CFA Institute Research Challenge hosted by

CFA Society India

Team Name: Palladium
Investment Summary

Recommendation: SELL
Current Stock Price (on 4/11/2016): 386.15

Target Price: Rs 274.84 (downside: 28.8%)

We initiate Coverage on Havells India Private Limited with an end of the year
NSE Ticker HAVELLS target price of Rs 274.84 which offers a downside of 28.8% from current stock
Equity Shares (m) 624.6 price. Havells revenue gained 12.8% Q-o-Q for the quarter ending Sep-16 after
M.Cap (INR B) 245.1 they fell 10% Y-o-Y in FY16. This is majorly because of significant growth in
52-week Range (INR) 235.6/459.8 Lighting & Fixtures and Electrical Consumer Durables segments, posting a
Free Float (%) 38.4 growth of 14% and 25% Q-o-Q respectively. Its most profitable segment,
switchgear grew at 11% Q-o-Q while cables & wires remained almost flat.
This report analyses the overall business for Havells in terms of its four business verticals of operation. Post this
analysis of each of these segments has been done to identify key trends and growth drivers. Basis this financial
performance of the company in the segment has been evaluated and future projections made. This has been
used as the basis of valuation to find the intrinsic value of the company and this has been found to be lower
than the present trading price. The upside risks involved in the investment have been enumerated.

Business Description
Started in 1958 by Qimat Rai Gupta, as Havells Industries, with a
small investment of 10,000; today, Havells has grown leaps and
bounds to a market cap of nearly 250 billion.

The holding company Havells India Limited has the following

subsidiaries - Havells Sylvania Brasil Iluminacao Ltda., Havells
Sylvania (Thailand) Ltd., Havells USA Inc., Havells Sylvania
Iluminacion (Chile) Ltda, Havells International Limited and
Havells Holdings Limited. This shows Havells large global
presence.

Havells went for a major expansion in 2007, with the setup of

600,000 KVAr capacity capacitor manufacturing plant in Noida,
Uttar Pradesh, and also, the big bang acquisition of Frankfurt
based company Sylvania (a global leader in the global lighting
business. At that time, this acquisition was the biggest overseas
takeover by an Indian electrical equipment manufacturer. This
helped the companys revenue to cross the monumental figure
of $1billion for the first time ever, with 60% of sales coming
outside of India. However, with changing business situation,
Havells has been planning gradual disinvestment in Sylvania to
reduce volatility in consolidated earnings and hence aim to
improve financial returns. The Company is engaged in
manufacturing Switchgears, Cable, Lighting and Fixtures, and
Electric Consumer Durables.
Our primary research with 15 retailers shows that Havells allows only 30 days credit period as against 45 days
provided by other competitors. This shows the bargaining power Havells has with its distribution chain.
 PRODUCTS RETAILER MARGIN Havells wires, due to its competitive pricing, have a clear
SWITCHGEARS 2-3% preference over its competitors while this may not be the case
CABLES 1-2% for its other products. Retailers get a 1% extra margin when they
LIGHTING 3-4%
skip the distributor and directly buy from Havells, however it has
CONSUMER DURABLES 4%
to be in bulk.

Fig: Retailer level margin across different Havells major At the retailer level, cables generally, have the lowest profit
segments margins, while lighting and consumer durables attract the highest
profit margins.

Industry Overview and Financial Analysis

Switchgear Segment
The consumers of the switchgear segment are residential, commercial and real estate builders and developers.
However, residential real estate is the most relevant for the low voltage switchgear segment in which Ha vells
operates. A comparison between the y-o-y growth in annual revenue from Havells switchgear segment and in
annual number of residential projects completed in last 8 years, gives a good indication of the correlation
between the two (correlation = 0.85) with revenues lagging housing completion by 1 year.

Trends and growth drivers for housing industry:

Interest Rates have reduced but not enough to revive demand

for real estate. Also, the interest rate cuts are not completely
passed on to the end-customers, given the stress in the banking
sector.

Pay rise for civil servants would be much less this time as
compared to the last review in 2009-10, making property still less
affordable.

Governments mission housing for all by 2020 will take time to

Fig: Segmental Revenue and EBITDA Margin
implement, putting potential buyers on hold in anticipation of
reduced property prices in the future.

Housing Projects Completed in Top 8 Indian Cities Introduction of FDI in real estate might lead to a further increase
Vs Ha vells' Switchgear Segment
Growth Rate
40%
in land and property prices as more and more international
players enter this market, making projects unattractive.
20%
Introduction of REITs in Indian markets is now almost a reality;
0%
2009 2010 2011 2012 2013 2014 2015 2016 2017e 2018e
however, this has taken the developers by surprise and we
-20% believe that it would take 1-2 years for them to launch REITs.

