8 168 7.7 10.1 (243) ASP Expenses 4.5 2.9 165 1.4 310 5.4 4.8 68 Other Expenses 11.0 6.5 452 8.7 234 9.1 9.5 (46) EBITDA Margin (%) 31.8 29.7 211 32.4 (55) 28.1 25.8 231 Tax Rate (%) 23.7 22.0 173 24.7 (95) 22.3 23.8 (147) APAT Margin (%) 29.2 28.3 96 28.0 120 26.0 19.3 670 Source: Company, HSIE Research

Page | 46


Financials Consolidated Income Statement (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Net Revenues 4,455 7,680 7,983 8,440 11,030 8,690 10,615 11,786 Growth (%) 13.0 29.3 3.9 5.7 30.7 (21.2) 22.1 11.0 Material Expenses 2,013 3,644 3,853 4,530 5,830 4,607 5,602 6,220 Employee Expense 425 687 727 1,031 1,130 1,274 1,454 1,660 ASP Expense 238 653 328 327 450 355 433 481 Distribution Expense 144 241 - - - - - - Other Expenses 275 445 881 1,233 1,500 889 928 934 EBITDA 1,360 2,009 2,193 1,319 2,120 1,566 2,198 2,491 EBITDA Growth (%) 37.0 10.8 9.1 (39.8) 60.7 (26.2) 40.4 13.3 EBITDA Margin (%) 30.5 26.2 27.5 15.6 19.2 18.0 20.7 21.1 Depreciation 43 69 68 99 210 240 253 256 EBIT 1,317 1,940 2,125 1,221 1,910 1,325 1,945 2,235 Other Income (Including EO Items) 209 432 541 149 500 609 610 655 Interest 2 0 18 70 110 114 77 45 PBT 1,524 2,372 2,648 1,300 2,300 1,821 2,478 2,845 Tax 465 681 723 386 480 493 635 643 RPAT 1,059 1,691 1,926 914 1,820 1,327 1,843 2,202 Adjustment 90 - - (168) - - - - Adjusted PAT 969 1,691 1,926 1,082 1,820 1,327 1,843 2,202 APAT Growth (%) 25.8 15.9 13.9 (43.8) 68.2 (27.1) 38.9 19.5 EPS 15.6 24.2 27.5 15.5 26.0 19.0 26.3 31.5 EPS Growth (%) 25.8 15.9 13.9 (43.8) 68.2 (27.1) 38.9 19.5


Consolidated Balance Sheet Year End (March) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E SOURCES OF FUNDS

Share Capital - Equity 70 140 140 140 140 140 140 140 Reserves 3,116 4,450 5,976 6,521 6,250 6,457 7,041 7,983 Total Shareholders Funds 3,186 4,590 6,116 6,661 6,390 6,597 7,181 8,123 Long Term Debt - - - 1,236 720 1,164 776 194 Short Term Debt - 193 256 643 1,020 1,020 1,020 1,020 Total Debt - 193 256 1,879 1,740 2,184 1,796 1,214 Net Deferred Taxes 25 45 89 (134) 70 70 70 70 Long Term Provisions & Others 67 27 23 71 90 99 109 120 TOTAL SOURCES OF FUNDS 3,278 4,855 6,484 8,475 8,290 8,950 9,155 9,526 APPLICATION OF FUNDS

Net Block 775 810 818 2,374 2,830 2,717 2,593 2,468 CWIP 30 - - 58 20 20 20 20 LT Loans & Advances 27 43 51 66 40 40 40 40 Other Non Current Assets 1 1 9 9 (10) (10) (10) (10) Total Non-current Assets 833 854 877 2,508 2,880 2,767 2,644 2,518 Inventories 551 773 796 1,195 1,180 630 812 908 Debtors 469 523 615 1,047 1,210 646 833 931 Other Current Assets 284 543 828 643 620 1,105 1,241 1,358 Cash & Equivalents 2,087 3,294 4,449 5,122 4,380 5,044 5,152 5,510 Total Current Assets 3,391 5,134 6,689 8,007 7,390 7,426 8,038 8,707 Creditors 496 609 584 1,291 1,150 614 792 885 Other Current Liabilities & Provns 450 523 498 715 790 629 735 814 Total Current Liabilities 946 1,133 1,082 2,005 1,940 1,243 1,526 1,699 Net Current Assets 2,445 4,001 5,607 6,001 5,450 6,183 6,512 7,008 TOTAL APPLICATION OF FUNDS 3,278 4,855 6,484 8,509 8,330 8,950 9,155 9,526


