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Havells — Business strong as usual
Company Update
Company unaffected by slower IIP – attractive at 12xPE
We learnt from our recent interaction with Havells that it is continuing to see 20%
demand growth, even though the Industrial Index of production growth of has
slowed down to 3%. Havells is benefiting from rising residential construction. The
stock has languished since Oct 2010, following the decline in margin in India,
which won’t detract from Q4FY11. We believe that the stock is at an attractive PE
of 12x FY12e, given 20%+ growth.
Plans to double of consumer segment by FY13e is an upside
Havells aims to double the revenue of its consumer electrical goods segment,
from Rs5bn in FY11e to Rs10bn by FY13e, by expanding its product range and
distribution network. Until H1FY11, Havells had only fans in the consumer
segment. In H2FY11, it successfully added water heaters to its portfolio and
earned Rs300mn revenue. It plans to add food processors in H1FY12. The
company’s target of Rs10bn revenue from the consumer segment implies upside
of 20% to our FY13 estimate.
Global biz margin recovery to be followed by stronger sales
Sylvania, the global lighting business arm of Havells, is targeting a 7-8% EBITDA
margin in Q4FY11 and plans to improve on that in FY12, compared to 4.9% in
9MFY11. The margin expansion is due to a business restructuring, including (1)
reduction of employee cost, (2) price hikes, and (3) reduction in non-operational
costs. Sylvania is planning to sell products like switch gears and fans,
manufactured by it in India, into global markets through Sylvania by the end of
FY12, following the margin jump.
Debt repayment risk is not a significant threat
Sylvania needs to repay Euro126mn by Apr13, including Euro40mn in Apr10 and
Euro52mn in Apr13. Sylvania can repay Euro34mn needed by Dec2010,
including Euro10mn in recourse debt through Havells. We expect it to refinance
remaining debt comfortably, as its debt-to-EBITDA should have improved to 2.5
by then.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Havells — Business strong as usual
Company Update
Company unaffected by slower IIP – attractive at 12xPE
We learnt from our recent interaction with Havells that it is continuing to see 20%
demand growth, even though the Industrial Index of production growth of has
slowed down to 3%. Havells is benefiting from rising residential construction. The
stock has languished since Oct 2010, following the decline in margin in India,
which won’t detract from Q4FY11. We believe that the stock is at an attractive PE
of 12x FY12e, given 20%+ growth.
Plans to double of consumer segment by FY13e is an upside
Havells aims to double the revenue of its consumer electrical goods segment,
from Rs5bn in FY11e to Rs10bn by FY13e, by expanding its product range and
distribution network. Until H1FY11, Havells had only fans in the consumer
segment. In H2FY11, it successfully added water heaters to its portfolio and
earned Rs300mn revenue. It plans to add food processors in H1FY12. The
company’s target of Rs10bn revenue from the consumer segment implies upside
of 20% to our FY13 estimate.
Global biz margin recovery to be followed by stronger sales
Sylvania, the global lighting business arm of Havells, is targeting a 7-8% EBITDA
margin in Q4FY11 and plans to improve on that in FY12, compared to 4.9% in
9MFY11. The margin expansion is due to a business restructuring, including (1)
reduction of employee cost, (2) price hikes, and (3) reduction in non-operational
costs. Sylvania is planning to sell products like switch gears and fans,
manufactured by it in India, into global markets through Sylvania by the end of
FY12, following the margin jump.
Debt repayment risk is not a significant threat
Sylvania needs to repay Euro126mn by Apr13, including Euro40mn in Apr10 and
Euro52mn in Apr13. Sylvania can repay Euro34mn needed by Dec2010,
including Euro10mn in recourse debt through Havells. We expect it to refinance
remaining debt comfortably, as its debt-to-EBITDA should have improved to 2.5
by then.
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