Buy Havells:: Stock correction on Philips guidance cut unwarranted; JPMorgan

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Havells India Ltd
Overweight
HVEL.NS, HAVL IN
Stock correction on Philips guidance cut unwarranted;
Reiterate OW


 Read through from  Philips guidance cut: HAVL stock is down about
5% following profit warning issued by Philips (covered by our European
analyst Andreas Willi) on account of expected slowdown in its lighting
and consumer businesses in Western Europe. Philips expects low single
digit  sales  in  the  lighting  segment  (JPM  2011e  is  3%,  2012e is  5%).
According  to  our  European  Capital  Goods  Analyst:  “We  see  this
warning  as  partly  company  specific,  but  with  the  miss  on  revenue  in
early cycle lamps and consumer business is also a warning signal about
demand.” Link to our European analyst note on 23/06: Philips: Another
big downgrade and warning signalabout demand; cutting TP to €20.5
 We  don’t  see  risk  to  HAVL  estimates: We  estimate  that  Europe
accounts  for  about  31%  of  HAVL  consolidated  revenues  and  its
contribution will only decline going  forward. We  do not see risk to  our
estimates  for  HAVL  on  account  of  Philips  guidance  cut.  We  are
estimating  1.5% revenue  growth for  Sylviana in Europe in FY12  (all
pricing  driven).  In  addition,  Sylvania's  product  portfolio  is  not  fully
comparable  to  Philips,  as  Sylvania  does  not  sell  consumer  electric
products and has a very small presence in LED lighting
 HAVL  management  reiterates  guidance:  We  spoke  to  HAVL
management, who  reiterated their guidance  for Sylvania, guiding at  flat
growth  in  Europe  and  between  15%-20%  growth  in  Latin  America.
(Europe is 60% of Sylvania revenues). Management expects to maintain
about  8%  EBITDA  margins  for  Sylivania  in  FY12.  Management  also
stated that their performance in Europe is tracking as per their budget and
they do not see any risk to their guidance.
 Maintain  OW,  stock  weakness  enhances  buying  opportunity. We
believe that the weakness in HAVL  enhances stock buying opportunity.
HAVL  is  currently  trading  11.6x FY12E  PE,  offering  EPS  CAGR  of
36% over FY11-FY13E with FY12E ROE of 40%. Reiterate Overweight
rating.