Page | 47


Consolidated Cash Flow Statement Year End (March) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Reported PBT 1,649 2,337 1,926 916 1,820 1,821 2,478 2,845 Non-operating & EO Items (306) (387) 191 251 150 - - - Interest Expenses 2 0 18 69 110 114 77 45 Depreciation 43 71 68 99 210 240 253 256 Working Capital Change (93) (390) (487) 505 (150) (60) (211) (128) Tax Paid (410) (682) (647) (444) (570) (493) (635) (643) OPERATING CASH FLOW ( a ) 885 949 1,069 1,396 1,570 1,622 1,962 2,375 Capex (40) (68) 14 (86) (1,260) (128) (129) (130) Free Cash Flow (FCF) 845 880 1,083 1,309 310 1,494 1,833 2,244 Investments 529 (788) (1,172) (2,600) (30) (1,000) (1,000) (1,000) Non-operating Income 210 204 134 186 190 - - - INVESTING CASH FLOW ( b ) 698 (652) (1,024) (2,500) (1,100) (1,128) (1,129) (1,130) Debt Issuance/(Repaid) - 193 62 1,623 (140) 444 (388) (582) Interest Expenses (2) (0) (18) (69) (110) (114) (77) (45) FCFE 843 1,073 1,127 2,863 60 1,825 1,368 1,617 Share Capital Issuance - - - - (90) - - - Dividend (1,453) (240) (335) (376) (2,060) (1,120) (1,260) (1,400) Others - - - - (90) - - - FINANCING CASH FLOW ( c ) (1,455) (47) (291) 1,178 (2,490) (790) (1,725) (2,027) NET CASH FLOW (a+b+c) 129 250 (246) 73 (2,020) (295) (892) (783) EO Items, Others 260 (248) 5 239 1,743 (40) (0) 0 Closing Cash & Equivalents 464 466 226 538 260 (76) (968) (1,750) Reported PBT 1,649 2,337 1,926 916 1,820 1,821 2,478 2,845

Key Ratios

FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

PROFITABILITY (%)

GPM 54.8 52.5 51.7 46.3 47.1 47.0 47.2 47.2 EBITDA Margin 30.5 26.2 27.5 15.6 19.2 18.0 20.7 21.2 EBIT Margin 29.6 25.3 26.6 14.5 17.3 15.2 18.3 19.0 APAT Margin 21.8 22.0 24.1 12.8 16.5 15.3 17.4 18.7 RoE 41.4 43.5 36.0 16.9 27.9 20.4 26.8 29.0 RoIC (or Core RoCE) 146.7 106.9 90.6 32.1 42.2 25.8 38.3 45.4 RoCE 41.4 42.4 34.8 15.2 22.9 16.7 21.4 24.6 EFFICIENCY

Tax Rate (%) 30.5 28.7 27.3 29.7 20.9 27.1 25.6 22.6 Fixed Asset Turnover (x) 3.1 3.9 3.7 3.5 4.3 3.1 3.6 3.7 Inventory (days) 33.8 36.8 36.4 51.7 39.0 26.5 27.9 28.1 Debtors (days) 28.8 24.9 28.1 45.3 40.0 27.1 28.6 28.8 Other Current Assets (days) 17.5 25.8 37.9 27.8 20.5 46.4 42.7 42.0 Payables (days) 30.5 29.0 26.7 55.8 38.1 25.8 27.2 27.4 Other Current Liab & Provns (days) 27.6 24.9 22.8 30.9 26.1 26.4 25.3 25.2 Cash Conversion Cycle (days) 22.0 33.6 52.9 38.0 35.4 47.8 46.7 46.4 Net D/E (x) (0.7) (0.7) (0.7) (0.5) (0.4) (0.4) (0.5) (0.5) Interest Coverage (x) 665 5,915 119 17 17 12 25 50 PER SHARE DATA (Rs)


P/E (x) 40.7 35.1 30.8 54.9 32.6 44.7 32.2 27.0 P/BV (x) 18.6 12.9 9.7 8.9 9.3 9.0 8.3 7.4 EV/EBITDA (x) 31.6 28.0 25.2 42.5 26.8 36.1 25.5 22.1 EV/Revenues (x) 9.6 7.3 6.9 6.6 5.1 6.5 5.3 4.7 OCF/EV (%) 1.5 1.7 1.9 2.5 2.8 2.9 3.5 4.3 FCF/EV (%) 2.0 1.6 2.0 2.3 2.5 2.6 3.3 4.1 Dividend Yield (%) 1.5 0.5 0.5 0.7 2.7 1.9 2.1 2.4



V-Guard Industries


Missing excitement V-Guard witnessed a slowdown in its growth in FY20 even before COVID struck. The lockdown further impacted the company, which has a high reliance on Southern markets and low market share in non-South markets. V-Guard has a low presence in North markets, which saw faster recovery than other markets. The decline was witnessed across all categories, and seasonal products are expected to be impacted further in 1QFY21. V-Guard’s revenue growth in the south has been weak for the past seven years as it clocked a mere 5% CAGR. At the same time, non-south was the key driver with 17% CAGR in the past seven years. With rising competition in the non-south market, V-Guard is also finding difficulties in growing its non-south business (clocked 8% growth in the past two years). Hence, apart from near term industry-led challenges, the V-Guard story requires more checks to achieve 15% growth guidance by the management. We cut our EPS estimates by 2% for FY21/22 to factor in the weak sentiments and challenges in inventory liquidation. We roll forward our target price to Jun-22 and value V-Guard at 30x P/E (earlier 28x) to derive a target price of Rs 157. Maintain REDUCE.

Broad-based weakness: V-Guard saw a broad-based decline in its revenue in 4QFY20 as the company struggled across all categories. Although growth in Jan/Feb was slightly above the growth in 9MFY20, the company ended up with a severe decline as Southern markets were impacted before the rest of the country. V-Guard is the number 3 or 4 player in most of its categories in the non-South markets and, hence, channel partners in these markets preferred to stock up on products from market leaders.

