Initiating Coverage report on Havell’s India Ltd.:: keynote

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Initiating Coverage report on Havell’s India Ltd.

Havell's India Ltd. (HIL), promoted by Qimat Rai Gupta incorporated in 1971 operates in various verticals of electrical equipment segment in India.HIL has manufactured wide range of products such as Building Circuit Protection, Industrial & Domestic Switchgear, Cables & Wires, Energy Meters, Fans, Compact Fluorescent Lamps (CFL) Lamps, Luminaries for Domestic, Commercial & Industrial applications and Modular switches.HIL has adopted inorganic growth by successful acquisition of Sylvania (2007) and Standard Electricals (2009). HIL enjoys a leading position in the electrical consumer market with the large product basket, strong brand name and wide spread distribution network. We expect, HIL to demonstrate a revenue and PAT CAGR of 12% & 74% respectively during FY10-13E.

Ø    Enhanced consumer product portfolio: HIL is banking on huge electrical consumer durable market worth `200bn in India. HIL has recently launched water storage heater and plans to foray in to domestic Air conditioner market worth ~ `45bn.HIL has substantial presence in domestic Fan and CFL industry  with market share of 13% and10% respectively. We believe HIL is contemplating on domestic consumption driven by favorable demographics, improved lifestyle with rapid urbanization in India.

Ø    Strong Marketing & Domestic Distribution Network with global presence: HIL has a pan India presence with more than 4300 authorized dealers and 25,000 retail outlets with Predominant presence in northern (34%) and southern (28%) part of India. HIL aims to increase “Havell’s Galaxies” to 200 from 80 by FY12. HIL has global presence with 20000 strong distribution networks. 

Ø    Rapid turnaround progress in Sylvania: Faster than expected improved performance from Sylvania during last quarter emerges as a strong key driver in HIL growth. Sylvania’s operating profit margin has improved to 5.3% due to higher sales, restructuring effect and operational efficiencies. We estimate Sylvania to grow at 6% with EBDITA margin of 7-8%.

Ø    Premium Market Positioning: HIL enjoys premium brand value and has  an excellent track record of more than two decades in Indian consumer market.HIL is also planning to  educate customers about quality of product by way of plant visit and other allied activities.

Ø     Valuation: At CMP of `371.15, the stock trades at EV/EBDITA of 7.78x of FY12E and 6.52x of FY13E respectively. Cumulating HIL's strong distribution web,       premium positioning, global reach and innovation we assign a ‘buy’ rating with a target price of `427/- per share based on DCF valuation.