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HAVELLS INDIA LTD (HIL)
RECOMMENDATION: BUY
TARGET PRICE: RS.455
FY12E P/E: 15X
q HIL reported decent set of nos. for Q4FY11. Numbers are slightly above
our expectations on revenue front and net profit front.
q Robust growth in domestic business across all verticals and meaningful
recovery in Sylvania helped margin expansion at consolidated level. Exceptional
income of EUR 5.4 mn in the quarter enhanced Sylvania performance.
q Company has changed its accounting policy with effect from Q4FY11. It
has decided to report net revenue after deducting for sales discounts,
incentives and rebates.
q On normalized basis, domestic business has reported margin pressure
mainly on account of higher input prices and increased employee expenses.
q Management has concluded successful restructuring at Sylvania. It is
likely to report consistency in performance going ahead. Management
expects to maintain Sylvania's margins at FY11 levels.
q Company is adequately positioned to benefit from the growth in consumer
durable space in the domestic market.
q We maintain BUY rating on the company's stock with a one year DCF
based price target of Rs.455 (Rs 450 ealier).
Result Highlights
n Domestic revenue grew by 24% YoY at Rs 8.4 bn in Q4FY11 mainly driven by
consumer durable business that grew 39% yoy.
n EBITDA margins stood at 11.7% vis-à-vis 12.8% last year on account of higher
input prices and increase in employee expense. Also revenue mix gets skewed
toward low margin Cables and Wire division for the quarter which inherits lower
margins.
n However management is confident of maintaining margins going ahead on account
of 1) steady cost management across the board 2) increase in contribution
from new products going ahead.
n Exports from standalone switchgear division declines YoY due to closure of OEM
contract with a UK client. Also, company is planning to launch switchgears in the
international market and expects to maintain same margins in these areas.
n Growth in Wire & Cable division is mainly driven by increase in input prices
which resulted in the increase of product prices. Electrical Consumer Durables
further strengthen with the successful launch of new product. Management has
indicated substantial growth in Geasers in FY12.
n Company reported strong standalone operating cash flows in FY11 at Rs 3.2 bn
vis-à-vis Rs 2 bn in FY10. Company has utilized Rs 1.3 bn for capex and invested
Rs 1.8 bn in Sylvania.
n Management has concluded successful restructuring of Sylvania and expects to
maintain margins at current levels in FY12E. Moreover further investment from
Havells India would not be required in its overseas subsidiary.
n Working capital reduced in FY11 mainly due to increase in creditors' days from
68 days in FY10 to 82 days currently. Inventory increased in FY11 by Rs 1.4 bn.
n Sylvania performance improved meaningfully in Q4FY11 on back of robust
growth in emerging markets including Latin America. Company has also been
witnessing consistent growth in Asia including China. Europe continued to be a
lack luster for the quarter.
n Sylvania operating margins stood at 11.6% in Q4. For the quarter Sylvania has
reported an exceptional gain of EUR 5.4 bn against revaluations of pension liability
that has been provided in earlier period.
n On normalize basis Sylvania has clocked EBITDA margins at 7.9% due to improved
operational efficiencies and reduced employee cost due to restructuring.
n Sylvania reported muted revenue growth in FY11 due to management's priority
for cost restructuring over growth. However, we believe that with successful accomplishment
of the restructuring process, Sylvania is likely to post adequate
traction in FY12.
n Net debt at Sylvania stood at EUR 127 mn at the end of FY11. This includes EUR
78.4 mn of term loan and EUR 37.2 mn of working capital loan. We believe that
refinancing of the loan would help the company in near term as company is
likely to utilize funds for future growth. Generation of adequate free cash should
help diluting debt levels over FY12-14E.
International presence offers geographical diversification to
take advantage of the upsurge in consumer appliances market in
Asian and African markets
n Company (including Sylvania) is present in nearly 50 countries across Europe and
Asia. Moreover it has been witnessing enormous potential in the emerging markets
like Africa where housing and real estate market is picking up.
n With an aim to establish itself as a prominent player in these markets, company
is planning to strengthen its dealer franchise in these regions. It would be offering
its diverse range of products within the parent brand Havells and the acquired
brand Sylvania to the overseas customers.
n Going ahead, the company expects substantial amount of revenues through exports
on account of revival of the European economy giving a boost to the legacy
market of Sylvania coupled with new market development in Asia and Africa regions.
Financials to improve; consistent growth in domestic market, export
growth in new geographies and successful restructuring of
Sylvania would result in value accretion
n We project 13% growth in consolidated revenues in FY12E from Rs. 56 bn in
FY11 to Rs. 63 bn in FY12E. Within the revenue streams, we expect domestic
sales to grow by 19% in FY12E mainly driven by switchgears, wires & cables and
consumer appliances segment.
n We also expect exports demand to improve by FY12E on account of expected
recovery in European region, growth in Latin America and new geography additions
in African and Asian region.
n We opine that the company would continue to prudently manage its overheads
and Sylvania restructuring would boost company's margins. In our projected
financials we build 7% EBITDA margins for Sylvania in FY12E.
n In our projected financials we build 9.6% EBITDA margins at consolidated level
for FY12E.
n In our projections we build 4% revenue growth in Sylvania in FY12E on back of
continued demand from emerging economies.