South dependence continues to hurt: V-Guard has a high dependence on the southern markets (~60% revenue mix). Markets in the south were impacted earlier than the rest of the country, putting significant pressure on the company. Additionally, V-Guard has a low presence in the northern markets where recovery has been fastest. Although the company witnessed a revival in the East and South markets, we expect revenue to remain under pressure in FY21.

Healthy margin expansion in FY20: V-Guard has witnessed EBITDA margin expansion of 150bps YoY to 10% in FY20. More in-house manufacturing and lower price difference between south and non-south prices are supporting margin.

Financial Summary (Rs mn) FY19 FY20 FY21E FY22E FY23E

Net Revenue 25,664 24,820 23,443 27,728 30,916

EBITDA 2,194 2,533 2,331 2,835 3,230

APAT 1,733 1,776 1,737 2,143 2,458

EPS (Rs) 4.06 4.15 4.06 5.00 5.74

P/E (x) 41.6 40.7 41.6 33.7 29.4

EV/EBITDA (x) 32.1 28.0 30.0 24.5 21.3

Core RoCE (%) 21.1 20.5 17.4 21.3 22.6


REDUCE CMP (as on 24 July 2020) Rs 169

Target Price Rs 157

NIFTY 11,194

KEY CHANGES

OLD NEW

Rating REDUCE REDUCE


EPS % FY21E FY22E

-2% -2%

KEY STOCK DATA

Bloomberg code VGRD IN


MCap (Rs bn) / ($ mn) 72/967




3M 6M 12M

Absolute (%) (0.6) (26.1) (27.1)

Relative (%) (22.4) (17.7) (27.8)


Mar-20 June-20



FPIs 13.39 13.07



Source : BSE


Page | 49

V-Guard Industries: Company Update

Key Assumptions Particulars FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Revenue Growth (%) 15.0 6.7 15.5 15.0 12.0 (3.3) (5.5) 18.3 11.5

Stabilizers 22.7 12.5 16.6 5.0 1.2 3.1 (14.7) 20.5 9.0 UPS (Digital + Standalone) 20.6 (11.7) 19.1 21.8 9.4 (6.1) (13.7) 22.9 10.6 Pumps (6.5) 11.1 24.6 14.0 (0.1) (6.0) (6.9) 17.4 8.0 Cables & Wires (PVC + LT) 6.8 0.9 8.5 21.0 11.2 (8.2) (6.1) 15.8 11.0 Water Heaters (Electric + Solar) 30.1 11.5 5.2 12.0 13.5 (1.0) 3.4 13.6 9.9 Fans 34.3 28.5 13.6 21.0 13.6 (0.3) 3.4 20.8 12.0 New Products Total 43.7 17.0 20.5 38.7 57.9 2.5 6.0 21.7 25.0

Gross Margin (%) 25.4 28.9 28.3 29.3 29.0 32.2 31.5 32.1 32.1 Employee (% of sales) 6.3 6.8 7.9 8.5 7.9 8.3 9.8 9.5 9.7 ASP (% of sales) 4.0 4.3 2.5 4.3 2.5 2.3 2.7 2.7 2.7 Distribution (% of sales) 1.0 1.0 1.2 1.2 1.2 1.2 1.2 1.2 1.2 Other Expenses (% of sales) 6.5 7.2 6.7 7.2 8.9 10.2 7.8 8.4 8.0 EBITDA Margin (%) 7.6 9.6 10.0 8.1 8.5 10.2 9.9 10.2 10.4 Adjusted EBITDA Margin (%) 7.6 9.6 10.0 9.6 8.9 10.3 9.9 10.2 10.4 Tax rate (%) 30.3 30.6 29.0 24.9 22.9 24.6 25.1 25.1 25.1

Recent Performance

(Rs mn) Q4

FY20 Q4

FY19 YoY (%)

Q3 FY20

QoQ (%)

FY20 FY19 YoY (%)

Net Revenue 5,366 7,397 (27.5) 6,266 (14.4) 24,820 25,664 (3.3)

Material Expenses 3,578 5,208 (31.3) 4,186 (14.5) 16,582 17,992 (7.8)

Employee Expenses 432 525 (17.9) 584 (26.1) 2,068 2,020 2.4

ASP Expense 199 340 (41.6) 313 (36.6) 1,113 1,348 (17.4)

Other Operating Expenses 707 542 30.5 589 20.1 2,524 2,110 19.6

EBITDA 452 781 (42.2) 594 (24.0) 2,533 2,194 15.4

EBITDA (Adjusted) 452 781 (42.2) 594 (24.0) 2,705 2,294 17.9

Depreciation 71 55 27.8 73 (3.3) 281 218 28.7

EBIT 381 726 (47.6) 521 (26.9) 2,252 1,976 14.0

Other Income 52 68 (23.2) 54 (4.7) 240 183 31.4

Interest Cost 9 2 286.2 10 (13.0) 37 13 194.8

PBT 424 791 (46.4) 565 (25.0) 2,455 2,146 14.4

Tax 99 199 (50.3) 137 (27.6) 603 491 22.9

PAT 325 592 (45.1) 429 (24.2) 1,852 1,656 11.9

APAT 325 592 (45.1) 429 (24.2) 1,776 1,733 2.5

EPS 0.76 1.39 (45.2) 1.00 (24.2) 4.15 4.06 2.2

As a % of Revenue Q4FY20 Q4FY19 YoY

(bps) Q3FY20 QoQ

(bps) FY20 FY19 YoY

(%) Material Expenses 66.7 70.4 (374) 66.8 (13) 66.8 70.1 (329)