-40%
Fig: Plot between annual growth rates of completion of
Completion Revenue(Switchgear)
housing projects in top 8 Indian cities vs growth in
revenues from switchgear shows a Correlation = 0.85
GDP growth and other economic data in the last few years suggest
strong sign of recovery in the Indian economy. However, this is
threatened by weak global outlook and stress in the banking sector.

Market Scenario

Organized switchgear segment broadly has four major competitors in India. Out of them, Panasonic (Anchor)
leads the modular plate switches category (Havells market share 15%) and Havells leads MCBs category with
a market share of 28%.
 New companies in this segment: Other players that have
entered this market in the last few years are Finolex, Orient
Electric, Polycab, Luminous.

Segment Performance and Way Forward

EBITDA increased 14% y-o-y with margins now at 42%, whereas

revenue for FY16 remained flat y-o-y. This is due to a reduction
in advertisement costs, improved penetration of channel and
higher degree of automation in assembly lines.

Baddi plant is now the most automated switches plant in India

Fig: EBIT/Assets for the segment
with 70% process automated, leading to reduction in costs.
Retailer margin is 3% on switches and switchgear, with an extra incentive of 1% if bought directly from Havells
which cuts out dealers margins. Penetration has increased in existing distribution channel with upto 40% of
switches and 25% of switchgear in the market stocked with Havells.
East West North South 2Q- 2Q- Y-o-Y Q-o-Q
FY14 FY15 FY16 FY16 FY17 Growth Growth
Vguard
Anchor Revenue 1,219 1,279 1,286 346 362 0.6% 4.8%
EBITDA
Legrand margin 35% 37% 42% 40% 42% 14% 10%
Havells
EBIT/Assets 0.80 0.82 0.90 0.88 0.92
Fig: Table showing regional strength of competitors

Cable Segment
The Indian cables and wire industry has transformed to a large
industry over the last decade, and is expected to grow at 15%
over the next 5 years. Government of India initiatives that will
35% benefit the industry are - 100 Smart Cities1, where it has
earmarked nearly 500 billion over the next few years; Highway
65%
projects worth US$ 93 billion which includes the flagship National
Highways Building project2, with total investment of US$ 45 billion
over next three years; the Digital India campaign is estimated to
need an investment of 4.5 trillion. Government is also looking to
Organised Market Unorganised Market
invest in the power sector, to the tune of 15 lakh crores over
next 5 years. This is expected to drive both the domestic and
Fig: Cable Market Split
industrial cable demand.
6,000 Concerns
5,000
While the 65%3 share of organised market, is encouraging, the
4,000
3,000
unorganised market stills poses a credible threat due to no notable
2,000
barriers to entry.
1,000 Copper prices in the past year have wildly fluctuated from a low of
- $1.95/pound to a high of nearly $2.4/pound, this when coupled
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Mar-11
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10

with foreign currency fluctuations can lead to unplanned pressures

on raw material cost.
Fig: Segmental revenues for Havells (Rs. Mn) (Source -
Annual Report)

1 http://smartcities.gov.in/

2 http://www.nhai.org/whatitis.asp

3 Nirmal Bang Equity Research Report, September 2016

The cycle time of cable manufacturing process is low at only 15 days from raw material procurement to finished

product and hence it helps the industry to quickly pass on the rise/fall in copper prices.
Category Market Market Market
Size 1 Share Leader The cable and wires had seen a rapid growth in during the FY 07-08,
however, the growth quickly lost steam after the Sept 2008 quarter,
Domestic 80 16% (up Polycab is the time of US 2008 recession. The growth picked up in 2010 and
Cable billion from 6% the market
remained decent for the next 5-6 quarters. However, the growth
Category in FY leader in
2006) both the
rate has been languishing for the past 4-5 quarters, While firms
categories. registered 14% volume growth in industrial cable and 11% volume
Industrial 120 10% (up Finolex, KEI growth in domestic cable (FY16), value-wise cable segment
Cable billion from 6% and RR revenues grew by only 1%.
Category in FY Kable are
2006) other large Fig: Segmental sub-segments (Source Annual
players. Reports)

FY 15-16 FY 14-15 FY 13-14 FY 12-13

REVENUES(IN BN ) 220.81 219.04 192.64 169.25
EBIT MARGINS 14% 12% 11% 9%
ROCE 82% 91% 64% 44%
% OF TOTAL SALES 40.60% 41.80% 40.80% 40.10%

Fig: Segmental data (Source Annual Reports)

Benchmarking Havells revenue growth against Finolex

Cables and KEI Industries, we understand that firms are seeing
single-digit revenue growth. However, the cable business is to
see a positive trend due to the factors mentioned above and the
overall industry is expected to grow by 15%.
The EBIT growth has slowed down across the industry, as
compared to what it was two years ago. Finolex Cables has been
able to outperform the other firms, in almost every quarter.
Fig: % growth in Cable business of major firms (Source Among the listed firms, transacting in the cables business, it has
BSEINDIA)
had the best EBIT Margins, maintaining margins greater than 15%.
However, Havells India hardly has ever crossed this mark. KEI
Industries and Havells India enjoy similar levels of EBIT margins.

