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Havells India (HAVL)
Others
Slowdown to percolate to other consumer durables segments. Havells’ results
highlight our concern on slowing demand. Fans division sales grew by only 10% yoy
despite a lower base (company could not meet demand in FY2011 on account of lack
of capacity) and reflect weak volume growth (~+3% yoy). Similar trend is reflected in
domestic switchgear sales which grew only 10% yoy. In our view, there is more to the
low growth rates in the fan division than mere seasonality and slowing consumer
demand (apparent in fans) will manifest itself in other consumer appliances in the
coming times. Also, higher inventory (Rs5.8 bn versus Rs4.69 bn in 4QFY11) could
mean pricing pressure going forward. Retain REDUCE with a TP (DCF-based) of Rs370.
Marginally lower than estimates
Havells reported consolidated 1QFY12 EBITDA of Rs1.43 bn (+23% yoy; -9% qoq), marginally
lower than our estimates at Rs1.46 bn. Most of the miss was on account of the standalone
business reporting 1QFY12 EBITDA of Rs857 mn (versus our estimates at Rs928 mn) due to higher
advertising expenses (Rs420 mn versus Rs260 mn in 1QFY11) for the company’s association with
IPL-4. Other than that, higher interest expenses led to a 10% miss at the PAT level. 1QFY12 PAT
came in at Rs796 mn (+41% yoy; -30% qoq) versus our estimates of Rs874 mn.
Subdued growth in fans and switchgears – points to slowing demand
Growth in the fans segment (we estimate ~3% volume growth in 1QFY12) is especially weak
considering that the company had a lower base last year as it could not meet demand on account
of lack of capacity (from April 2010 to December 2010). Seasonality could have played a part but
to a limited extent. In our view, demand in fans is more volatile than other consumer durables as
the replacement cycle is longer (10-15 years). Therefore, demand in case of fans would be the first
to show trends of slowdown which should manifest later in other consumer durables.
Domestic switchgear revenues also grew at only 10% yoy (value terms) adjusted for the impact of
lower export revenues. As a consequence of lower-than-anticipated demand, inventory in 1QFY12
increased to Rs5.8 bn versus Rs4.7 bn in 4QFY11 in the standalone business.
Lowering our estimates; retain REDUCE with a target price of Rs370
We have lowered our earning estimates for the company and also increased capex assumptions
going forward. We retain REDUCE with a DCF-based target price of Rs370 (Rs440 previously).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Havells India (HAVL)
Others
Slowdown to percolate to other consumer durables segments. Havells’ results
highlight our concern on slowing demand. Fans division sales grew by only 10% yoy
despite a lower base (company could not meet demand in FY2011 on account of lack
of capacity) and reflect weak volume growth (~+3% yoy). Similar trend is reflected in
domestic switchgear sales which grew only 10% yoy. In our view, there is more to the
low growth rates in the fan division than mere seasonality and slowing consumer
demand (apparent in fans) will manifest itself in other consumer appliances in the
coming times. Also, higher inventory (Rs5.8 bn versus Rs4.69 bn in 4QFY11) could
mean pricing pressure going forward. Retain REDUCE with a TP (DCF-based) of Rs370.
Marginally lower than estimates
Havells reported consolidated 1QFY12 EBITDA of Rs1.43 bn (+23% yoy; -9% qoq), marginally
lower than our estimates at Rs1.46 bn. Most of the miss was on account of the standalone
business reporting 1QFY12 EBITDA of Rs857 mn (versus our estimates at Rs928 mn) due to higher
advertising expenses (Rs420 mn versus Rs260 mn in 1QFY11) for the company’s association with
IPL-4. Other than that, higher interest expenses led to a 10% miss at the PAT level. 1QFY12 PAT
came in at Rs796 mn (+41% yoy; -30% qoq) versus our estimates of Rs874 mn.
Subdued growth in fans and switchgears – points to slowing demand
Growth in the fans segment (we estimate ~3% volume growth in 1QFY12) is especially weak
considering that the company had a lower base last year as it could not meet demand on account
of lack of capacity (from April 2010 to December 2010). Seasonality could have played a part but
to a limited extent. In our view, demand in fans is more volatile than other consumer durables as
the replacement cycle is longer (10-15 years). Therefore, demand in case of fans would be the first
to show trends of slowdown which should manifest later in other consumer durables.
Domestic switchgear revenues also grew at only 10% yoy (value terms) adjusted for the impact of
lower export revenues. As a consequence of lower-than-anticipated demand, inventory in 1QFY12
increased to Rs5.8 bn versus Rs4.7 bn in 4QFY11 in the standalone business.
Lowering our estimates; retain REDUCE with a target price of Rs370
We have lowered our earning estimates for the company and also increased capex assumptions
going forward. We retain REDUCE with a DCF-based target price of Rs370 (Rs440 previously).
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