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Domestic revenue growth of 15%-18%. Management estimate domestic
revenues to grow 15%-18% in FY12E, driven by 18%-20% growth for lighting
& luminaries, 12%-15% growth for switchgears and 15%-20% growth for cables.
Growth for fans is likely to slow to 10%-12% from over 20%+ earlier, however
new range of durable products launched recently will mitigate slowing growth
for fans. Management expect new products to contribute Rs1B (3%) to FY12
revenues
Raw material costs coming off: Prices for key raw materials, Copper and
Aluminum have come off recently. Management does not see near term benefit
to margins from this on account of old raw material inventory. Prices of cables
have been reduced by 4%-5% (as it is a pass through business), if prices of other
products hold up, then margin benefits could accrue over next 1-2 quarters.
Sylvania margins to improve further: Large part of production from Sylvania
has been relocated to China already, and some recent price hikes have been
affected. Management is still guiding for flat revenues in Europe, with 15%-20%
growth in Latin America. Presence in ASEAN markets is being expanded with
recent entry into Indonesia. Management sees further margin improvement, and
is targeting 10%+ EBITDA margins in CY12. Over the longer term, Sylvania’s
product basket is likely to be expanded, replicating the Havells product basket
for products that would be relevant in each of Sylvania’s markets.
Cross currency movement impact: Management expects notional MTM impact
of currency on account of strong US$ in 2Q – Rs120-150MM MTM forex loss
on account of US$-denominated debt (US$25MM) in the Indian entity and about
EU1-1.5MM loss in Sylvania on account of US$-denominated receivables.
Management indicated that adverse currency movements in the other markets
have been mitigated through price rises, almost a 17% increase in Brazil and a
3%-4% increase in Europe to mitigate US$-denominated imports.
Valuations, price target and risks: HAVL is currently trading at 12.2x FY12E
P/E and 9.5x FY13E P/E, ~10% discount to domestic peers. We expect HAVL
earnings to grow at a CAGR of 21% over FY11-FY14 and a ROE of 23% in
FY13. Maintain OW with Mar-12 PT of Rs550, based on 15x FY13E P/E, at a
10% premium to domestic peers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Domestic revenue growth of 15%-18%. Management estimate domestic
revenues to grow 15%-18% in FY12E, driven by 18%-20% growth for lighting
& luminaries, 12%-15% growth for switchgears and 15%-20% growth for cables.
Growth for fans is likely to slow to 10%-12% from over 20%+ earlier, however
new range of durable products launched recently will mitigate slowing growth
for fans. Management expect new products to contribute Rs1B (3%) to FY12
revenues
Raw material costs coming off: Prices for key raw materials, Copper and
Aluminum have come off recently. Management does not see near term benefit
to margins from this on account of old raw material inventory. Prices of cables
have been reduced by 4%-5% (as it is a pass through business), if prices of other
products hold up, then margin benefits could accrue over next 1-2 quarters.
Sylvania margins to improve further: Large part of production from Sylvania
has been relocated to China already, and some recent price hikes have been
affected. Management is still guiding for flat revenues in Europe, with 15%-20%
growth in Latin America. Presence in ASEAN markets is being expanded with
recent entry into Indonesia. Management sees further margin improvement, and
is targeting 10%+ EBITDA margins in CY12. Over the longer term, Sylvania’s
product basket is likely to be expanded, replicating the Havells product basket
for products that would be relevant in each of Sylvania’s markets.
Cross currency movement impact: Management expects notional MTM impact
of currency on account of strong US$ in 2Q – Rs120-150MM MTM forex loss
on account of US$-denominated debt (US$25MM) in the Indian entity and about
EU1-1.5MM loss in Sylvania on account of US$-denominated receivables.
Management indicated that adverse currency movements in the other markets
have been mitigated through price rises, almost a 17% increase in Brazil and a
3%-4% increase in Europe to mitigate US$-denominated imports.
Valuations, price target and risks: HAVL is currently trading at 12.2x FY12E
P/E and 9.5x FY13E P/E, ~10% discount to domestic peers. We expect HAVL
earnings to grow at a CAGR of 21% over FY11-FY14 and a ROE of 23% in
FY13. Maintain OW with Mar-12 PT of Rs550, based on 15x FY13E P/E, at a
10% premium to domestic peers.
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