Havells India - Cooling Consumption Dims Glow; Visit Note:: Edelweiss

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We met the Havells India (HAVL) management to get an update on the company’s business. After surpassing the industry in H1FY15 (standalone), consumption slowdown seems to have caught up with the company. Weak consumer sentiments and mute on-the-ground economic activity are likely to lead to single digit revenue growth in H2FY15. Accordingly, management has cut FY15 standalone revenue guidance from 17-20% to ~13%. Given the fall in European bond yields, Sylvania’s pension liability is likely to increase, which will impact profitability. Management has, however, kept Sylvania’s FY15 guidance intact. In light of weak sentiments and lacklustre demand in India, we trim FY15E and FY16E consolidated earnings by 8% and 10%, respectively. While the near term is challenging, we continue to like the stock from a long-term perspective.

Domestic business lacklustre; pension liability to hurt Sylvania

After scintillating ~20% surge in H1FY15, HAVL’s revenue is likely to clock mere single digit growth in H2FY15 on account of weak consumer sentiments and mute on-the-ground economic activity. The cables & wires business along with consumer durables had clocked robust growth of between 20% and 25% during H1FY15 even as switchgear & lighting business growth was mute at sub 10%. However, going forward, overall sales are likely to moderate and hence management has cut revenue guidance to ~13% from 17-20% earlier. In Sylvania, the pension liability is likely to increase due to decline in bond yields in Europe, impacting FY15 profitability. HAVL has, however, maintained its guidance as it is anticipating revenue growth of 3-4% and margin of 6.0-6.5%.

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https://www.edelweiss.in/research/Havells-India--Cooling-Consumption-Dims-Glow;-Visit-Note/27799.html