Havells India- Sylvania outperforms:: Kotak Sec

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Havells India (HAVL)
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Sylvania outperforms. Havells’ 2QFY11 consolidated EBITDA at Rs1.16 bn (up 41.6% yoy
and 0.2% qoq) was in line with our estimates at Rs1.17 bn. The less than estimated performance
of the domestic business was mitigated by Sylvania outperforming our estimates. We adjust our
estimates to factor in 1H2011 results and change the underlying assumptions of our DCF model.
Upgrade to REDUCE with a target price of Rs390 (previously Rs240).




2QFY11- consolidated operating numbers in line; Sylvania outperforms
Havells’ reported consolidated EBITDA of Rs1.16 bn (up 41.6% yoy and 0.2% qoq) which was in
line with our estimates. The underperformance on the EBITDA front by the standalone (SA)
business was balanced by Sylvania delivering better than expected numbers. Sylvania
outperformed both on the revenues front (Rs7.06 bn Vs estimates at Rs6.25bn) and the EBITDA
margins (4.7% Vs estimates at 4.5%), with Latin America driving strong 15% qoq growth in sales.

The key factors which led to the underperformance in the standalone business are:
􀁠 The switchgear business reported lower than estimated sales (Rs1.84bn Vs estimates at
Rs1.99bn) and EBIT margins (35% Vs estimates at 37.3%).
􀁠 Electrical consumer durables also missed our revenue estimates (Rs1.03 bn Vs estimates at
Rs1.2bn)
The under performance on account of the above was mitigated to an extent by the cables business
where the EBIT margins moved up strongly to 9.4% (up 260 bps qoq) Vs our estimates at 7%.

Sylvania- holds the key for further upsides
Sylvania’s consistent revenue run rate over the last four quarters lends credence to the
management’s confidence on maintaining and further improving the operating margins in the
future. With no extraordinary expense during the quarter, the company reported PAT of Rs81 mn
(other income at Rs76 mn). We note that even after adjusting for the other income, Sylvania
managed to break even at the PAT level.

Raising earning estimates and growth assumptions; Upgrade to REDUCE
We are changing the underlying assumptions of our DCF model to reflect the following: (1) Lower
WACC at 12% (previously 13%), (2) higher terminal rate of growth at 5% (previously 4%), (3)
higher long term growth rates in the domestic business and, (3) higher margins in Sylvania. We
upgrade the stock to REDUCE with a target price of Rs390 based on DCF.