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Havells --------------------------------------------------------------------------- Maintain OUTPERFORM
3Q analyst call: management remains positive on Sylvania; domestic margins should sustain
● While Sylvania’s margins improved in 3Q, management
highlighted that the cost actions of the past should enable it to
drive margins to 8-8.5% in CY11. Management cited turnaround in
the Europe lighting business and continued strength in emerging
market (+ increasing mix) to also support margin recovery.
● In the domestic market, management remained upbeat on growth
prospects for the consumer durables segment, and highlighted
that new product introduction and branding are key drivers.
● We had build margin declines this year for the domestic business
due to the lagged impact of commodity prices on some segments,
such as cable wires. Post the margin dip in early FY11,
management believes 3Q could serve to be the trough for margins
for the segment.
● We remain positive on the domestic consumption theme and
growth driven by a recovery in Sylvania. Stock valuations at 11.9x
FY12E appears attractive. We maintain an OUTPERFORM.
Expect to maintain domestic margins
Havells management in its 3Q FY11 analyst call expressed
confidence that Havells (standalone) should be able to maintain
margins in the domestic business. Management highlighted that
margins in its cable and wires segment were weak in FY11, due to
increase in commodity prices but expects 3Q margins to be the trough
for the segment. Note that in such a commodity-intensive segment,
price increases with a lag to increase in RM prices.
Strong market growth and branding; key drivers of strength
in the consumer durables segment
Management remained upbeat on the consumer durables segment
and said the market witnessed 20-25% growth in 2010. Apart from
market growth, management attributed branding to be a key
differentiator, given the increasing preference for branded products.
Its consumer durables segment sales also benefitted from the
introduction of a new line of product (geysers). Management is
contemplating introducing more products in this segment.
Lighting and fan segment; penetration into tier 2/3 cities to
support growth
While management acknowledged that while it is geared to the
housing/real estate segment, any slowdown in broad construction
activities may not impact its lighting and fan division, and expansion
into tier 2 and tier 3 cities should offset the impact. Havells’
(standalone) exports fell to Rs360 mn (from Rs520 mn in 3Q FY10),
as its one of the OEM contracts (for switchgears) in the UK expired
this year. To compensate for this, Havells is planning to enter the UK
switchgear market under its own brand by April 2011.
Sylvania’s margins on expansion track
Management remained confident about a recovery at Sylvania and
said CY11 EBITDA margin should expand to 8-8.5% from 5.3% in 4Q
CY10. Management said further expansion is feasible on account of
the complete restructuring benefits coming in CY11. It added that
continued strength in emerging markets (specially Latam) and a
recovery in Europe should also help margin recovery.
With Sylvania turning profitable, no future equity infusion
required
Management said Sylvania had to pay one-off taxes of €2.4 mn in
Brazil this quarter for the periods prior to acquisition. Management
said this tax liability was not expected, but it does not expect further
surprises on account of such taxes. Havells India infused €9 mn as
equity in Sylvania this quarter (total €23 mn for the year) to maintain
the strength of the balance sheet. Management said there should not
be any further equity infusion in Sylvania going forward, as the
business has turned profitable now.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Havells --------------------------------------------------------------------------- Maintain OUTPERFORM
3Q analyst call: management remains positive on Sylvania; domestic margins should sustain
● While Sylvania’s margins improved in 3Q, management
highlighted that the cost actions of the past should enable it to
drive margins to 8-8.5% in CY11. Management cited turnaround in
the Europe lighting business and continued strength in emerging
market (+ increasing mix) to also support margin recovery.
● In the domestic market, management remained upbeat on growth
prospects for the consumer durables segment, and highlighted
that new product introduction and branding are key drivers.
● We had build margin declines this year for the domestic business
due to the lagged impact of commodity prices on some segments,
such as cable wires. Post the margin dip in early FY11,
management believes 3Q could serve to be the trough for margins
for the segment.
● We remain positive on the domestic consumption theme and
growth driven by a recovery in Sylvania. Stock valuations at 11.9x
FY12E appears attractive. We maintain an OUTPERFORM.
Expect to maintain domestic margins
Havells management in its 3Q FY11 analyst call expressed
confidence that Havells (standalone) should be able to maintain
margins in the domestic business. Management highlighted that
margins in its cable and wires segment were weak in FY11, due to
increase in commodity prices but expects 3Q margins to be the trough
for the segment. Note that in such a commodity-intensive segment,
price increases with a lag to increase in RM prices.
Strong market growth and branding; key drivers of strength
in the consumer durables segment
Management remained upbeat on the consumer durables segment
and said the market witnessed 20-25% growth in 2010. Apart from
market growth, management attributed branding to be a key
differentiator, given the increasing preference for branded products.
Its consumer durables segment sales also benefitted from the
introduction of a new line of product (geysers). Management is
contemplating introducing more products in this segment.
Lighting and fan segment; penetration into tier 2/3 cities to
support growth
While management acknowledged that while it is geared to the
housing/real estate segment, any slowdown in broad construction
activities may not impact its lighting and fan division, and expansion
into tier 2 and tier 3 cities should offset the impact. Havells’
(standalone) exports fell to Rs360 mn (from Rs520 mn in 3Q FY10),
as its one of the OEM contracts (for switchgears) in the UK expired
this year. To compensate for this, Havells is planning to enter the UK
switchgear market under its own brand by April 2011.
Sylvania’s margins on expansion track
Management remained confident about a recovery at Sylvania and
said CY11 EBITDA margin should expand to 8-8.5% from 5.3% in 4Q
CY10. Management said further expansion is feasible on account of
the complete restructuring benefits coming in CY11. It added that
continued strength in emerging markets (specially Latam) and a
recovery in Europe should also help margin recovery.
With Sylvania turning profitable, no future equity infusion
required
Management said Sylvania had to pay one-off taxes of €2.4 mn in
Brazil this quarter for the periods prior to acquisition. Management
said this tax liability was not expected, but it does not expect further
surprises on account of such taxes. Havells India infused €9 mn as
equity in Sylvania this quarter (total €23 mn for the year) to maintain
the strength of the balance sheet. Management said there should not
be any further equity infusion in Sylvania going forward, as the
business has turned profitable now.
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