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Havells India Ltd Overweight
HVEL.NS, HAVL IN
Management meeting: Sylvania Turnaround on Track,
Sustained Margin Expansion to Drive Re-rating
We recently met Mr. Rajiv Goel, Sr. Vice President at Sylvania, who guided at
Sylvania’s exit EBITDA margins of 7%- 8% for 2011E. Margin expansion is
being aided by price hikes and rising contribution from emerging markets. We
believe sustained margin improvement in Sylvania will drive stock re-rating.
Valuations at 11.5xFY12E P/E are attractive given 2 year EPS CAGR of 50% and
FY12E ROE of 49.4%. Maintain OW and PT of Rs480.
• Sylvania turnaround on track; will drive re-rating: Restructuring benefits
are driving margin expansion for Sylvania – management have guided at a
2011E exit EBITDA margin of 7%-8%. Product prices in Europe have been
hiked to align them closer to competitor pricing. Contribution from higher
margin emerging markets -Latin America and Asia – is expected to rise to 50%
in FT12E from 40% currently.
• Domestic market positioning improving: HAVL has recently expanded its
consumer durable product basket, adding geysers and irons. Its consumer
durable products are positioned at the top end of the market with premium
pricing, enabled by its strong brand investments. HAVL is expanding exclusive
branded outlets from ~75 currently to 200 over the next 1 year.
• Price hikes to mitigate raw material cost pressure: HAVL has emerged as
the price leader in most of its segments and has consistently taken price hikes to
pass on raw material costs. Copper and Aluminum are the key raw materials for
HAVL and management have indicated that they will actively pursue price hikes
to mitigate cost pressures.
• Valuations at 11.5xFY12E P/E look attractive: HAVL is trading at 45%
discount to historical average and at 5% discount to global peers and offers 2-
year EPS CAGR of 50% (FY11E-FY13E) and ROE of 49.4% in FY12E. We
expect a sustained improvement in Sylvania margins to drive stock re-rating.
Maintain OW rating and Sep-11 PT of Rs480 based on 16xFY12E P/E. Key
risks include delays in Sylvania turnaround, rise in raw material prices, inability
to scale up new products and rise in competitive intensity.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Havells India Ltd Overweight
HVEL.NS, HAVL IN
Management meeting: Sylvania Turnaround on Track,
Sustained Margin Expansion to Drive Re-rating
We recently met Mr. Rajiv Goel, Sr. Vice President at Sylvania, who guided at
Sylvania’s exit EBITDA margins of 7%- 8% for 2011E. Margin expansion is
being aided by price hikes and rising contribution from emerging markets. We
believe sustained margin improvement in Sylvania will drive stock re-rating.
Valuations at 11.5xFY12E P/E are attractive given 2 year EPS CAGR of 50% and
FY12E ROE of 49.4%. Maintain OW and PT of Rs480.
• Sylvania turnaround on track; will drive re-rating: Restructuring benefits
are driving margin expansion for Sylvania – management have guided at a
2011E exit EBITDA margin of 7%-8%. Product prices in Europe have been
hiked to align them closer to competitor pricing. Contribution from higher
margin emerging markets -Latin America and Asia – is expected to rise to 50%
in FT12E from 40% currently.
• Domestic market positioning improving: HAVL has recently expanded its
consumer durable product basket, adding geysers and irons. Its consumer
durable products are positioned at the top end of the market with premium
pricing, enabled by its strong brand investments. HAVL is expanding exclusive
branded outlets from ~75 currently to 200 over the next 1 year.
• Price hikes to mitigate raw material cost pressure: HAVL has emerged as
the price leader in most of its segments and has consistently taken price hikes to
pass on raw material costs. Copper and Aluminum are the key raw materials for
HAVL and management have indicated that they will actively pursue price hikes
to mitigate cost pressures.
• Valuations at 11.5xFY12E P/E look attractive: HAVL is trading at 45%
discount to historical average and at 5% discount to global peers and offers 2-
year EPS CAGR of 50% (FY11E-FY13E) and ROE of 49.4% in FY12E. We
expect a sustained improvement in Sylvania margins to drive stock re-rating.
Maintain OW rating and Sep-11 PT of Rs480 based on 16xFY12E P/E. Key
risks include delays in Sylvania turnaround, rise in raw material prices, inability
to scale up new products and rise in competitive intensity.
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