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Strong revenue growth; margin declines
Havells India’s (HAVL) Q3FY11 (standalone) result was in line with our estimate
with strong revenue growth at 23.1% Y-o-Y to INR 7,279 mn. This was led by
strong growth in both consumer durables and lighting businesses (up 54.7% and
27.1% Y-o-Y, respectively). Excluding newly launched water geysers, consumer
durables segment grew 32% Y-o-Y. While the cables & wires segment grew
24.8%, switchgear continued slow growth at 9.0% during the quarter due to
weak export revenue. HAVL reported 96bps Y-o-Y dip in EBITDA margin at
12.6%, though sequentially it improved 56bps. EBITDA grew at a slow pace, at
14.4% Y-o-Y to INR 916 mn, as raw material costs surged 251bps Y-o-Y to
59.8% of sales. Reduced other expenses (down 184bps Y-o-Y to 24.1% of sales)
helped arrest further fall in EBITDA. PAT grew a sluggish 4.1% to INR 613 mn as
interest cost rose significantly given HAVL’s increased fund utilization, primarily
towards inventory build up. Also, tax rate soared 306bps Y-o-Y to 22.4%.
Sylvania: Growth momentum continues
Sylvania reported revenue growth of 8.8% Y-o-Y to EUR 125.3 mn. However,
due to depreciation of EUR versus INR, revenue in INR dipped 3.9% Y-o-Y to INR
7,636 mn. Adjusting for a one-time tax outgo in Brazil for previous years (EUR
2.4 mn), Sylvania continued its uptrend in EBITDA margin at 5.3% (4.7% in
Q2FY11). After reporting positive PAT in Q2FY11, the company reported a loss of
EUR 0.3 mn (INR 18 mn). This is due to lower sales in December, which is a lean
month for most of the company’s markets. Management is confident of achieving
8.0-8.5% EBITDA margin by CY11E. HAVL infused EUR 9 mn equity during the
quarter and expects no additional infusion.
Outlook and valuations: Positive; maintain ‘BUY’
Our outlook on the company remains positive on back of its robust domestic
business and continued positive signs from international business, especially the
Latin American market. New products launches and entry into new geographies
are expected to drive growth going forward. The stock, on consolidated basis, is
trading at 14.8x and 11.3x FY11E and FY12E earnings, respectively. We maintain
‘BUY’ recommendation on the stock and rate it ‘Sector Outperformer’ on
relative return basis.
Company Description
Incorporated in 1983, HAVL is one of the largest and fastest growing manufacturers of
electrical components and systems in India. It is the market leader in light-duty power
distribution products. Its offerings include electrical products like circuit protection
equipment (domestic and industrial switchgears), cables and wires, and consumer
durables like fans, CFLs, and lighting fixtures.
With the acquisition of Sylvania in April 2007, the company now has international
presence and operations in over 52 countries. Sylvania is one of the world's largest
manufacturers of artificial light sources. It has a broad product offering, from
incandescent light bulbs, halogen and low-energy lamps for the consumer market, to
fluorescent lamps, HID lamps and various special products for the professional specifier.
It owns powerful brands like Crabtree, Sylvania, Concord, Luminance, Linolite, and SLI
Lighting.
Investment Theme
We expect overall margins to improve on the back of the two restructuring programmes
undertaken by the company at Sylvania. Under ‘Project Phoenix’ the company intends to
cut costs through employee rationalisation. Under ‘Project Prakram’ the company intends
to rationalise the employee cost further and also dwell on fixed cost reduction. This
project was initiated in September 2009 and is expected to end by June 2010 with a
onetime cost of EUR 23 mn.
HAVL is currently one of the fastest growing fans brands in the Indian market with
market share at ~17%. The company has launched innovative products with its energy
efficient fans (consuming only 50W) making it the largest energy efficient fan in the
country. In the switchgear market, HAVLS is the market leader in the low voltage
segment with ~ 20% share (market size INR 12 bn) with the largest manufacturing
facility (48 mn pieces per annum) in the country. It has the second largest CFL
manufacturing capacity in India at 50 mn annually.
HAVL with the Sylvania acquisition has presence in 52 countries with 94 branches. In
India, the company has a network of ~4,000 distributors spread across the four regions
servicing ~35,000 retailers.