ASP Expenses 3.7 4.6 (90) 5.0 (130) 4.5 5.3 (77)

Other Operating Expenses 13.2 7.3 585 9.4 378 10.2 8.2 195

EBITDA Margin (%) 8.4 10.6 (215) 9.5 (107) 10.2 8.6 166 EBITDA Margin (%) - Adjusted

8.4 10.6 (215) 9.5 (107) 10.9 8.9 196

Tax Rate (%) 23.3 25.1 (181) 24.2 (84) 24.6 22.9 169

APAT Margin (%) 6.1 8.0 (195) 6.8 (78) 7.5 6.5 101


Page | 50


Financials Income Statement Year End (March) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Net Revenues 18,623 20,856 23,117 25,664 24,820 23,443 27,728 30,916 Growth (%) 6.7 15.5 15.0 12.0 (3.3) (5.5) 18.3 11.5 Material Expenses 13,246 14,949 16,348 18,213 16,825 16,068 18,836 20,996 Employee Expense 1,266 1,640 1,973 2,020 2,068 2,302 2,639 3,006 ASP Expense 803 529 991 650 568 633 749 835 Distribution Expense 194 247 279 309 299 282 334 372 Other Expenses 1,248 1,293 1,521 2,143 2,381 1,690 2,174 2,295 EBITDA 1,780 2,087 1,870 2,194 2,533 2,331 2,835 3,230 EBITDA Growth (%) 33.8 17.2 (10.4) 17.3 15.4 (8.0) 21.6 14.0 EBITDA Margin (%) 9.6 10.0 8.1 8.5 10.2 9.9 10.2 10.4 Adj. EBITDA Margin (%) 9.6 10.0 9.6 8.9 10.3 9.9 10.2 10.4 Depreciation 154 162 191 218 281 293 326 366 EBIT 1,627 1,924 1,679 1,976 2,252 2,038 2,508 2,864 Other Income (Including EO Items) 72 135 111 183 240 300 372 436 Interest 89 21 17 13 37 19 19 19 PBT 1,610 2,038 1,774 2,146 2,454 2,319 2,862 3,281 Tax 493 591 442 491 603 582 718 824 RPAT 1,117 1,447 1,332 1,655 1,852 1,737 2,143 2,458 Adjusted PAT 1,117 1,447 1,601 1,733 1,776 1,737 2,143 2,458 APAT Growth (%) 57.9 29.5 10.7 8.2 2.5 (2.2) 23.4 14.7 EPS 2.7 3.4 3.8 4.1 4.1 4.1 5.0 5.7 EPS Growth (%) 57.3 28.5 10.4 7.9 2.2 (2.2) 23.4 14.7



Share Capital - Equity 301 425 426 427 428 428 428 428 Reserves 4,407 5,919 7,090 8,570 9,509 10,294 11,360 12,615 Total Shareholders Funds 4,708 6,344 7,516 8,997 9,938 10,722 11,788 13,043 Long Term Debt 56 24 0 0 0 0 0 0 Short Term Debt 15 1 - 100 100 100 100 100 Total Debt 71 25 0 100 100 100 100 100 Net Deferred Taxes 75 40 29 22 (22) 29 29 29 Long Term Provisions & Others 176 67 118 148 465 122 138 149 TOTAL SOURCES OF FUNDS 5,029 6,475 7,664 9,268 10,480 10,974 12,055 13,322 APPLICATION OF FUNDS

Net Block 1,611 1,684 2,006 2,135 2,675 2,683 2,957 3,191 CWIP 21 238 149 227 819 819 819 819 Non Current Investments - 3 91 91 91 91 91 91 LT Loans & Advances 180 201 221 321 257 272 287 302 Other Non Current Assets 2 - - - - - - - Total Non-current Assets 1,814 2,125 2,468 2,774 3,842 3,866 4,154 4,403 Inventories 2,047 2,743 3,105 3,709 4,764 4,303 4,634 5,167 Debtors 2,792 3,121 4,445 4,672 3,218 3,039 3,495 3,896 Other Current Assets 242 316 727 760 1,081 984 1,028 1,076 Cash & Equivalents 270 1,038 802 1,678 1,475 2,449 2,973 3,455 Total Current Assets 5,351 7,218 9,078 10,818 10,538 10,775 12,129 13,594 Creditors 1,511 2,186 3,286 3,561 3,007 2,773 3,251 3,624 Other Current Liabilities & Provns 625 682 597 764 893 894 977 1,052 Total Current Liabilities 2,136 2,868 3,883 4,325 3,900 3,667 4,228 4,676 Net Current Assets 3,216 4,350 5,196 6,493 6,638 7,108 7,901 8,918 CE 5,029 6,475 7,664 9,268 10,480 10,974 12,055 13,322


