Competition to make it tough for Havells to gain mkt share : Equity Research

Brokerage firm CLSA has a ‘Sell’ call on Havells with a target price of Rs 323. The electrical equipment maker will most likely not be able to corner any significant market share as it will see headwinds from more competition, says the report. The report also flags two key worries: disruption from state-owned EESL and share of unorganised sector which has been going down in most segments. “This growth [for the company] was driven by a focus on a distribution-led model and product branding but more importantly aided by taking market share from the unorganised sector,” it said.  The report adds that although Havells has done well to fend off competition from EESL by its focus on consumer-facing products, it still faces an uphill task. “Given the scale of EESL’s ambition, this is a key area to watch,” it says. On a positive note, the company’s sale of 80 percent in Sylvania, which it acquired in 2008, was a good move, adds the report, as the European lighting maker was an 'major overhang’ on the stock. “A sharp share price increase after the stake sale now leaves little room for a further stock re-rating.” CLSA believes the current share price of the company adequately discounts the positives. “Havells’s valuations (32x 18CL) and EPS growth rates are now on a par with those of domestic consumer companies though we estimate that only two thirds of Havells’ business is consumer-facing.”