Though the EBIT margins are not the best in the industry, Havells
India enjoys one of the best ROC among all the listed firms. It has
almost enjoyed ROC, in excess of 50% (per annum). Finolex Cables
is a close second, with ROC hovering around 50%. KEI Industries
has the least ROC and it hardly has seen ROC numbers greater than
30%.

It will be interesting to see if Havells continues to enjoy such excellent ROCE margins after their additional
planned investments, and if it does, it will have significant addition to their bottom line.

Fig: Segmental % ROCE Cable business of major firms
(Source BSEINDIA)
Lighting and Fixtures Segment
Industry Overview
Fig: Size of the Lighting and LED Industries in India
(Rs Crores); ELCOMA Report
Fig: Price in Rupees of an 9W LED Bulb
distributed under EESL scheme; EESL Website
Fig: Relative Share of various market sub-segments;
CLSA Equity Research Report, September 2016
4
Source: EESL
Overall, Havells continues to focus on profitability in cable segment
and posted a healthy improvement in contribution margin from
6.6% in FY11 to 14.2% in FY16 owing to various cost-efficiency
measures as well as its brand strength. Contribution margin is
higher in domestic cable at around 18% while in industrial cable it is
only 7% to 8% as the benefits of lower commodity prices need to be
immediately passed on to customers because of the commoditised
nature of business.
The lighting and Fixture industry has been growing at a rate of 17%
CAGR from 2011 to 2014, however, the LED segment within this has
been growing at a much higher pace. Another important trend is
the fact that the sales of traditional lighting solutions like
incandescent and fluorescent lamps as well the more recently
launched CFLs has started to decline and has been replaced by an
increasing market size of the LED segment. Another important
factor is the industry as a whole moving from an unorganized sector
dominated framework in 2006 to a more organized sector
dominated one.
Key Trends and Growth Drivers
THE EESL Scheme: Energy Efficiency Services Limited is a Joint
Venture of the PSUs of Ministry of Power, Govt. of India. The overall
target market size for this scheme is being estimated to be around
Rs 74,000 crores in India, out of which only 5% has been tapped so
far. 4 This has been in the fields of the areas of lighting and some
industrial applications and the large-scale implementation of
energy efficiency projects. In a bid to achieve revenue growth LED
manufacturers have aggressively bid for projects under this scheme.
This has resulted in a disruption of the LED bulb prices and has
resulted in margins for all major players being hit.
The Shift to more Efficient Energy Sources: The increasing
awareness of the benefits of LEDs over CFLs, Fluorescent and
Incandescent light bulbs is driving the growth of this segment.
Another important factor is the government incentive schemes
given for the adoption of LEDs over its substitutes. This is clearly
leading to a decline in the units of fluorescents CFLs and

Fig: Lighting and Fixtures Market moving towards
organized sector; Motilal Oswal, July 2016
Fig: Market Share of Different players in LED
Segment; CLSA Equity Research Report, September 2016 a
towards becoming an Organized Sector 1
Fig: Market share of Havells in Lighting & Fixtures
Business; Havells Investor Presentations
15 mainly due to the increased competition
initiative of the government to the extent that its competitors have. Hence, revenue growth has mainly come
from the retail sales, where the company has faced stiff competition. But with growth in the LED segment picking
Fig: Competitive Benchmarking of Segmental Revenue and EBITDA Margin
5
Source: Havells Investor Presentation, September 2016
Incandescent as can be seen in the graph below and a marked
increase in the share of LEDs in the overall lighting industry.
The Shift towards the Organized Sector:
There has been a clear shift in the industry from an unorganized
sector industry to becoming an organized sector one. Presently, the
organized sector accounts for about 60% of the total industry size
according to industry estimates. Going forward, with the
implementation of GST, Havells company management believes
that the proportion of the industry in the organized sector is likely
t
o to increase, with the simplification of taxation regime.
w
a Market Scenario
r
d Havells, in 2016 has between 10-14% market share in the lighting
s and fixtures market space which is about Rs 6,500 crores in India 5.
b
e The company however, has a lower market share in the LED market
c segment with only about 6% market share. This segment the major
o
m
players are Philips, Syska and Crompton which together have about
i 55% market share.
n
g Performance Benchmarking with Competition
n The financial performance of the major competitors of Havells in the
O
r
Lighting and Fixtures area has been given in the table below. The
gcomparison has been done using segmental numbers of competitors.
aWherever, this number is not available, appropriate assumptions
n
i
have been made. For international peers, the currency used and the
zfinancial year dates would be different and mentioned accordingly.
e
d Segment Performance and Way Forward
S
e From the revenue analysis, we can see that the growth in the
c
t
lighting and fixtures segment has declined between FY 13 and FY
o in the market and the company not participating in the EESL
r
1
Fig: Segmental Revenue and EBITDA Margin
pace and the planned entry into the street lighting business, the company is likely to have better revenue growth
going forward. Some of the key growth drivers for the company in
the lighting and fixtures business include:

