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HAVELLS INDIA LTD (HIL)
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.410
FY12E P/E: 14.2X
q HIL reported decent set of nos. for Q1FY12. Numbers are in line with our
estimates on revenue and net profit front.
q Robust growth in domestic business across all verticals helped margin
sustenance at the consolidated level. Increase in working capital due to
piling up of finished goods inventory led to higher interest charges for
the quarter.
q Management has concluded successful restructuring at Sylvania in the
last fiscal and expects to report consistency in performance going ahead.
Management expects to maintain Sylvania's margins.
q We maintain ACCUMULATE rating on the company's stock with a one
year DCF based price target of Rs.410 (Rs 430 earlier).
Result Highlights
n Domestic revenue grew by 16.4% YoY at Rs 8 bn in Q1FY12 mainly driven by
the 1) lighting division that grew 21% YoY 2) cables division that grew 25%
mainly on account of price increase necessitated by increased commodity prices.
n EBITDA margins stood at 11% vis-à-vis 11.6% last year. Company has incurred
higher advertising expense of Rs 420 mn in the quarter (Rs 260 mn in Q1FY11)
for IPL4 sponsorship and this is non-recurring in nature. We highlight that the
domestic normalized margins for the quarter would have been higher in absence
of this expense.
n Revenues from Switchgear division at Rs 1.8 bn observed muted YoY% growth
mainly on account of continued impact of declining export due to closure of
OEM contract to the UK Company.
n Company is planning to launch switchgears in the international market and expects
to maintain margins at the levels of over 20%.
n Fans division grew by 10% YoY vis-à-vis industry growth at 3% YoY. This year,
north India has observed lighter summer season which has led to sluggish growth
for the industry and piling up of finished goods inventory.
n Electrical Consumer Durables further strengthened with revenues at Rs 1.3 bn.
Management has indicated substantial growth in Greasers in FY12.
n Management is confident of maintaining margins in the domestic market going
ahead on account of 1) steady cost management across the board 2) increase in
contribution from new product launches going ahead.
n Company reported strong standalone operating cash flows in Q1FY12 at Rs 468
mn vis-à-vis Rs 130 mn in Q1 FY11.
n Management has concluded successful restructuring of Sylvania in last fiscal and
expects to maintain operating margins at 7-8% in FY12.
n Inventory in the domestic business increased to Rs 5.8 bn vis-à-vis Rs 4.6 bn in
the previous year. We believe that this implies lower than anticipated demand
for consumer appliances and mainly in the fans space which is an industry wide
phenomenon for the quarter.
n Growth in Sylvania remained muted in Q1FY12as the company has de-grown by
3% in the European region. However, emerging markets including Latin America
has been observing adequate traction.
n Interest outflow for the domestic business increased significantly at Rs 84 mn for
the quarter vis-à-vis Rs 38 mn last year on account of considerable increase in
working capital
n Net debt at Sylvania stood at EUR 140 mn at the end ofQ1 FY12. We believe
that refinancing of this loan is likely to benefit the company in near term to funds
its future growth. We believe that over FY12-14E, generation of adequate free
cash should also help the company in diluting the debt.
n Company has recorded significant growth in Consolidated PAT at Rs 800 mn for
the quarter on back of successful streamlining of Sylvania'a operations with the
domestic business.
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.
Revenues to grow on back of robust domestic demand; successful
restructuring at Sylvania to result in value accretion
n We project consolidated revenues to grow at 10% CAGR between FY11-13E Rs.
56 bn in FY11 to Rs. 68 bn in FY13E. Within the revenue streams, we expect
domestic sales to grow at 17% CAGR in the same period driven by all the segments-
switchgears, wires & cables and consumer appliances.
n We expect exports demand to remain flat in FY12E on account of the current
hold up in the European region. However we are positive on the growth outlook
in the Latin America, Africa and Asia region.
n We opine that the company would continue to prudently manage its overheads
in Havells and Sylvania. Sylvania restructuring is likely to have a positive impact
on company's operating margins.
n However in view of the increasing input prices and sluggish demand outlook in
European region we believe that the Sylvania would continue to face margin
pressure.
n We also highlight that Sylvania has a higher fixed cost base vis-à-vis Havells domestic
business. Therefore any shrinkage in demand for company's products is
likely to have a diminishing effect on the EBITDA margins due to higher operating
leverage. Therefore, in our projected financials we build 6% EBITDA margins
for Sylvania in FY12E.
n In our projected financials we build 9.4% EBITDA margins at consolidated level
for FY12E. We expect EBITDA to grow by 8.8% YoY to Rs 5.8 bn vis-à-vis normalized
EBITDA of Rs 5.35 bn in FY11. We highlight that Sylvania reported an
exceptional gain of EUR 5.4 mn against revaluation of pension liability in
Q4FY11.
n Company has planned for a capex of Rs 1.9 bn in FY12. This mainly comprises of
Rs 250 mn in switchgears, Rs 300 mn in cables & wires, Rs 300 mn in consumer
appliances, and Rs 500 mn in lighting.
Valuation and recommendation
n At current price of Rs.360, stock is trading at 14.2x P/E and 8.9x EV/EBITDA on
FY12E earnings.
n We tweak our earning and working capital estimates for the company in FY12E.
