Tumkur And Goldi Solar Investments Will Build Global Presence

Key Takeaways

• Investment in renewable energy and international market expansion could drive significant revenue growth and improved brand strength.
  
• Improved operating leverage and scale benefits are expected to enhance profitability and market share in the long term.
  
• Inflation, competition, and delayed returns on investments threaten Havells India's profit margins, earnings, and revenue growth across several segments.

Catalysts

A fast-moving electrical goods company, manufactures, trades in, and sells various consumer electrical and electronic products in India and internationally.

• Havells India is ramping up new cable plant capacity at Tumkur, which is expected to contribute to future growth in revenue and potentially improve margins as scale benefits are realized.
  
• Investment in Goldi Solar and the focus on growing the solar business is seen as an opportunity for significant growth, which is expected to contribute meaningfully to revenue as renewable energy markets expand.
  
• Continued expansion in international markets, including the U.S. and other developed markets, is anticipated to drive revenue growth as global distribution channels strengthen.
  
• Emphasis on brand upliftment for Lloyd, along with investments in new product development and premium offerings, is expected to grow market share and improve net margins in the long term.
  
• Operating leverage is anticipated to improve overall profitability for Havells, as the company expects its normalized margin levels to rise with stabilized sales growth and existing infrastructure, impacting earnings positively.

Havells India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Havells India's revenue will grow by 13.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 8.0% in 3 years time.
• Analysts expect earnings to reach ₹25.4 billion (and earnings per share of ₹40.56) by about April 2028, up from ₹14.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 66.9x on those 2028 earnings, down from 68.6x today. This future PE is greater than the current PE for the IN Electrical industry at 39.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.69%, as per the Simply Wall St company report.

Havells India Future Earnings Per Share Growth

Risks

• The inflation pressures and global uncertainties causing volatility in commodity prices could affect Havells India's profit margins, impacting earnings negatively.
  
• The decline in contribution margin in the cables segment, despite increasing copper prices and adjustments, indicates potential challenges in maintaining profitability, affecting net margins.
  
• The delayed summer leading to an anticipated price cut or distressed selling in RACs could pressure revenue growth and profit margins for Lloyd.
  
• Increased competition in the cable and wire business from large new entrants could put pressure on market share and margins, potentially affecting revenue and profitability.
  
• The continued investment and cost in expanding their Lloyd and solar business, without immediate returns, pose a risk to overall profitability and earnings growth.

Valuation

• The analysts have a consensus price target of ₹1797.222 for Havells India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1967.0, and the most bearish reporting a price target of just ₹1400.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹319.6 billion, earnings will come to ₹25.4 billion, and it would be trading on a PE ratio of 66.9x, assuming you use a discount rate of 14.7%.
  
• Given the current share price of ₹1612.0, the analyst price target of ₹1797.22 is 10.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.