Increasing Housing Demand in India: The general wave of

urbanization as well as the increased number of houses coming up is
a major growth driver for this segment. Havells management
believes the government housing schemes if implemented in a timely
and

efficient manner is likely to create a strong consumer demand in this

segment.
Fig: Segmental EBIT/Assets Ratio
The Increased Replacement Demand in Lighting: It is estimated that
14% of all demand is from the replacement parts and this is likely to increase as the batch of LEDs sold in the
initial phase reaches the end of its life.

Inorganic Growth through Promptec Acquisition: The acquisition of Promptec, to venture into the solar lighting
and street lighting businesses are likely to provide inorganic growth for the company. The companys ability to
successfully bid for the Rs 70 crore street lighting project indicates that this acquisition is likely to prove
worthwhile for the company going forward.

Electrical Consumer Durables

With the housing sector growing at a rapid rate and the disposable incomes at a high rate, also with the
improved standard of living and rising awareness among consumers regarding benefits of branded fans, water
heaters etc. the demand for electrical durables continued to grow. But due to involvement of lesser
technological inputs and low entry barrier, the market is equally divided among the organized and unorganized
players. Unorganized sector leads the industry in terms of volume whereas organized market leads in terms of
revenues.

The organised sector is dominated by national brands like Crompton Greaves, Usha, Orient, Havells, Bajaj,
Racold, Venus, V-Guard AO Smith and Khaitan. Unorganized sector has also good brands like Almonard, Cinni,
Ortem, MIE, Sanyo, Metro, Omega, Indo, Ankur, Mafco, Navya, Royal, Oswin, Libra, Libery, etc

Havells launched fans domestically (Rs 65 billion market currently) in FY04 and since then it has become the
third largest player with 15% market share and it has more than doubled over last 6-7 years. The growth is
largely led by its strategy of catering to premium segment of the market coupled with strong focus on brand
development. Havells primarily focuses on the mid-market and premium segments. Revenues for the electrical
consume durable segment has clocked an impressive 29% CAGR over FY07-16.
Segment Total Market Size Havells Market Share Major Competitors
Fan 62 billions 15% Crompton, Usha,
Orient, Khaitan
Water Heaters 14 billions 9% Racols, AOSmith, Bajaj
Domestic Appliances 52 billions 2-3% Philips, Bajaj
Future top-line growth will be driven by the launch of newer products and innovations in existing products,
improved aesthetics, specifications, power-saving variants etc.; and focus on branding and A&P spend.
Market Scenario
Havells has been the fastest growing company
14% 12%
12% 11% in fan and appliances segments among peers.
9% 9% 9%
10% 8% Segment Performance and Way Forward
8% 7% 7%
5% 5%
6%
5% 5%
6% 6% Electrical Consumer Durable segment
6%
4%
contributes to around 20% of the total revenue,
2013 2014 2015 if we see the first half yearly results of Havells in
Havells Usha Crompton FY 17, this segment has contributed to 23% in
revenue.
Fig: Fan Volume Growth (Y-o-Y)
14%
12%
12% 11%
10% 10% Revenue and margins in this segment is
10% 9%
8% 8%
increasing as the sentiment around the
8% 7% 7% Electrical Consumer Durables business is robust
6% 6% 6%
6% 5% 5% 5% considering that it does not involve consumers
4% making big purchase decisions like buying a
2013 2014 2015 house, as with other segments where the
Havells Bajaj Usha
demand depends upon consumers big
Fig: Home Appliances Volume Growth (Y-o-Y)
purchase decision. In line with a continuous
focus on innovation and energy efficiency, in
this segment company have launched the countrys first most energy efficient fan - ES 40, which is a blend of
energy conservation and has elegant design.