Page | 51


Cash Flow Statement Year ending March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Reported PBT 1,610 2,037 1,773 2,146 2,454 2,319 2,862 3,281 Non-operating & EO Items - 176 173 72 (103) - - - Interest Expenses 89 (4) (4) 4 28 19 19 19 Depreciation 154 162 191 218 281 293 326 366 Working Capital Change (517) (418) (1,183) (385) (505) 503 (268) (535) Tax Paid (511) (656) (408) (521) (762) (582) (718) (824) OPERATING CASH FLOW ( a ) 825 1,298 542 1,534 1,394 2,552 2,220 2,307 Capex (108) (422) (413) (513) (839) (302) (600) (600) Free Cash Flow (FCF) 717 876 129 1,021 554 2,251 1,620 1,707 Investments (209) (3) (62) - (876) (165) (165) (165) Non-operating Income - (631) 203 16 611 - - - INVESTING CASH FLOW ( b ) (317) (1,055) (271) (498) (1,104) (467) (765) (765) Debt Issuance/(Repaid) (178) (153) (32) 76 (43) (284) - - Interest Expenses (89) (10) (7) (4) (2) (19) (19) (19) FCFE 450 714 90 1,093 509 1,948 1,601 1,689 Share Capital Issuance 58 92 27 46 22 - - - Dividend (246) (91) (358) (359) (875) (952) (1,078) (1,203) Others - - - - - (8) 16 12 FINANCING CASH FLOW ( c ) (456) (161) (369) (241) (898) (1,262) (1,081) (1,210) NET CASH FLOW (a+b+c) 53 82 (99) 796 (609) 823 374 332 EO Items, Others (2) - - - - - - - Closing Cash & Equivalents 76 150 50 847 1,115 1,939 2,313 2,645

Key Ratios Particulars FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E PROFITABILITY (%)


Tax Rate (%) 30.6 29.0 24.9 22.9 24.6 25.1 25.1 25.1 Fixed Asset Turnover (x) 7.4 7.5 6.9 7.1 5.8 5.0 5.2 5.2 Inventory (days) 40.1 48.0 49.0 52.7 70.1 67.0 61.0 61.0 Debtors (days) 54.7 54.6 70.2 66.4 47.3 47.3 46.0 46.0 Other Current Assets (days) 4.7 5.5 11.5 10.8 15.9 15.3 13.5 12.7 Payables (days) 29.6 38.3 51.9 50.6 44.2 43.2 42.8 42.8 Other Current Liab & Provns (days) 12.2 11.9 9.4 10.9 13.1 13.9 12.9 12.4 Cash Conversion Cycle (days) 57.7 58.0 69.4 68.5 75.9 72.5 64.9 64.5 Net D/E (x) (0.0) (0.2) (0.1) (0.2) (0.1) (0.2) (0.2) (0.3) Interest Coverage (x) 18.2 91.7 101.2 na na na na na PER SHARE DATA (Rs)


P/E (x) 63.7 49.6 44.9 41.6 40.7 41.6 33.7 29.4 P/BV (x) 10.8 11.3 9.6 8.0 7.3 6.7 6.1 5.5 EV/EBITDA (x) 39.9 33.9 38.0 32.1 28.0 30.0 24.5 21.3 EV/Revenues (x) 3.8 3.4 3.1 2.7 2.9 3.0 2.5 2.2 OCF/EV (%) 1.2 1.8 0.8 2.2 2.0 3.7 3.2 3.3 FCF/EV (%) 1.7 1.2 0.2 1.4 0.8 3.2 2.3 2.5 FCFE/Mkt Cap (%) 0.6 1.0 0.1 1.5 0.7 2.7 2.2 2.3 Dividend Yield (%) 0.4 0.4 0.4 0.8 1.0 1.1 1.3 1.4


27 July 2020 Initiating Coverage

TTK Prestige


Pure consumer play TTK Prestige’s revenue declined by 2% YoY in FY20, which is a sharp dip after posting 15% CAGR during FY16-19. It was mainly due to the COVID-19 disruption, a downturn in rural growth, and high base in FY19. The company is a market leader in cookers and a strong player in kitchenware. It commands a high brand recall in ~Rs 160bn Kitchenware & KEA market (the addressable market is 8x of FY20 revenue). It has delivered 20x and 43x revenue and EBITDA over the past 17 years, outperforming its close peer Hawkins (7x/20x revenue/EBITDA). It is a pure B-C story with penetration, distribution, and premiumisation drivers. We expect more people to work from home and, hence, the increase in home cooking will support a faster revenue recovery in FY21. TTK is among the few consumer companies who are spending high on A&P spend during this crises to gain share (particularly on Ecomm). We initiate coverage on TTK Prestige with an ADD rating on the stock. We value it on Jun-22 EPS at 35x P/E, deriving a target price of Rs 6,000.

Gradual near-term recovery: TTK Prestige saw a gradual improvement in its revenues in May and June. Ecomm has seen massive growth (100%) in June, which contributed 12-14% to FY20 revenue. General Trade also has seen improvement while Modern Trade remains weak due to weak footfalls. Karnataka and Kerala were doing well in May-June while Maharashtra, Delhi, and East region were weak due to the lockdown.

