Sector Overview of Electrical Equipment Producers
This Industry is Having MCap of around 1 Lakh cr with Sales of 50000 cr & Profits 3000 cr.
Industry growing by domestic consumption as well as increasing exports. Growth of 15% - 20% is seen for the last 2 decades. India was having 40 cr population without electricity till 2011 v/s just 80 lakh in China. Huge growth was there in this Industry as Electric Consumption/capita was very low but yes was increasing consistently. Many companies like Havells, Polycab, Fincables, HonAuto, VGuard were able to cash this growth.
Havells: CMP 551:
Company: A high growth, low debt, and highest market in this industry & strong R-O-E put company in the list of Wealth Creators. Able to increase its business from 200 cr to 10000 cr and Profit from 10 cr to 800 cr during the last 17 Years. Today’s Profis is 4X to Yesterday’s sales. During the Past 17 Years there was not a single year when sales were down. Hence investment of 1 lakh is already 4.7 Crore as well as 11 lakh dividend received during the past 17 years. Growth attracts wealth creation. Havells by name seems to be some MNC but it was purchased from a person named Haveli Ram by Gupta and hence named Havells. Well diversified business in Switchgear, cables, Lighting & Consumer Durables (LLoyd), 55% sales comes from Cables & Electric Consumer. Many people in the group are holding this company since 80 and still there is no need to sell. It was and is a wealth creator company and best among the industry.
Current Scenario : Since Q1 last year we have seen the sales in pressure after the long 2 decades. A challenging year with unfavorable macros, the slowdown in infrastructure activities, weak market liquidity and then final knock with COVID -19. Q4 commenced on a healthy note with Jan-Feb witnessing a revival in consumer products. But Covid-19 disrupted supply chain from China in Jan-Feb’ 20 and its contagion impacted the demand side with signs of fear and uncertainty among the trade channel since 15th March. Havells closed its Offices, Factories, and Warehouses as per Government directive from 23rd March 2020 and moved to Work from Home (WFH). Consequently, there was a complete lockdown that crippled the revenue streams. We anticipate that ex-COVID the Q4 could have grown @ 9% against Dec’ YTD growth of (-) 1%. Hence Annual results are Too less than expected affected by slow down. Revenue has fallen by -6% and hence profit has fallen by -7% respectively. Results since Q1 are down and hence share is also trading at 52 week low. So current results were also inline as expected, muted results.
Future: The demand continues to be weak, aggravated by real estate slow down, liquidity squeeze, and delays in projects. Should be prepared in advance that this year could be tough for this company, but yes can take benefit of this correction to accumulate, New Buying again can be done only during fall in the whole range of 540 to 420 and can hold this wealth creator for long term Multi-year rally. 60% strong Promoter Holding, 27% with FPI while 4% with MF companies. In the coming 2 years, we may see Havells enter into NIfty-50 also.
HoneyAuto : CMP 26937:
A wealth creator from Electric equip industry. Were making revenue and profits of around 300 cr and 9 cr 15 years back. Today able to make revenue and profits of 3400 cr and 500 cr. 10X growth in Business has created wealth for investors. Investment of 1 lakh is almost 1 cr with twice investment refunded in Dividends. Many people in the group have bought it near 2500 8 years back and it fell till 1500 (almost 50%) & it did not perform for a long 4 years. Today it is 10X. Patience is the name of the game. Some again bought it near 7500 in 2015. This is a debt-free, high margin, and India’s one of the TOP ROE company.
Current Year sales have grown by 4% while Profits by 38%. The impact of COVID has been seen during Q4 cashflows. Yet, New buying still could be made during any falls near 18000 and can hold for long term wealth. 75% strong Promoter Holding while 15% with Varied MF companies.
Finolex Cables Cmp: 260:
Finolex Cables Limited is India's one of the largest and leading manufacturers of Electrical and Communication cables. A very good company form Other Elec. Equip. Have grown from the turnover & profits of 650 cr & 65 cr respectively during the year 2001 to today around 3200 cr and 400 cr respectively. Today's profit in the next 5 years will be more than yesterday’s revenue. Hence investment has grown 10X along with more then invested amount returned via dividends. Company with best margins in the segment and DebtFree status. Many people in this group are holding it since 140 during 2014. Our target as per 310% pot sheet was 548 and we have seen the rally from 140 to 750. Again currently in downward correction since last 2-3 years. Current Q 1 revenue have grown by Just 2% and hence Profits have fallen by -17% due to pressure on margins. Sales were affected by subdued construction activity, slowdown in automobile and communication sectors. It is expected that with Government formation completed by the end of June, programs to improve connectivity with broadband and related technologies, will gain momentum. Finolex has added Electrical Switches, LED based Lamps, Fans, low voltage MCBs and Water Heaters to its range of products. New Buying again can be done in the whole range of 336 to 296 & can hold it for long term wealth creation. DspBlackRock added 2.29 Lakh shares 3 Years back at 450 and currently trading at better price. 19% Holding is with Varied MF companies while 7% with FPI.
VGuard CMP 243:
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Again a wealth creator from other electric equip industry. Debt free and high growth. Able to grow its revenue and profits by 100% during last 4-5 years. Many people in the group hold this company since long time near 10 and have accumulated during so many years. We have seen 20X rally during the last 10 years. Current year revenue has grown by 11% while Profits are grown by 24% due to high cost effectiveness even after the effect of Floods in Kerala last year. Still buying can be done during any fall near 175 and can hold it for long term wealth. Strong 64% Promoter Holding while 12% MF holdings and 13% FPI.
Sources:
Various publications
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