Company has also setup a new unit for water heaters, growth in this segment is expected in near future. In the
appliances segment, newer ranges of air coolers were introduced. Company have also introduced lifestyle-
based products like Air Fryers and Air Purifier, which have a niche market as of now. So the combination of all
these factors have led to growth in this segment.
1200 29%
2016
Revenue (Rs cr)

1000 28%
800 2015
27%
600 2014
26%
400 2013
200 25%
2012
0 24%
2012 2013 2014 2015 2016 0.00 0.20 0.40 0.60 0.80 1.00

Revenue EBITDA margin EBIT/Assets

Fig: Segmental ECD Revenue Trend Fig: Segmental EBIT/Assets Ratio

FY14 FY15 FY16 2Q-FY16 2Q-FY17 Y-o-Y Q-o-Q
Revenue 853 1,028 1,141 253 309 11.0% 22.2%
EBITDA(margin) 28% 26% 27% 27% 33% 12% 47%
EBIT/Assets 0.89 0.68 0.70 0.15 0.15
Valuation Summary
The coverage on Havells India is initiated with a strong sell based on Fundamentals of the Company. The
recommended target price based on its intrinsic value, found using DCF analysis is Rs 274.84 which is 28.8%
lower than the present trading price on 4th November 2016 at
Rs 386.15.

Methodology: The SOTP based DCF Valuation technique has

been used and within it too the Free Cash Flow to Equity has
been used to arrive at the intrinsic value of the share price. The
Salient features of the valuation model are as follows:

Revenue Projections: Revenue projections have been made

for each of the segments individually by taking correlation with
their individual growth drivers
Fig: Overall Revenue (Rs Lacs) and Profit Margin
Projected
Present Value 12833.66 Beta Calculation: Previous 10 year daily adjusted closing price
Terminal Growth Rate 8.0% of the share has been taken and its daily returns correlation
Terminal Value 4339.68
with the stock market has been found out. Based on this the
Equity Value 17173.34
beta has been calculated. The beta value has also been
Number of Shares Outstanding 62.49

Share Price 274.84

calculated through un-levering and then re-levering the beta
Fig: Table Showing Details of the FCFE based Valuation
values for peers.
outstanding
Depreciation/Capex: This has been calculated based on the
historical increasing in gross block along with the companys own estimates of capex requirements.

Working Capital: Each item of current assets/liabilities has been taken as a percentage of the COGS and has
been extrapolated keeping in mind, companies commentary on the same.

Cost of Equity: This has been calculated using the capital asset pricing model, using the beta value calculated
above, 10 year market return and the return on the 10 year government security.

Rationale for Valuation:

1. Switchgear: A slowdown in the housing demand growing forward is likely to result in a saturation or a
fall in the demand for domestic switchgear, that can result in lower valuation.
2. Cables: A healthy co-relation of 0.951 is seen between growth in houses completed (in sq. ft.) to the
revenue growth in domestic cable category. Once again the next two-year decline in housing demand
could reduce growth. However, the industrial segment is expected to show a better growth due to big
infrastructure initiatives by the Indian Government such as Digital India, Make in India, build 100 Smart
City, etc.
3. Lighting and Fixtures: Margins in consumer lighting are expected to decline further are old steady at
the poor present value. Hence, overall company margins can take a hit from this. The success of the
move towards the industrial segment and its margins remain to be seen.
4. Electronic Consumer Durables: The space has intense rivalry and the company does not have significant
market share in any of the product segments. Hence, the company s unlikely to be positively affected
from this segments revenues.
Investment Risks
Major Upside Risks: Given the Sell recommendation of the stock of Havells Limited, the following are the upside
risks for the company, that can result in potential losses:

1. Increase in Market Demand: Overall increase in the per capita income levels of the country can act as
a major growth driver for the Havells, since a majority of its segments are targeted towards the
customer segment. If the company is able to effectively capture this growth and maintain margins and
market share, there can be a significant appreciation in the companys fundamentals.
2. Inorganic Growth Success: Starting with the acquisition of Promptec to other acquisitions by the
company, especially in the electrical consumer durables and the lighting and fixtures space, if these
acquisitions are successful and the synergies competently realized, there could be appreciation of the
companys valuation as well as an increase in the companys market share. This can result in better
margins and revenue growth.
3. Housing Demand: If the present expectations with respect to the housing demand are incorrect and
there is a pick up in the demand for housing, contingent upon strong implementation of governmental
housing schemes, there could be a significant revenue increase in the switchgear and cable segment
revenue that will be contrary to projections.
Appendix
Appendix A: Economic Overview
The economy in which a company operates is an important determinant of how well the company is likely to
perform, as almost the entire stakeholders of the company are in the same economic environment. For
Example, the demand for goods or services produced, the legal and environmental aspects, the ease with
which credit is available are all important indicators for the well doing of a business. All of these parameters
depend on the Economic well-being of the country of operation. Some of the parameters on which we will be
evaluating Infosys country of operation, India are-

1. GDP Growth Rate

2. Inflation Rate
3. Interest Rates
4. Monetary and Fiscal Policy
5. FDI Policy
6. Stock Market Return Expectations

Based on this analysis we will try to enumerate why Indian as an Economy is ideal to invest in.