Non-discretionary categories and rural growth to boost revenue: Rural growth is expected to be ahead of urban in FY21 on account of (1) mass migration of labour and capital from urban to rural areas and (2) government initiatives to boost the agri economy. TTK has a strong presence in rural areas, where it is focusing on expanding its distribution. Rural, so far, contributes 5% for TTK. Going ahead, we expect rural demand to drive revenue growth for the company. Additionally, most of TTK’s categories are non-essentials and, hence, the impact on demand could be low. Work-from-home is expected to increase the demand for kitchen appliances, and we believe the company is well-positioned to capitalise on it.

Market share dominance to continue: TTK Prestige has a dominant market share in cookers and a strong presence in kitchen appliances. We expect the company to maintain its market share, led by product diversification and improvement in distribution. It also intends to procure its entire raw material domestically from Sep’20 onwards, which would improve its positioning as consumer demand shifts towards Indian brands. The company also has zero debt and strong FCF generation, which will allow it to diversify into new categories.


ADD CMP (as on 24 July 2020) Rs 5,521

Target Price Rs 6,000

NIFTY 11,194

KEY CHANGES

OLD NEW

Rating - ADD

Price Target - Rs 6,000

EPS % FY21E FY22E

- -

KEY STOCK DATA

Bloomberg code TTKPT IN


MCap (Rs bn) / ($ mn) 76/1,023


52 Week high / low Rs 6,716/3,901


3M 6M 12M

Absolute (%) 17.5 (8.3) (3.6)

Relative (%) (2.7) (1.0) (4.3)


Mar-20 June-20



FPIs 9.84 9.51



Source : BSE


Page | 53

TTK Prestige: Initiating Coverage

Key Assumption Revenue (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Cookers 5,574 5,960 6,280 7,030 6,507 6,468 7,330 8,136 Cookware 2,749 2,833 3,000 3,241 3,132 3,037 3,537 3,962 Appliances 6,689 7,433 8,610 10,040 10,322 9,837 11,599 13,339 Horwood - 1,415 1,249 1,389 1,328 1,222 1,344 1,411 Others 577 1,093 742 767 807 768 909 1,063 Total 15,588 18,734 19,881 22,467 22,095 21,332 24,720 27,911

YoY Gr (%)

Cookers 5.6 6.9 11.0 13.7 (7.4) (0.6) 13.3 11.0 Cookware 4.5 3.1 10.2 11.0 (3.4) (3.0) 16.5 12.0 Appliances 16.7 11.1 20.9 18.5 2.8 (4.7) 17.9 15.0 Horwood na na (11.7) 11.2 (4.4) (8.0) 10.0 5.0 Total - 19.7 13.7 14.2 (1.6) (3.3) 15.9 12.9

Revenue Mix (%)

Cookers 35.8 31.8 31.6 31.3 29.4 30.3 29.7 29.1 Cookware 17.6 15.1 15.1 14.4 14.2 14.2 14.3 14.2 Appliances 42.9 39.7 43.3 44.7 46.7 46.1 46.9 47.8 Horwood - 7.6 6.3 6.2 6.0 5.7 5.4 5.1 Others 3.7 5.8 3.7 3.4 3.7 3.6 3.7 3.8 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Gross Margin (%) 40.4 40.2 42.2 42.1 41.9 42.8 43.1 43.1 Employee Cost (% of sales) 7.4 7.9 8.5 8.8 9.1 11.0 10.6 10.5 ASP Expenses (% of sales) 7.5 7.7 8.2 7.1 7.0 6.0 6.2 6.2 Distribution Expenses (% of sales) 6.2 6.4 6.4 6.2 6.2 6.2 6.2 6.2 EBITDA Margin (%) 12.3 12.3 13.2 13.9 12.7 13.6 14.0 14.1

Total sales: Same platform, different journey! Total EBITDA: Outperformance even here


-

5,000

10,000

15,000

20,000

25,000

FY03

FY

04

FY05

FY

06

FY07

FY

08

FY09

FY

10

FY11

FY

12

FY13

FY

14

FY15

FY

16

FY17

FY

18

FY19

FY

20

TTK Hawkins(Rs mn)

(500)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

FY03

FY

04

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FY

06

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08

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FY

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TTK Hawkins(Rs mn)

Page | 54


Financials Income Statement Year End (March) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Net Revenues 14,879 17,451 18,714 21,069 20,730 20,052 23,247 26,249 Growth (%)

17.3 13.7 14.2 (1.6) (3.3) 15.9 12.9

Material Expenses 8,872 10,429 10,821 12,206 12,046 11,462 13,230 14,933 Employee Expense 1,102 1,377 1,586 1,860 1,893 2,205 2,465 2,746 ASP Expense 1,121 1,272 1,475 1,474 1,403 1,172 1,399 1,581 Distribution Expense 1,252 1,510 1,584 1,744 1,975 1,668 1,916 2,151 Other Expenses 703 719 772 865 777 811 993 1,151 EBITDA 1,829 2,145 2,474 2,920 2,635 2,734 3,244 3,688 EBITDA Growth (%)

