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Havells India (HAVL)
Others
Gaining confidence. We have tried to delve into reasons for the divergent trend in
margins versus competition in 2QFY12. (1) Our channel checks indicate that the
company did not follow competition in reducing prices in the fans segment in 2QFY12,
(2) brand leadership helped sustain volumes and (3) cables and lighting division
dramatically improved profitability and have contributed 56% to growth at the
contribution level (1HY2012). The ability of the company to sustain pricing versus
competition points to a strong brand. In our view, the company would be able to
sustain higher profitability versus competition. Upgrade to ADD with a revised target
price of Rs450 (Rs370 earlier).
Strong brand is visible
We did channel checks to ascertain the reasons behind superior margin performance of Havells in
2QFY12 versus competition. The reasons are:
The company did not follow competition in reducing price in 2QFY12. Hence, price positioning
of the company (in fans) as of now is higher than even Crompton which is the market leader.
Brand leadership of the company helped it to sustain better than industry volumes and margins.
According to our channel checks, there is clear communication from the company at the dealer
level to maintain pricing even if it means a compromise on volumes.
Bigger reason is the marked increase in profitability (at the contribution margin level) in the
cables and lighting business. Cables and lighting division has contributed 56% to the total
growth (yoy) at the contribution level in 1HY2012 with the consumer durables contributing only
~20%.
Brand positioning is markedly superior to the competition
In the consumer appliances space also, the brand positioning of the company is markedly superior
to competition (Bajaj, Crompton etc). For a perspective, pricing of Havells mixer grinder (750 W
rating) is at ~30% premium to similar product from Bajaj and is almost at par with Philips (for a
similar product). The strategy of the company is to compete at the premium end and avoid
exposure to the economy segment
Upgrade to ADD with a target price of Rs450
We have increased our FY2012E and FY2013E EBITDA estimates upwards by ~5% and increased
our PAT estimates by 9% and 6% for FY2012E and FY2013E, respectively. We are upgrading the
stock to ADD from REDUCE with a DCF based revised target price of Rs450 (Rs370 earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Havells India (HAVL)
Others
Gaining confidence. We have tried to delve into reasons for the divergent trend in
margins versus competition in 2QFY12. (1) Our channel checks indicate that the
company did not follow competition in reducing prices in the fans segment in 2QFY12,
(2) brand leadership helped sustain volumes and (3) cables and lighting division
dramatically improved profitability and have contributed 56% to growth at the
contribution level (1HY2012). The ability of the company to sustain pricing versus
competition points to a strong brand. In our view, the company would be able to
sustain higher profitability versus competition. Upgrade to ADD with a revised target
price of Rs450 (Rs370 earlier).
Strong brand is visible
We did channel checks to ascertain the reasons behind superior margin performance of Havells in
2QFY12 versus competition. The reasons are:
The company did not follow competition in reducing price in 2QFY12. Hence, price positioning
of the company (in fans) as of now is higher than even Crompton which is the market leader.
Brand leadership of the company helped it to sustain better than industry volumes and margins.
According to our channel checks, there is clear communication from the company at the dealer
level to maintain pricing even if it means a compromise on volumes.
Bigger reason is the marked increase in profitability (at the contribution margin level) in the
cables and lighting business. Cables and lighting division has contributed 56% to the total
growth (yoy) at the contribution level in 1HY2012 with the consumer durables contributing only
~20%.
Brand positioning is markedly superior to the competition
In the consumer appliances space also, the brand positioning of the company is markedly superior
to competition (Bajaj, Crompton etc). For a perspective, pricing of Havells mixer grinder (750 W
rating) is at ~30% premium to similar product from Bajaj and is almost at par with Philips (for a
similar product). The strategy of the company is to compete at the premium end and avoid
exposure to the economy segment
Upgrade to ADD with a target price of Rs450
We have increased our FY2012E and FY2013E EBITDA estimates upwards by ~5% and increased
our PAT estimates by 9% and 6% for FY2012E and FY2013E, respectively. We are upgrading the
stock to ADD from REDUCE with a DCF based revised target price of Rs450 (Rs370 earlier).
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