GDP Growth Rate

The table below shown below gives on the horizontal axis the historical 3 year GDP CAGR calculated in 2015.
The vertical axis gives the growth rate predictions given by World Bank.

6.0%
India
2020 Growth Rate Predictions

5.0%
China

4.0%

3.0%

Canada France Germany

Brazil 2.0% US
Italy
Japan UK
1.0%

0.0%
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%
Past 3 Year GDP CAGR

Fig: 2020 Growth Rate Predictions vs 3 Year historical Nominal GDP CAGR 6

From this graph it can be seen that, both in terms of historical growth as well as future predictions, the Indian
Economy is the ideal investment destination, with an expected annual GDP growth rate of 5.7% till 2020.

Inflation Rate
Presently, the Reserve Bank of India measures Indias inflation using the Consumer Price Index (CPI), replacing
the erstwhile WPI that was used for measuring inflation. The inflation level of India in the latest quarter has
been plotted along with the major economies of the world-

6
Source: World Bank Database
 July' 16, CPI
10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

-2.0%

Fig: CPI Inflation for Month ended July 2016 for Major World Economies7

The CPI values should be higher for developing economies as compared to developed ones. However, it
shouldnt be so high that the country could go into a price spiral. Unlike developing economies like Brazil and
Russia which have a much higher inflation rate, India has a stable inflation rate commensurate with the
requirement for a developing economy.

Interest Rate
The interest rates in India like the Bank rate and Repo Rate are determined by the Reserve Bank of India.
These rate determine the rate at which credit is available and according influence the supply and demand
curves. In the present scenario, the inflation in India is in an upward trend. As a result, the interest rates have
either been slashed or kept constant in the reviews done by RBI, with the current Repo Rate at 6.5%. As a
result of this, the corporate houses as well as the public is more willing to spend their money in goods and
services rather than keeping them locked up in safe deposits. This increased spending and availability of cheap
credit means, it is an ideal scenario for companies like Infosys, who depend on spending by corporate houses
of the country.

Monetary and Fiscal Policy

The monetary policy of India, determined by the RBI policy along with the fiscal policy determined by the
Government, are used to stabilize the countrys economy and lead it towards an optimal growth phase.

The central government in India, elected to power in 2014, enjoys majority in the lower house, an
unprecedented feat in the recent history of the Indian electorate. With crucial wins in state elections, the
government is also likely to have a decent majority in the upper house when combined with some of its allies.
The stable regime at the centre can ensure speedy execution of policy and pave the way for strong fiscal
reform. The recent passing of the Goods and Services Tax is one such example.

At the monetary front, the RBI has never been more active in riving growth for the country and stabilising its
economy. Under Dr Raghuram Rajan, a stable and far sighted monetary policy was in place and his
replacement by Dr Urjit Patel is expected to carry this strong legacy forward.

7
Source: International Monetary Fund Database
As compared to developing like China with a closed regime of uncertainty or those like Brazil and Russia which
are suffering through recessions and political uncertainty, India is the worlds largest democracy and has a
stable political and economic environment, with very high historic and projected growth rates of GDP.

FDI Policy
Foreign Direct Investments (FDI) has been on a growing trend since Government of India opened up
the economy in 1991. According to Financial Times, India leads in terms of FDI as compared to US
and China. Due to high growth potential for the Indian economy, a large number of foreign investors
are feeling confident about Indias growth story. This has led to considerable economic growth and an
increase in capital infusion in various industries.
Stock Market Expectations
The kind of investment made in an Economy as well as the FDI inflows depend on the capital market
structure of the company. A more mature stock market indicates a higher stability associated with the
markets and as a result, the confidence of the investors goes higher. The Indian stock market is well a
well-established system when compared with other developing Economies, with similar growth rate
like China, Brazil and Russia. The last 6-month return (Geometric Mean of daily returns) of the stock
market is 17.6%, which is relatively much better than the competing peers.

Appendix B: Switchgear Segment Overview

Switchgear products can be divided into four broad categories - 1) switches; 2) metering devices to measure
flow of power; 3) protection devices to prevent fluctuations and damage and; 4) control devices to regulate flow
of power. In terms of rating, the entire industry can be divided into 3 segments Low Voltage, Medium Voltage
and High Voltage.