Valuation and Recommendation
n At current price of Rs.399, stock is trading at 15x P/E and 9.4x EV/EBITDA on
FY12E earnings.
n We value the company using DCF valuation methodology that derives a price
target of Rs.455 (Rs 450 earlier) per share. We maintain our 'BUY' recommendation
on company's stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HAVELLS INDIA LTD (HIL)
RECOMMENDATION: BUY
TARGET PRICE: RS.455
FY12E P/E: 15X
q HIL reported decent set of nos. for Q4FY11. Numbers are slightly above
our expectations on revenue front and net profit front.
q Robust growth in domestic business across all verticals and meaningful
recovery in Sylvania helped margin expansion at consolidated level. Exceptional
income of EUR 5.4 mn in the quarter enhanced Sylvania performance.
q Company has changed its accounting policy with effect from Q4FY11. It
has decided to report net revenue after deducting for sales discounts,
incentives and rebates.
q On normalized basis, domestic business has reported margin pressure
mainly on account of higher input prices and increased employee expenses.
q Management has concluded successful restructuring at Sylvania. It is
likely to report consistency in performance going ahead. Management
expects to maintain Sylvania's margins at FY11 levels.
q Company is adequately positioned to benefit from the growth in consumer
durable space in the domestic market.
q We maintain BUY rating on the company's stock with a one year DCF
based price target of Rs.455 (Rs 450 ealier).
Result Highlights
n Domestic revenue grew by 24% YoY at Rs 8.4 bn in Q4FY11 mainly driven by
consumer durable business that grew 39% yoy.
n EBITDA margins stood at 11.7% vis-à-vis 12.8% last year on account of higher
input prices and increase in employee expense. Also revenue mix gets skewed
toward low margin Cables and Wire division for the quarter which inherits lower
margins.
n However management is confident of maintaining margins going ahead on account
of 1) steady cost management across the board 2) increase in contribution
from new products going ahead.
n Exports from standalone switchgear division declines YoY due to closure of OEM
contract with a UK client. Also, company is planning to launch switchgears in the
international market and expects to maintain same margins in these areas.
n Growth in Wire & Cable division is mainly driven by increase in input prices
which resulted in the increase of product prices. Electrical Consumer Durables
further strengthen with the successful launch of new product. Management has
indicated substantial growth in Geasers in FY12.
n Company reported strong standalone operating cash flows in FY11 at Rs 3.2 bn
vis-à-vis Rs 2 bn in FY10. Company has utilized Rs 1.3 bn for capex and invested
Rs 1.8 bn in Sylvania.
n Management has concluded successful restructuring of Sylvania and expects to
maintain margins at current levels in FY12E. Moreover further investment from
Havells India would not be required in its overseas subsidiary.
n Working capital reduced in FY11 mainly due to increase in creditors' days from
68 days in FY10 to 82 days currently. Inventory increased in FY11 by Rs 1.4 bn.
n Sylvania performance improved meaningfully in Q4FY11 on back of robust
growth in emerging markets including Latin America. Company has also been
witnessing consistent growth in Asia including China. Europe continued to be a
lack luster for the quarter.
n Sylvania operating margins stood at 11.6% in Q4. For the quarter Sylvania has
reported an exceptional gain of EUR 5.4 bn against revaluations of pension liability
that has been provided in earlier period.
n On normalize basis Sylvania has clocked EBITDA margins at 7.9% due to improved
operational efficiencies and reduced employee cost due to restructuring.
n Sylvania reported muted revenue growth in FY11 due to management's priority
for cost restructuring over growth. However, we believe that with successful accomplishment
of the restructuring process, Sylvania is likely to post adequate
traction in FY12.
n Net debt at Sylvania stood at EUR 127 mn at the end of FY11. This includes EUR
78.4 mn of term loan and EUR 37.2 mn of working capital loan. We believe that
refinancing of the loan would help the company in near term as company is
likely to utilize funds for future growth. Generation of adequate free cash should
help diluting debt levels over FY12-14E.
International presence offers geographical diversification to
take advantage of the upsurge in consumer appliances market in
Asian and African markets
n Company (including Sylvania) is present in nearly 50 countries across Europe and
Asia. Moreover it has been witnessing enormous potential in the emerging markets
like Africa where housing and real estate market is picking up.
n With an aim to establish itself as a prominent player in these markets, company
is planning to strengthen its dealer franchise in these regions. It would be offering
its diverse range of products within the parent brand Havells and the acquired
brand Sylvania to the overseas customers.
n Going ahead, the company expects substantial amount of revenues through exports
on account of revival of the European economy giving a boost to the legacy
market of Sylvania coupled with new market development in Asia and Africa regions.
Financials to improve; consistent growth in domestic market, export
growth in new geographies and successful restructuring of
Sylvania would result in value accretion
n We project 13% growth in consolidated revenues in FY12E from Rs. 56 bn in
FY11 to Rs. 63 bn in FY12E. Within the revenue streams, we expect domestic
sales to grow by 19% in FY12E mainly driven by switchgears, wires & cables and
consumer appliances segment.
n We also expect exports demand to improve by FY12E on account of expected
recovery in European region, growth in Latin America and new geography additions
in African and Asian region.
n We opine that the company would continue to prudently manage its overheads
and Sylvania restructuring would boost company's margins. In our projected
financials we build 7% EBITDA margins for Sylvania in FY12E.
n In our projected financials we build 9.6% EBITDA margins at consolidated level
for FY12E.
n In our projections we build 4% revenue growth in Sylvania in FY12E on back of
continued demand from emerging economies.
Valuation and Recommendation
n At current price of Rs.399, stock is trading at 15x P/E and 9.4x EV/EBITDA on
FY12E earnings.
n We value the company using DCF valuation methodology that derives a price
target of Rs.455 (Rs 450 earlier) per share. We maintain our 'BUY' recommendation
on company's stock.
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