In view of limited upside from the current levels, we maintain 'ACCUMULATE'
rating with a one year DCF based revised price target of Rs 410 (Rs 430 earlier)
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: ACCUMULATE
TARGET PRICE: RS.410
FY12E P/E: 14.2X
q HIL reported decent set of nos. for Q1FY12. Numbers are in line with our
estimates on revenue and net profit front.
q Robust growth in domestic business across all verticals helped margin
sustenance at the consolidated level. Increase in working capital due to
piling up of finished goods inventory led to higher interest charges for
the quarter.
q Management has concluded successful restructuring at Sylvania in the
last fiscal and expects to report consistency in performance going ahead.
Management expects to maintain Sylvania's margins.
q We maintain ACCUMULATE rating on the company's stock with a one
year DCF based price target of Rs.410 (Rs 430 earlier).
Result Highlights
n Domestic revenue grew by 16.4% YoY at Rs 8 bn in Q1FY12 mainly driven by
the 1) lighting division that grew 21% YoY 2) cables division that grew 25%
mainly on account of price increase necessitated by increased commodity prices.
n EBITDA margins stood at 11% vis-à-vis 11.6% last year. Company has incurred
higher advertising expense of Rs 420 mn in the quarter (Rs 260 mn in Q1FY11)
for IPL4 sponsorship and this is non-recurring in nature. We highlight that the
domestic normalized margins for the quarter would have been higher in absence
of this expense.
n Revenues from Switchgear division at Rs 1.8 bn observed muted YoY% growth
mainly on account of continued impact of declining export due to closure of
OEM contract to the UK Company.
n Company is planning to launch switchgears in the international market and expects
to maintain margins at the levels of over 20%.
n Fans division grew by 10% YoY vis-à-vis industry growth at 3% YoY. This year,
north India has observed lighter summer season which has led to sluggish growth
for the industry and piling up of finished goods inventory.
n Electrical Consumer Durables further strengthened with revenues at Rs 1.3 bn.
Management has indicated substantial growth in Greasers in FY12.
n Management is confident of maintaining margins in the domestic market going
ahead on account of 1) steady cost management across the board 2) increase in
contribution from new product launches going ahead.
n Company reported strong standalone operating cash flows in Q1FY12 at Rs 468
mn vis-à-vis Rs 130 mn in Q1 FY11.
n Management has concluded successful restructuring of Sylvania in last fiscal and
expects to maintain operating margins at 7-8% in FY12.
n Inventory in the domestic business increased to Rs 5.8 bn vis-à-vis Rs 4.6 bn in
the previous year. We believe that this implies lower than anticipated demand
for consumer appliances and mainly in the fans space which is an industry wide
phenomenon for the quarter.
n Growth in Sylvania remained muted in Q1FY12as the company has de-grown by
3% in the European region. However, emerging markets including Latin America
has been observing adequate traction.
n Interest outflow for the domestic business increased significantly at Rs 84 mn for
the quarter vis-à-vis Rs 38 mn last year on account of considerable increase in
working capital
n Net debt at Sylvania stood at EUR 140 mn at the end ofQ1 FY12. We believe
that refinancing of this loan is likely to benefit the company in near term to funds
its future growth. We believe that over FY12-14E, generation of adequate free
cash should also help the company in diluting the debt.
n Company has recorded significant growth in Consolidated PAT at Rs 800 mn for
the quarter on back of successful streamlining of Sylvania'a operations with the
domestic business.
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.
Revenues to grow on back of robust domestic demand; successful
restructuring at Sylvania to result in value accretion
n We project consolidated revenues to grow at 10% CAGR between FY11-13E Rs.
56 bn in FY11 to Rs. 68 bn in FY13E. Within the revenue streams, we expect
domestic sales to grow at 17% CAGR in the same period driven by all the segments-
switchgears, wires & cables and consumer appliances.
n We expect exports demand to remain flat in FY12E on account of the current
hold up in the European region. However we are positive on the growth outlook
in the Latin America, Africa and Asia region.
n We opine that the company would continue to prudently manage its overheads
in Havells and Sylvania. Sylvania restructuring is likely to have a positive impact
on company's operating margins.
n However in view of the increasing input prices and sluggish demand outlook in
European region we believe that the Sylvania would continue to face margin
pressure.
n We also highlight that Sylvania has a higher fixed cost base vis-à-vis Havells domestic
business. Therefore any shrinkage in demand for company's products is
likely to have a diminishing effect on the EBITDA margins due to higher operating
leverage. Therefore, in our projected financials we build 6% EBITDA margins
for Sylvania in FY12E.
n In our projected financials we build 9.4% EBITDA margins at consolidated level
for FY12E. We expect EBITDA to grow by 8.8% YoY to Rs 5.8 bn vis-à-vis normalized
EBITDA of Rs 5.35 bn in FY11. We highlight that Sylvania reported an
exceptional gain of EUR 5.4 mn against revaluation of pension liability in
Q4FY11.
n Company has planned for a capex of Rs 1.9 bn in FY12. This mainly comprises of
Rs 250 mn in switchgears, Rs 300 mn in cables & wires, Rs 300 mn in consumer
appliances, and Rs 500 mn in lighting.
Valuation and recommendation
n At current price of Rs.360, stock is trading at 14.2x P/E and 8.9x EV/EBITDA on
FY12E earnings.
n We tweak our earning and working capital estimates for the company in FY12E.
In view of limited upside from the current levels, we maintain 'ACCUMULATE'
rating with a one year DCF based revised price target of Rs 410 (Rs 430 earlier)
on company's stock.
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