Havells India - 1QFY12: Strong Sylvania compensates for lower domestic growth. On track to meet full year estimates:JPMorgan,

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Havells India Ltd Overweight
HVEL.NS, HAVL IN
1QFY12: Strong Sylvania compensates for lower
domestic growth. On track to meet full year estimates


 Strong Sylvania performance mitigates subdued domestic business,
on track to meet our full year estimates: Consolidated 1Q net profit
growth of 41.4% yoy was ahead of our estimates. While domestic
business growth was below expectations, Sylvania fared better than
expectations. We believe HAVL is on track to meet our FY12E
estimates - it needs to deliver earnings growth of 31.4% over the 9m
FY12E v/s 41.4% growth delivered in 1Q. HAVL is currently trading at
10.9x FY12E P/E and 8.7x FY13E P/E, which we believe offer
attractive valuations. Remain OW with Mar-12 TP of Rs600.
 Domestic margins pared by higher ad spend. Domestic revenues grew
16% YoY, meeting management guidance range of 15%-20% (which
has been maintained). Revenue growth has to be viewed in light of flat
growth for switch-gears as HAVL discontinued exports to its European
OEM as it is looking to roll out switchgears under the Sylvania brand.
Growth for cables and wires (+26% YoY) and lighting (+21% YoY)
continued to be robust. Consumer durables growth slowed to 14% YoY
(fans +10% YoY), as per expectations. EBITDA margins declined 50bps
due to higher ad spend in 1Q (Rs420MM v/s Rs1B budget for full year).
Margins are likely to normalize going forward as ad spends are pared.
 Sylvania fares better than expected. Sylvania revenues were up 1%
YoY (13% in INR terms) with growth in Latin America (+8% YoY)
offsetting decline in Europe (-3% YoY). EBITDA margins improved by
190bps driven in equal measure from Europe (+180bps YoY) and Latin
America (+160bps YoY). Management reiterated its focus on improving
margins across regions for Sylvania through the rest of year.
Q1FY12 results summary. Consolidated revenues increased 15% YoY
driven by domestic business (+16% YoY) and Sylvania (+13% YoY).
Consolidated EBITDA margins improved 70bps YoY to 9.6% with
decline in domestic business (-50bps YoY) offset by strong EBITDA
margin improvement for Sylvania (+190bps YoY). Net profits increased
41% YoY to Rs796MM.