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Thinking big
Turnaround of Sylvania and steady growth in domestic
sales to drive 30% EPS CAGR over FY11-13
Havells India has emerged as a leading player in the Indian consumer
electrical goods industry. After acquiring Sylvania, the company has
strongly set its footprint in the lucrative European and Latin American
markets. Expected turnaround of Sylvania and possible entry into newer
segments in India will drive Havells' growth in the next few years. We
expect Havells to deliver a consolidated EPS CAGR of 30% over FY11-13.
The stock trades at attractive valuations of 17.2x FY11E and 12.7x FY12E
earnings. We initiate coverage, with a Buy rating and a price target of
Rs437.
Domestic business to maintain steady growth: Havells offers an
impressive mix of consumer and industrial electrical products in India.
While it is the market leader in the highly profitable low voltage
switchgear segment, it also has cables and wires in its product portfolio,
which provide significant volume growth. It is looking at aggressively
expanding its consumer durables portfolio beyond its highly successful
fans range. We expect standalone revenue to grow at a CAGR of 15%
over FY11-13 after a healthy 19% growth in FY11. We expect
standalone EBITDA margin to be maintained at ~11.8%, leading to an
earnings CAGR of 18% over the next two years.
Sylvania to meaningfully contribute to earnings growth in FY12:
After incurring substantial losses in FY09 due to a weak business
environment in Europe, Havells' European subsidiary, Sylvania is likely
to break even in FY11 and report a sharp jump in earnings in FY12.
Restructuring of its European facilities coupled with strong growth in
Latin American markets will significantly improve its profitability over
the next few years. We expect Sylvania's EBITDA margin to increase
to 5.4% in FY11 and to 7% in FY12 from 0.4% in FY10. Latin America
and Asia will help drive revenue CAGR of 5% in FY11-13, even as
Europe remains sluggish. We expect Sylvania to contribute ~21% to
the group's consolidated PAT of Rs4.2b in FY13.
Expect acceleration in consolidated earnings; initiating
coverage with Buy: We expect Havells to report consolidated earnings
CAGR of 30% over FY11-13, on the back of sharp jump in profitability
of Sylvania. Consolidated EBITDA margin should expand by 410bp
over FY10-13. The stock trades at 17.2x FY11E and 12.7x FY12E
EPS and at an EV of 8.8x FY12E EBITDA. We initiate coverage with
a Buy rating and a price target of Rs437 on the basis of 16x FY12E
consolidated earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Thinking big
Turnaround of Sylvania and steady growth in domestic
sales to drive 30% EPS CAGR over FY11-13
Havells India has emerged as a leading player in the Indian consumer
electrical goods industry. After acquiring Sylvania, the company has
strongly set its footprint in the lucrative European and Latin American
markets. Expected turnaround of Sylvania and possible entry into newer
segments in India will drive Havells' growth in the next few years. We
expect Havells to deliver a consolidated EPS CAGR of 30% over FY11-13.
The stock trades at attractive valuations of 17.2x FY11E and 12.7x FY12E
earnings. We initiate coverage, with a Buy rating and a price target of
Rs437.
Domestic business to maintain steady growth: Havells offers an
impressive mix of consumer and industrial electrical products in India.
While it is the market leader in the highly profitable low voltage
switchgear segment, it also has cables and wires in its product portfolio,
which provide significant volume growth. It is looking at aggressively
expanding its consumer durables portfolio beyond its highly successful
fans range. We expect standalone revenue to grow at a CAGR of 15%
over FY11-13 after a healthy 19% growth in FY11. We expect
standalone EBITDA margin to be maintained at ~11.8%, leading to an
earnings CAGR of 18% over the next two years.
Sylvania to meaningfully contribute to earnings growth in FY12:
After incurring substantial losses in FY09 due to a weak business
environment in Europe, Havells' European subsidiary, Sylvania is likely
to break even in FY11 and report a sharp jump in earnings in FY12.
Restructuring of its European facilities coupled with strong growth in
Latin American markets will significantly improve its profitability over
the next few years. We expect Sylvania's EBITDA margin to increase
to 5.4% in FY11 and to 7% in FY12 from 0.4% in FY10. Latin America
and Asia will help drive revenue CAGR of 5% in FY11-13, even as
Europe remains sluggish. We expect Sylvania to contribute ~21% to
the group's consolidated PAT of Rs4.2b in FY13.
Expect acceleration in consolidated earnings; initiating
coverage with Buy: We expect Havells to report consolidated earnings
CAGR of 30% over FY11-13, on the back of sharp jump in profitability
of Sylvania. Consolidated EBITDA margin should expand by 410bp
over FY10-13. The stock trades at 17.2x FY11E and 12.7x FY12E
EPS and at an EV of 8.8x FY12E EBITDA. We initiate coverage with
a Buy rating and a price target of Rs437 on the basis of 16x FY12E
consolidated earnings.
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