Havells India - Short Term Muted; Outlook Intact; Result Update Q3FY15 ::Edelweiss

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Havells India’s (HAVL) Q3FY15 standalone results were below estimates. Overall consumption slowdown has hurt the company as revenue growth slowed to 5%. While the consumer durable business (CD) reported 12% growth, all other segments reported sub-5% growth. EBITDA margin improved 70bps to 14.5% due to better product mix and lower advertisement spend. PAT declined 4% due to higher depreciation and tax rate. Sylvania’s revenue was flat with Europe and Americas growing a mere 2.6% and 7%, respectively. Pension liability at EUR6.1mn (in Europe) hurt profitability even as operating EBITDA margin came in at 5.1%. Adjusting for forex loss, Sylvania reported loss of EUR7.9mn. Building in slower growth in domestic business and Sylvania along with depreciation in EUR, we trim our consolidated earnings by 21% and 11% for FY15E and FY16E, respectively. While HAVL faces testing times in the domestic business, we see the company as a best play on discretionary spend uptick over next 2-3 years. Given strong cash flow generation (over INR11bn in FY16-17) along with strong product portfolio and dealer focused strategies, HAVL is poised to grow better than market.

Muted domestic performance; pension liability hurts Sylvania

HAVL reported muted revenue growth at 5% to INR12.5bn impacted by consumption slowdown. EBITDA margin improved 70bps to 14.5% gaining from lower advertisement spend and better product mix. PAT, at INR1.2bn, declined 4% due to higher depreciation and tax rate. Sylvania’s revenue (EUR112.5mn) was flat. Increased pension liability (EUR6.1mn) hurt earnings as the company reported loss of EUR10.7mn. Adjusting for forex loss (EUR2.8mn), loss stood at EUR7.9mn

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