Havells India Downgraded to Sell Amid Technical Weakness and Flat Financials

Quality Assessment: Strong Fundamentals Amidst Flat Quarterly Performance

Havells India continues to demonstrate robust long-term financial health, characterised by a low debt-to-equity ratio averaging zero, signalling a debt-free balance sheet. The company’s return on capital employed (ROCE) remains impressive at an average of 32.27%, indicating efficient utilisation of capital to generate profits. Additionally, the return on equity (ROE) stands at a healthy 16.9%, supporting the company’s reputation for profitability.

Net sales have grown at a compounded annual growth rate of 20.77%, while operating profit has expanded at 15.58% annually, underscoring consistent operational strength. However, the most recent quarterly results for Q2 FY25-26 reveal a concerning flat to negative trend. Net sales declined by 10.8% to ₹4,779.33 crore compared to the previous four-quarter average, while profit before tax (excluding other income) fell by 18.7% to ₹328.33 crore. Net profit after tax also dropped by 9.6% to ₹319 crore, signalling near-term headwinds.

Despite these setbacks, Havells maintains a fair valuation with a price-to-book value of 10.4, which is reasonable relative to its peers. The company’s PEG ratio of 16.9, however, suggests that earnings growth expectations may be priced in, limiting upside potential.

Valuation Perspective: Fair but Under Pressure

Havells India’s current market capitalisation stands at ₹90,011 crore, making it the second-largest company in its sector after Polycab India. It accounts for 30.46% of the Electronics & Appliances sector by market cap and contributes 24.19% of the industry’s annual sales, which total ₹21,667.22 crore. Institutional investors hold a significant 34.67% stake, reflecting confidence from sophisticated market participants.

However, the stock’s recent price performance has been lacklustre. Trading at ₹1,435 as of the latest close, it is down 1.05% on the day and has declined 6.41% over the past year. This contrasts sharply with the Sensex’s 9.56% gain over the same period. Over three and five years, Havells has generated returns of 22.47% and 41.74%, respectively, underperforming the Sensex’s 38.78% and 68.97% gains. The 10-year return of 404.75% remains a bright spot, outperforming the Sensex’s 236.47% over the decade, but recent trends indicate waning momentum.

Financial Trend: Flat to Negative Quarterly Results Signal Caution

The recent quarterly performance has been a key driver behind the downgrade. The 10.8% fall in net sales and nearly 19% drop in profit before tax (excluding other income) compared to the previous four-quarter average highlight a slowdown in business momentum. The 9.6% decline in net profit further emphasises the challenges faced in the near term.

While the company’s long-term growth rates remain healthy, the flat financial trend in the latest quarter raises concerns about sustainability of earnings growth in the immediate future. This is particularly relevant given the stock’s underperformance relative to the broader market and sector indices over the past year and three months.

Technical Analysis: Shift to Bearish Signals Weighs on Sentiment

Technical indicators have deteriorated, prompting a downgrade in the technical grade from mildly bearish to bearish. Key metrics reveal a mixed but predominantly negative outlook:

• MACD: Weekly readings remain mildly bullish, but monthly MACD is bearish, indicating weakening momentum over the longer term.


• RSI: Both weekly and monthly RSI show no clear signal, suggesting indecision among traders.


• Bollinger Bands: Weekly bands are bearish, with monthly bands mildly bearish, signalling increased volatility and downward pressure.


• Moving Averages: Daily moving averages have turned bearish, reinforcing short-term negative momentum.


• KST (Know Sure Thing): Both weekly and monthly KST indicators are bearish, confirming a downtrend.


• Dow Theory: Weekly readings are mildly bullish, but monthly readings are mildly bearish, reflecting conflicting signals across timeframes.


• On-Balance Volume (OBV): Weekly and monthly OBV are mildly bearish, indicating selling pressure.

The stock’s price has slipped from a 52-week high of ₹1,712.95 to a recent close of ₹1,435, with a 52-week low of ₹1,360.05. The daily trading range on the downgrade day was ₹1,420 to ₹1,456.75, reflecting volatility and investor caution.

Comparative Performance and Sector Positioning

Havells India’s stock returns have lagged behind the Sensex and BSE500 indices over the short and medium term. The stock posted a negative 4.36% return over the past week versus a 1.69% decline in the Sensex. Over one month, Havells gained 1.84%, outperforming the Sensex’s 1.92% loss, but this was an exception in an otherwise subdued trend.

Year-to-date returns are marginally positive at 0.65%, while the Sensex has declined 1.87%. However, over one year, Havells has lost 6.41%, contrasting with the Sensex’s 9.56% gain. Over three and five years, the stock’s returns of 22.47% and 41.74% respectively fall short of the Sensex’s 38.78% and 68.97%. This underperformance has contributed to the cautious stance by analysts.

Despite this, Havells remains a dominant player in the Electronics & Appliances sector, with a market cap representing nearly one-third of the sector’s total. Its scale and institutional backing provide a solid foundation, but recent trends suggest investors should monitor developments closely.

Conclusion: Downgrade Reflects Near-Term Risks Despite Strong Fundamentals

The downgrade of Havells India Ltd. from Hold to Sell is primarily driven by a shift in technical indicators towards bearishness and disappointing quarterly financial results that show flat to negative growth. While the company’s long-term fundamentals remain strong, including low debt, high profitability, and fair valuation, the recent underperformance relative to benchmarks and weakening technical signals have raised concerns about near-term stock performance.

Investors should weigh the company’s solid balance sheet and historical growth against the current challenges in earnings momentum and market sentiment. The downgrade serves as a cautionary signal to reassess exposure to Havells India amid evolving market conditions.

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