Key Risks
Slowdown in domestic business
Slowdown in key consumer segments of construction and industrial capex could impact
the domestic business. Lower-than-anticipated volume growth and higher price cuts in
the domestic business are risks to our estimates. Also, slowdown in power T&D could
impact the demand for its cables and wires business.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong revenue growth; margin declines
Havells India’s (HAVL) Q3FY11 (standalone) result was in line with our estimate
with strong revenue growth at 23.1% Y-o-Y to INR 7,279 mn. This was led by
strong growth in both consumer durables and lighting businesses (up 54.7% and
27.1% Y-o-Y, respectively). Excluding newly launched water geysers, consumer
durables segment grew 32% Y-o-Y. While the cables & wires segment grew
24.8%, switchgear continued slow growth at 9.0% during the quarter due to
weak export revenue. HAVL reported 96bps Y-o-Y dip in EBITDA margin at
12.6%, though sequentially it improved 56bps. EBITDA grew at a slow pace, at
14.4% Y-o-Y to INR 916 mn, as raw material costs surged 251bps Y-o-Y to
59.8% of sales. Reduced other expenses (down 184bps Y-o-Y to 24.1% of sales)
helped arrest further fall in EBITDA. PAT grew a sluggish 4.1% to INR 613 mn as
interest cost rose significantly given HAVL’s increased fund utilization, primarily
towards inventory build up. Also, tax rate soared 306bps Y-o-Y to 22.4%.
Sylvania: Growth momentum continues
Sylvania reported revenue growth of 8.8% Y-o-Y to EUR 125.3 mn. However,
due to depreciation of EUR versus INR, revenue in INR dipped 3.9% Y-o-Y to INR
7,636 mn. Adjusting for a one-time tax outgo in Brazil for previous years (EUR
2.4 mn), Sylvania continued its uptrend in EBITDA margin at 5.3% (4.7% in
Q2FY11). After reporting positive PAT in Q2FY11, the company reported a loss of
EUR 0.3 mn (INR 18 mn). This is due to lower sales in December, which is a lean
month for most of the company’s markets. Management is confident of achieving
8.0-8.5% EBITDA margin by CY11E. HAVL infused EUR 9 mn equity during the
quarter and expects no additional infusion.
Outlook and valuations: Positive; maintain ‘BUY’
Our outlook on the company remains positive on back of its robust domestic
business and continued positive signs from international business, especially the
Latin American market. New products launches and entry into new geographies
are expected to drive growth going forward. The stock, on consolidated basis, is
trading at 14.8x and 11.3x FY11E and FY12E earnings, respectively. We maintain
‘BUY’ recommendation on the stock and rate it ‘Sector Outperformer’ on
relative return basis.
Company Description
Incorporated in 1983, HAVL is one of the largest and fastest growing manufacturers of
electrical components and systems in India. It is the market leader in light-duty power
distribution products. Its offerings include electrical products like circuit protection
equipment (domestic and industrial switchgears), cables and wires, and consumer
durables like fans, CFLs, and lighting fixtures.
With the acquisition of Sylvania in April 2007, the company now has international
presence and operations in over 52 countries. Sylvania is one of the world's largest
manufacturers of artificial light sources. It has a broad product offering, from
incandescent light bulbs, halogen and low-energy lamps for the consumer market, to
fluorescent lamps, HID lamps and various special products for the professional specifier.
It owns powerful brands like Crabtree, Sylvania, Concord, Luminance, Linolite, and SLI
Lighting.
Investment Theme
We expect overall margins to improve on the back of the two restructuring programmes
undertaken by the company at Sylvania. Under ‘Project Phoenix’ the company intends to
cut costs through employee rationalisation. Under ‘Project Prakram’ the company intends
to rationalise the employee cost further and also dwell on fixed cost reduction. This
project was initiated in September 2009 and is expected to end by June 2010 with a
onetime cost of EUR 23 mn.
HAVL is currently one of the fastest growing fans brands in the Indian market with
market share at ~17%. The company has launched innovative products with its energy
efficient fans (consuming only 50W) making it the largest energy efficient fan in the
country. In the switchgear market, HAVLS is the market leader in the low voltage
segment with ~ 20% share (market size INR 12 bn) with the largest manufacturing
facility (48 mn pieces per annum) in the country. It has the second largest CFL
manufacturing capacity in India at 50 mn annually.
HAVL with the Sylvania acquisition has presence in 52 countries with 94 branches. In
India, the company has a network of ~4,000 distributors spread across the four regions
servicing ~35,000 retailers.
Key Risks
Slowdown in domestic business
Slowdown in key consumer segments of construction and industrial capex could impact
the domestic business. Lower-than-anticipated volume growth and higher price cuts in
the domestic business are risks to our estimates. Also, slowdown in power T&D could
impact the demand for its cables and wires business.
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