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HAVELLS INDIA LTD (HIL)
PRICE: RS.361 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.395 FY12E P/E: 14.2X
q Company has been observing meaningful growth in the domestic business
across all verticals; Increase in working capital due to piling up of
finished goods inventory is likely to increase funding cost in near term.
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 in FY12.
q We continue to maintain Accumulate rating on the company's stock with
a one year DCF based price target of Rs.395 (Rs 410 earlier).
Conference call Highlights
n Company has been observing reasonable demand for its products. It had observed
piling up of finished goods inventory in fans and coolers in the end of
Q1FY12 due to lighted summer this year. However management has not reported
to have taken major price cuts across its key product categories.
n Industry has been facing the brunt of higher interest rates affecting working capital
funding and increasing raw material prices.
n Inventory in the domestic business increased to Rs 5.8 bn in Q1FY12 vis-à-vis Rs
4.6 bn in the previous year.
n Due to higher inventory levels, various consumer durable players have started to
cut prices in the fans segment. We highlight that the fan industry has observed
the miniscule growth of 2% YoY in Q1FY12.
n While HIL managed to grow by 10% YoY in the fans space in Q1FY12, we believe
that it is likely to experience pricing pressure in the near term.
n Demand in lighting & luminaries space has continued to remain strong. Management
expects meaningful pick up in the revenues from tier ii and rural areas.
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 has successfully launched complete range of kitchen appliances last
year. It has also launched Geysers which has been observing reasonable demand.
Company sold 45000 units of geysers in FY12 and aims to sell 100000
units in FY12.
n Company is planning to launch switchgears in the international market and expects
to maintain margins at the levels of over 20%.
n Growth in Sylvania continues to remain sluggish currently. It has grown by 3% in
the European region in Q1FY12. However, emerging markets including Latin
America has been observing adequate traction.
n Management has concluded successful restructuring of Sylvania in last fiscal and
expects to maintain operating margins at 7-8% in FY12.
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 fund
its future growth. We believe that over FY12-14E, generation of adequate free
cash should also help the company in diluting the debt.
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
from 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.361, stock is trading at 14.2x P/E and 9x EV/EBITDA on
FY12E earnings.
n In view of limited upside from the current levels, we maintain 'ACCUMULATE'
rating with a one year DCF based revised price target of Rs 395 (Rs 410 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)
PRICE: RS.361 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.395 FY12E P/E: 14.2X
q Company has been observing meaningful growth in the domestic business
across all verticals; Increase in working capital due to piling up of
finished goods inventory is likely to increase funding cost in near term.
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 in FY12.
q We continue to maintain Accumulate rating on the company's stock with
a one year DCF based price target of Rs.395 (Rs 410 earlier).
Conference call Highlights
n Company has been observing reasonable demand for its products. It had observed
piling up of finished goods inventory in fans and coolers in the end of
Q1FY12 due to lighted summer this year. However management has not reported
to have taken major price cuts across its key product categories.
n Industry has been facing the brunt of higher interest rates affecting working capital
funding and increasing raw material prices.
n Inventory in the domestic business increased to Rs 5.8 bn in Q1FY12 vis-à-vis Rs
4.6 bn in the previous year.
n Due to higher inventory levels, various consumer durable players have started to
cut prices in the fans segment. We highlight that the fan industry has observed
the miniscule growth of 2% YoY in Q1FY12.
n While HIL managed to grow by 10% YoY in the fans space in Q1FY12, we believe
that it is likely to experience pricing pressure in the near term.
n Demand in lighting & luminaries space has continued to remain strong. Management
expects meaningful pick up in the revenues from tier ii and rural areas.
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 has successfully launched complete range of kitchen appliances last
year. It has also launched Geysers which has been observing reasonable demand.
Company sold 45000 units of geysers in FY12 and aims to sell 100000
units in FY12.
n Company is planning to launch switchgears in the international market and expects
to maintain margins at the levels of over 20%.
n Growth in Sylvania continues to remain sluggish currently. It has grown by 3% in
the European region in Q1FY12. However, emerging markets including Latin
America has been observing adequate traction.
n Management has concluded successful restructuring of Sylvania in last fiscal and
expects to maintain operating margins at 7-8% in FY12.
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 fund
its future growth. We believe that over FY12-14E, generation of adequate free
cash should also help the company in diluting the debt.
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
from 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.361, stock is trading at 14.2x P/E and 9x EV/EBITDA on
FY12E earnings.
n In view of limited upside from the current levels, we maintain 'ACCUMULATE'
rating with a one year DCF based revised price target of Rs 395 (Rs 410 earlier)
on company's stock.
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