17.3 15.4 18.0 (9.8) 3.8 18.6 13.7

EBITDA Margin (%) 12.3 12.3 13.2 13.9 12.7 13.6 14.0 14.1 Depreciation 209 257 256 265 366 404 449 458 EBIT 1,620 1,888 2,218 2,656 2,269 2,330 2,795 3,230 Other Income (Including EO Items) 104 67 124 252 247 272 286 294 Interest 18 76 41 45 55 61 56 51 PBT 1,705 1,879 2,302 2,863 2,461 2,541 3,024 3,473 Tax 512 332 956 940 499 638 759 872 RPAT 1,156 1,507 2,635 1,924 1,845 1,903 2,265 2,601 Adjustment 26 (191) (941) - 88 - - - APAT 1,182 1,316 1,693 1,924 1,933 1,903 2,265 2,601 APAT Growth (%)

11.3 28.7 13.6 0.5 (1.6) 19.1 14.8

Adjusted EPS (Rs) 84.6 94.0 122.1 138.7 139.4 137.2 163.2 187.4 EPS Growth (%) 25.2 11.2 29.8 13.6 0.5 (1.6) 19.0 14.8


Share Capital - Equity 117 117 116 116 139 139 139 139 Reserves 7,114 8,420 10,081 11,547 12,924 14,508 16,412 18,611 Total Shareholders Funds 7,231 8,536 10,197 11,663 13,087 14,647 16,551 18,750 Long Term Debt - 1,132 923 543 186 186 186 186 Short Term Debt - - 369 362 - - - - Total Debt - 1,132 1,292 905 186 186 186 186 Net Deferred Taxes 292 354 417 443 329 329 329 329 Other Non Current Liabilities 68 63 54 30 292 292 292 292 TOTAL SOURCES OF FUNDS 7,590 10,085 11,959 13,041 13,894 15,454 17,358 19,557 APPLICATION OF FUNDS

Net Block 3,286 3,702 3,587 3,708 4,132 4,028 4,078 4,120 CWIP 31 15 43 206 57 57 57 57 Other intangible assets 14 15 9 34 30 30 30 30 Goodwill - 1,142 1,303 1,278 1,251 1,251 1,251 1,251 Non Current Investments 239 239 2 264 1 1 1 1 Other Non Current Assets 123 227 276 314 663 729 802 882 Total Non-current Assets 3,693 5,340 5,220 5,804 6,134 6,096 6,219 6,341 Inventories 3,247 3,799 4,372 4,714 4,706 4,553 5,278 5,959 Debtors 1,753 2,153 2,583 3,051 2,781 2,360 2,673 2,946 Other Current Assets 521 200 493 485 508 440 510 575 Cash & Equivalents 755 1,401 3,025 2,466 3,885 6,164 7,419 9,065 Total Current Assets 6,276 7,552 10,473 10,715 11,881 13,517 15,879 18,546 Creditors 1,322 1,562 2,384 2,033 1,978 1,803 2,091 2,361 Other Current Liabilities & Provns 1,057 1,245 1,350 1,446 2,143 2,355 2,649 2,970 Total Current Liabilities 2,378 2,807 3,734 3,478 4,121 4,158 4,740 5,330 Net Current Assets 3,898 4,745 6,739 7,237 7,760 9,358 11,139 13,216 TOTAL APPLICATION OF FUNDS 7,590 10,085 11,959 13,041 13,894 15,454 17,358 19,557


Page | 55


Cash Flow Statement Year ending March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Reported PBT 1,668 1,839 3,591 2,863 2,344 2,541 3,024 3,473 Non-operating & EO Items (42) (155) (1,206) (126) (64) - - - Interest Expenses (60) 66 25 (48) 6 61 56 51 Depreciation 209 257 256 265 366 404 449 458 Working Capital Change (638) (695) (472) (1,101) 556 681 (527) (430) Tax Paid (356) (370) (927) (912) (672) (638) (759) (872) OPERATING CASH FLOW ( a ) 781 941 1,268 940 2,535 3,049 2,244 2,681 Capex (171) (262) (121) (572) (577) (300) (500) (500) Free Cash Flow (FCF) 610 679 1,147 368 1,958 2,749 1,744 2,181 Investments - (1,447) (1,514) 391 (1,413) (250) (250) (250) Non-operating Income 113 24 1,604 179 153 (66) (73) (80) INVESTING CASH FLOW ( b ) (59) (1,686) (31) (2) (1,837) (616) (823) (830) Debt Issuance/(Repaid) - 1,132 - (380) (346) - - - Interest Expenses (18) (76) (41) (45) (33) (61) (56) (51) FCFE 591 1,736 1,106 (57) 1,579 2,688 1,688 2,130 Share Capital Issuance - - (708) - - 0 - - Dividend (687) - (377) (418) (501) (319) (361) (403) Others - - - - (75) - - - FINANCING CASH FLOW ( c ) (705) 1,057 (1,127) (843) (955) (380) (417) (453) NET CASH FLOW (a+b+c) 17 312 110 95 (257) 2,053 1,004 1,397 EO Items, Others

