What Havells India Limited’s (NSE:HAVELLS) Insiders Know That You Don’t

Havells India Limited manufactures and sells industrial and consumer electrical products in India and internationally. Havells India’s insiders have divested from 800.00k shares in the large-cap stock within the past three months. Generally, insiders selling shares in their own firm sends a bearish signal. The MIT Press (1998) published an article showing that stocks following insider selling underperformed the market by 2.7%. However, these signals may not be enough to gain conviction on whether to divest. Today we will evaluate whether these decisions are bolstered by analysts’ expectations of future growth as well as recent share price movements.

Check out our latest analysis for Havells India

Which Insiders Are Selling?

NSEI:HAVELLS Insider Trading August 12th 18
NSEI:HAVELLS Insider Trading August 12th 18

Over the past three months, more shares have been sold than bought by Havells India’s insiders. In total, individual insiders own over 114.71 million shares in the business, which makes up around 18.34% of total shares outstanding.

The following insiders have recently reduced their company holdings:
Name Management Board Total Annual Compensation
Rajesh Gupta ₹141.72m

Is This Consistent With Future Growth?

NSEI:HAVELLS Future Profit August 12th 18
NSEI:HAVELLS Future Profit August 12th 18

Analysts’ expectations for earnings over the next 3 years of 82.88% provides a spectacular outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity. Probing further into annual growth rates, Havells India is expected to experience a double-digit top-line growth over the next year, which is expected to drive an earnings growth rate of 27.89%. High levels of sustained revenue growth as well as improved cost management could see higher levels of future earnings. But this positive outlook is not supported by insiders’ selling activities which may mean they see things differently to the current optimistic situation. Insiders may feel the growth is unsustainable or the market has significantly overvalued the stock.

Did Stock Price Volatility Instigate Selling?

An alternative reason for recent trades could be insiders taking advantage of the share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. In the past three months, Havells India’s share price reached a high of ₹687.3 and a low of ₹522.9. This indicates reasonable volatility with a change of 31.44%. Perhaps not a significant enough movement to warrant transactions, thus motivation may be a result of their belief in the company in the future or simply personal needs.

Next Steps:

Havells India’s net selling activity tells us the stock has fallen out of favour with some insiders as of late, however, this is rather cautious relative to analysts’ earnings expectation, whereas a highly volatile share price could be the driver to sell. However it’s crucial to note that insider divesting may have nothing to do with their views on the company’s future performance. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve put together two relevant factors you should look at:

  1. Financial Health: Does Havells India have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Havells India? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.