Goldman Sachs says buy Havells shares, sees 30% upside; stock down 4%

Goldman Sachs has suggested a 'Buy' rating on Havells India Ltd with a target price suggesting 30 per cent potential upside. The foreign brokerage said Havells' December quarter results were largely in-line and a broad-based acceleration in growth is ahead. Setting a 12-month target price of Rs 1,880 against Rs 1,730 earlier, Goldman Sachs said it has rolled forward its valuation estimates based on FY28 earnings.

"With the consumer durables cycle being in a downturn in the last few years, and with our expectation of a pick-up from here, we think the market is willing to give benefit of long-term growth but on a more normalised multiple. Hence, we now value Havells on 44 times FY28E EPS, which implies 30 per cent upside," Goldman Sachs said on January 19.

Goldman Sachs said the stock is down 9 per cent over the last 12 months against a 9 per cent rise for the BSE Sensex. For a company that looks likely to see recovery in growth, and with such significant underperformance, the foreign brokerage sees this as a continued buying opportunity and reiterated its positive view on the Havells India stock.

On Tuesday, Havells India stock was trading 4.22 per cent lower at Rs 1,386.10. 

"GST reduction should help the RAC business to pass on increasing costs, solar products should continue the momentum seen in this quarter and increase in contribution, and other segments have favourable base - all of which augur well for outer quarters growth. Earnings downgrade cycle is over for Havells, in our view, and with growth likely to accelerate, we see room for positive operating leverage," Goldman Sachs said. 

While commodity prices will put pressure on margins across electricals, a diversified player with C&W exposure like Havells looks well protected, it added. 

Havells’ reported growth of 14 per cent driven by healthy growth in Cables and Wires as well as others segment, which primarily includes solar products. Ex of Lloyds, growth was at 18 per cent YoY. Havells highlighted that consumer trends are still subdued. But it has maintained market share in most categories and also gained in some categories such as lighting and water heaters, Goldman Sachs said.

It said Havells sounded hopeful of demand recovery from here and expects to further accelerate C&W growth once its cable capacity comes on-stream in the coming quarters.