The low voltage segment that caters to the domestic market is estimated to be at INR 11,000 crores. Within this
segment, the market for switches is estimated to be valued at INR 2,000 crores, led by Anchor and the market
for domestic MCBs at INR 2,200 crores, led by Havells.

The medium and high voltage categories are catered by large capital goods companies such as L&T, ABB,
Siemens, and Crompton Greaves etc.

Switches and switchgear enjoy a high margin because of the value addition done by manufacturers in its design
leading to variation in reliability and performance. Switches are manufactured in house - allowing superior
brands to charge a hefty premium. Havells enjoys a margin of 40%. Industry average is 25-35% - but that includes
unorganised sector as well. Other listed competitors have a margin of 35-40%.

Hence, unlike wires and cables that is largely dominated by domestic players, organised switchgear market has
a lot of international players and brand is of much more importance in this segment. Although the decision
making lies with almost the same set of people as it does in cables market, it lies with the final customer a lot
more because of a part of the demand coming from renovations. Hence, companies such as Havells and Anchor
spend a lot on their advertisements as part of their brand building strategy.
 2200 cr
Switches
15%

2000 cr
MCB
28%

0 500 1000 1500 2000 2500

Market Size Havells' Share

Havells Competitive Positioning

Havells focuses on final product quality in all its products and takes pride in that by charging hefty margins for
the same. As a manufacturing-oriented organization that works on the principle of make-in-India, they have
focused on world-class technology and automation to ensure that we produce our goods efficiently with
emphasis on conservation of energy and water in a sustainable manner. Havells pursues the methodology of
Total Quality Management have created and sustain a work culture that is inspired by the Japanese Kaizen
methodology. Also, implementation of robust IT systems provides efficient and timely services to dealer.

Manufacturing facilities that cater to switchgear segment are:

Baddi. Established in 2004, it produces only switches and MCBs. This plant is the highest MCB production in the
country.

Faridabad Plant. Established in 1993, it manufactures Havells domestic and industrial switchgear distribution
boards, changeover switches, control panels, switch disconnectors and fuses.

Haridwar Standard Plant. Acquired in 2002, it manufactures MCBs, RCCBs, and distribution boards along with
other electrical components for consumer durables. Standard products have a wide presence in international
markets - Middle East, South East Asian countries, Malaysia, Singapore, South Africa, Kenya, Ghana and Nigeria.

Sahibabad. Established in 2009, this is a state-of-the-art low voltage power capacitor manufacturing plant at
Sahibabad, with machinery from Switzerland. Manufactures industrial switchgear ACBs, MCCB, and load
banks.

Havells Product Portfolio

Havellss switchgear segment offers a decent range of switches, accessories and switchgear modules. Switches
include broadly two categories of switches one priced affordably yet maintaining the aesthetic appeal, design
and safety; and the other more sophisticated range of switches that are superior in design, appeal and
technology. These are also accompanied by other products such as sockets, communication modules, and
support modules, cover frames, surface mounting plastic boxes, flush metal boxes.

Switchgear broadly include circuit breakers that offer electrical safety and protection and distribution boards.
Circuit breakers come in different types that include all sorts of domestic MCBs mini MCB isolators, isolator
switching device etc. Distribution board devices include designer distribution boards, metal distribution boards,
phase selectors, accessories etc.

Other accessories that are available along with switches in this category are extension boards, batten-holders,
plugs, door bells and ceiling rose.
Havells also produces and markets industrial switches, circuit breakers and load changers.

These products from Havells are priced at a premium to other products available in the market. This is supported
by the management as a price for superior design and build quality that they offer to the customers.

Market Scenario

Organized switchgear segment broadly has four major competitors in India. Out of them, Panasonic (Anchor)
leads the modular plate switches category (Havells market share 15%) and Havells leads MCBs category with
a market share of 28%.

Table: Regional strength for each player

Switchgear Switches East West North South Comments

Vguard 2013 - Leveraging distribution in south
Anchor 1963 1976 Increasing their focus on East and North
Legrand 1995 1995 Growing by acquisitions
Havells 1958 1976 Multiple brands with different pricing

New companies in this segment: Other players that have entered this market in the last few years are Finolex,
Orient Electric, Polycab, Luminous.

Segment Performance and Way Forward

2Q- 2Q- Y-o-Y Q-o-Q

FY14 FY15 FY16 FY16 FY17 Growth Growth
Revenue 1,219 1,279 1,286 346 362 0.6% 4.8%
EBITDA 35% 37% 42% 40% 42% 14% 10%
EBIT/Assets 0.80 0.82 0.90 0.22 0.23

Appendix C: Cables Segment Overview

The Indian cables and wire industry has transformed to a large industry over the last decade, and is expected to
grow at 15% over the next 5 years. This would be propelled by improved infrastructure in the country. About
three-quarters of the demand comes from the power sector. Like any other industry, innovation in the cables
industry has led to increased efficiency, safety and reliability. This has led to industry, once dominated by
unorganised players to branded and quality manufactures with large reputation at national level.

