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Havells
Sylvania uptrend boosting prospect
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ Jump in Sylvania margin and new product in India to drive growth. Havells
India likely to sustain 20%+ growth through a combination of (1) expansion of
Sylvania EBITDA margin from about 5.5% in 9M FY11 to 7-7.5% in FY12 and
10%+ in couple of year, and (2) around 17-18% growth in net sales at
sustained EBITDA margin of 11.5%.
„ Sylvania margin expansion driven by Latam growth and Europe cost cut.
Havells has already seen margin climbing to 7%+ level for Sylvania in SepNov2010. Stronger growth in Latam market at 15%+ with 12%+ EBITDA
margin contributing to 35%+ of total Sylvania sales is key to margin
expansion. In addition cost reduction in Europe contributing to total of 65% of
sales is leading to overall margin improvement of Sylvania.
„ India unit to grow at least 17-18% on new products. Havells is looking to grow
its revenue in India at least at 17-18% per annum. Key growth drivers will be
(1) expansion of consumer durable product range including geyser, kitchen
appliance like grinder mixer, toaster etc (2) expansion of distribution network
and (3) increase in exports by leveraging Sylvania distribution network.
Company expects to maintain margin despite likely rise in product launch
expense as product mix could get richer.
„ Valuation attractive given strong brand and rising Sylvania prospect. Havells
India is trading at PE of 11.1x FY12e. Given the diversified opportunity
including Sylvania globally and new product in India, there is very high
visibility of our earnings estimate. Buy
Price objective basis & risk
Havells (HVLIF)
Our PO of Rs465 is based on PE of 16x FY12E EPS of Rs28.85/sh for the parent
company. We have based our PO on a PE of 16x FY12E owing to 1) 24% EPS
CAGR in FY10-13E, 2) peers trading at average PE of 16x FY12E, and 3)
Havells' over 35% ROE. We have valued the stock on the parent company EPS
instead of consolidated. We have assigned zero value to Sylvania, the global
lighting business unit of Havell and 100% subsidiary of Havells. Zero value for the
loss making Sylvania implies 7.5x FY12E EV/EBITDA which is in line with global
peers. Key downside risks for Havells are: 1) slowdown in demand owing to rising
interest rate, 2) increase in competition, and 3) sharp rise in raw-material cost.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Havells
Sylvania uptrend boosting prospect
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ Jump in Sylvania margin and new product in India to drive growth. Havells
India likely to sustain 20%+ growth through a combination of (1) expansion of
Sylvania EBITDA margin from about 5.5% in 9M FY11 to 7-7.5% in FY12 and
10%+ in couple of year, and (2) around 17-18% growth in net sales at
sustained EBITDA margin of 11.5%.
„ Sylvania margin expansion driven by Latam growth and Europe cost cut.
Havells has already seen margin climbing to 7%+ level for Sylvania in SepNov2010. Stronger growth in Latam market at 15%+ with 12%+ EBITDA
margin contributing to 35%+ of total Sylvania sales is key to margin
expansion. In addition cost reduction in Europe contributing to total of 65% of
sales is leading to overall margin improvement of Sylvania.
„ India unit to grow at least 17-18% on new products. Havells is looking to grow
its revenue in India at least at 17-18% per annum. Key growth drivers will be
(1) expansion of consumer durable product range including geyser, kitchen
appliance like grinder mixer, toaster etc (2) expansion of distribution network
and (3) increase in exports by leveraging Sylvania distribution network.
Company expects to maintain margin despite likely rise in product launch
expense as product mix could get richer.
„ Valuation attractive given strong brand and rising Sylvania prospect. Havells
India is trading at PE of 11.1x FY12e. Given the diversified opportunity
including Sylvania globally and new product in India, there is very high
visibility of our earnings estimate. Buy
Price objective basis & risk
Havells (HVLIF)
Our PO of Rs465 is based on PE of 16x FY12E EPS of Rs28.85/sh for the parent
company. We have based our PO on a PE of 16x FY12E owing to 1) 24% EPS
CAGR in FY10-13E, 2) peers trading at average PE of 16x FY12E, and 3)
Havells' over 35% ROE. We have valued the stock on the parent company EPS
instead of consolidated. We have assigned zero value to Sylvania, the global
lighting business unit of Havell and 100% subsidiary of Havells. Zero value for the
loss making Sylvania implies 7.5x FY12E EV/EBITDA which is in line with global
peers. Key downside risks for Havells are: 1) slowdown in demand owing to rising
interest rate, 2) increase in competition, and 3) sharp rise in raw-material cost.
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