Havells reported stellar EBITDA growth of 25% YoY (4% ahead of our estimate) led by: (a) strong revenue growth of 16% (5% ahead of our estimate) due to market share gains and green shoots of recovery; (b) 100bps EBITDA margin expansion to 13.7% (20bps lower than estimate) due to discontinuance of royalty payment (70bps) and 80bps gross margin expansion. Cash conversion deteriorated marginally by 5 days YoY to 40 days led by rising inventory/receivable days. We upgrade our FY16/FY17 EBITDA by 1%/3% and raise our TP by 5% to Rs415/share. Acquisition in appliances is a key catalyst. FY17 should see revenue growth improve to 16.7% vs 4% in FY16 led by green shoots of recovery, pay commission hikes and improvement in market share due to discount streamlining. At CMP, Havells is trading at FY18 P/E of 28x; ~24%/40% premium to five-year average/peers.
Analysts think that it is justified given strong EPS CAGR of 28% over FY16-FY18 and strong FY16 ROIC of 59%.