29 592 (640) 22 (24) (0) -

Closing Cash & Equivalents 312 653 1,355 811 576 2,605 3,609 5,006

Key Ratios

FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

PROFITABILITY (%)

GPM 40.4 40.2 42.2 42.1 41.9 42.8 43.1 43.1 EBITDA Margin 12.3 12.3 13.2 13.9 12.7 13.6 14.0 14.1 EBIT Margin 10.9 10.8 11.9 12.6 10.9 11.6 12.0 12.3 APAT Margin 7.9 7.5 9.0 9.1 9.3 9.5 9.7 9.9 RoE 16.3 16.7 18.1 17.6 15.6 13.7 14.5 14.7 RoIC (or Core RoCE) 17.5 18.9 20.5 21.1 20.0 20.8 25.0 27.0 RoCE 15.7 15.3 14.1 14.3 13.4 11.9 12.8 13.1 EFFICIENCY

Tax Rate (%) 30.0 17.7 41.6 32.8 20.3 25.1 25.1 25.1 Fixed Asset Turnover (x) 4.3 4.1 4.3 4.4 3.7 3.4 3.6 3.8 Inventory (days) 79.7 79.5 85.3 81.7 82.9 82.9 82.9 82.9 Debtors (days) 43.0 45.0 50.4 52.9 49.0 43.0 42.0 41.0 Other Current Assets (days) 12.7 3.8 9.4 7.8 8.3 8.0 8.0 8.0 Payables (days) 32.4 32.7 46.5 35.2 34.8 32.8 32.8 32.8 Other Current Liab & Provns (days) 22.5 5.8 4.7 4.3 5.2 5.2 5.2 5.2 Cash Conversion Cycle (days) 80.4 89.8 93.8 102.8 100.1 95.8 94.8 93.8 Net D/E (x) (0.1) (0.0) (0.2) (0.1) (0.3) (0.4) (0.4) (0.5) Interest Coverage (x) 88.0 24.9 54.2 59.0 41.6 38.3 50.0 63.5 PER SHARE DATA (Rs)

EPS 84.6 94.0 122.1 138.7 139.4 137.2 163.2 187.4 CEPS 102.5 116.1 144.2 161.5 165.7 166.3 195.6 220.4 Dividend 22.0 27.0 27.0 30.0 20.0 23.0 26.0 29.0 Book Value 621 732 882 1,009 944 1,055 1,192 1,351 VALUATION

P/E (x) 65.1 58.6 45.1 39.7 39.5 40.2 33.8 29.4 P/BV (x) 8.9 7.5 6.2 5.5 5.8 5.2 4.6 4.1 EV/EBITDA (x) 41.3 35.5 30.2 25.6 27.6 25.7 21.3 18.3 EV/Revenues (x) 5.1 4.4 4.0 3.6 3.5 3.5 3.0 2.6 OCF/EV (%) 1.0 1.2 1.7 1.3 3.5 4.3 3.2 4.0 FCF/EV (%) 0.8 0.9 1.5 0.5 2.7 3.9 2.5 3.2 FCFE/Mkt Cap (%) 0.8 2.3 1.5 (0.1) 2.2 3.8 2.4 3.2 Dividend Yield (%) 0.4 0.5 0.5 0.5 0.4 0.4 0.5 0.5


Page | 56


1 Yr Price Movement

500

700

900

1,100

1,300

1,500

Jul-1

9A

ug-1

9Se

p-19

Oct

-19

Nov

-19

Dec

-19

Jan-

20Fe

b-20

Mar

-20

Apr

-20

May

-20

Jun-

20Ju

l-20

Symphony

Rating Criteria BUY: >+15% return potential ADD: +5% to +15% return potential REDUCE: -10% to +5% return potential SELL: > 10% Downside return potential

100

150

200

250

Jul-1

9A

ug-1

9Se

p-19

Oct

-19

Nov

-19

Dec

-19

Jan-

20Fe

b-20

Mar

-20

Apr

-20

May

-20

Jun-

20Ju

l-20

V Guard

400450500550600650700750800

Jul-1

9A

ug-1

9Se

p-19

Oct

-19

Nov

-19

Dec

-19

Jan-

20Fe

b-20

Mar

-20

Apr

-20

May

-20

Jun -

20Ju

l-20

Havells

400

450

500

550

600

650

700

750

Jul-1

9A

ug-1

9Se

p-19

Oct

-19

Nov

-19

Dec

-19

Jan-

20Fe

b-20

Mar

-20

Apr

-20

May

-20

Jun-

20Ju

l-20

Voltas

150

200

250

300

350

Jul-1

9A

ug-1

9Se

p-19

Oct

-19

Nov

-19

Dec

-19

Jan-

20Fe

b-20

Mar

-20

Apr

-20

May

-20

Jun-

20Ju

l -20

Crompton Consumer

3,000

4,000

5,000

6,000

7,000

Jul-1

9A

ug-1

9Se

p-19

Oct

-19

Nov

-19

Dec

-19

Jan-

20Fe

b-20

Mar

-20

Apr

-20

May

-20

Jun-

20Ju

l-20

TTK Prestige

Page | 57


Disclosure: We, Naveen Trivedi, MBA & Aditya Sane, CA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

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