The sector has been showing a growth on YoY basis due to the gradual increase in the domestic demand of
power, telecommunication, infrastructure and innovations in respect of alternate source of energy
consequently leading to the demand for wire and cable.

Product Portfolio
The industrial cables have a large range for different needs such as

i) Power Supply to Residential, Commercial and Industrial Units

ii) Power Cables for Power Generation Distribution
iii) Telecom / Switch board cables for Indoor Telephones
iv) Flat Cables for Submersible Pumps and Motors
v) Instrumentation Signal Cables for Process control & Instrumentation
vi) Flexible & Cord Cables for appliances, Machine Tools & Equipment Wiring
 vii) Wiring Cables for electrical industry
viii) Energy Cables for Power Supply to Telephone Exchanges / UPS / Battery Backup / Equipments
ix) Air Field Lighting Cables

Each of these categories have further sub-products with different options and cross-sections.

The industrial XLPE industrial cable boasts of features such as higher current rating and emergency overload
rating, superior short circuit rating, low dielectric loss, better insulation resistance, longer life of the cables.
The industrial PVC insulated cables is known for its high mechanical strength, resistance to abrasion, vibration,
ageing, acids, alkalies, etc. They have all the IS 7098 Part-1 and IS 1554 Part-1 applicable standards.

Domestic cables include major products such as

i) Co Axial TV Cables
ii) Multicore Round Cables
iii) CCTV cables
iv) Speaker Cables, etc.
Each of these categories further have varieties in terms of length, coaxial diameter, different attributes, etc.

Porters five forces analysis

Industry Rivalry
The unorganized market does not need to go through the
expensive process of quality check, which makes it cheaper
against the cable produced by the organised market. The
35% unorganised cable market is mainly concentrated in House
Building Wiring Industry, which in general is a highly price
65% sensitive market.

However, with right education and marketing, the situation

Organised Market
Fig: Split of Cable Market
is changing and is expected to improve for the organised
Unorganised Market sectors over the next few years India, being one of the
fastest growing world economy, as the overall income level
rises, consumers are expected to get more quality-conscious
rather than price-conscious.

Bargaining Power of Suppliers

Indias wire and cable sector has high dependency on import of the raw material which increases its resource
risk as well as currency fluctuation risk.
 2.5 The above chart shows us that the copper prices in
2.4 the past year have wildly fluctuated from a low of
2.3 $1.95/pound to a high of nearly $2.4/pound, this
2.2 when coupled with currency fluctuations can lead to
2.1
unplanned pressures on raw material cost.
2 Indias wire and cable sector majorly deals in Chinese
1.9 Dec 17, 2015
Yuan Renminbi (CNY), Japanese Yen (JPY), Russian

Jul 05, 2016

Jul 27, 2016
Sep 18, 2015

Feb 02, 2016

Feb 23, 2016
Mar 16, 2016

Sep 08, 2016

Sep 30, 2016
Oct 12, 2015
Nov 03, 2015
Nov 25, 2015

Jun 14, 2016

Aug 18, 2016

May 02, 2016
May 24, 2016
Apr 08, 2016
Jan 12, 2016
Rouble (RUB) and Malaysian Ringgit (MYR). The
depreciation in the domestic currency could incur the
foreign-exchange loss to the sector, whereas the
appreciation in the domestic currency may provide
Fig: 1-year Copper Prices (USD/pound) advantage to foreign-exchange profit to the sector.

All the major currencies have appreciated against the Indian rupee over the last 5 years, and a similar trend is
expected to continue. This increases cost of imports of copper and hence, the cost of raw material to the cable
segment is becoming larger with each passing year.

Bargaining power of Buyers

The bargaining power of buyers Is high, typically due to the presence of large number of players in the
unorganised market. Buyers normally have access to easy information regards to the different products and
their prices from multiple sources such as the Internet or the local retail shops.

Threat of New Entrants

With the organised market gaining ground, customers have become more quality conscious rather than price-
conscious, hence brand building have become more important part of entering this industry. This being said, it
is not difficult to setup a cables and wire industry, and new entrants can pose a sizeable threat to the
incumbent industry.

Future Scope
Further, it aims to gain market share in cable segment and is in the process of setting up a manufacturing plant
in Bangalore8 which will cater predominantly to southern and western markets.

The implementation of GST will also help in expanding the market for organised players as 30%-35% of total
domestic cable market is currently catered to by unorganised players. Hence, It has planned a capex of 2.5
billion in FY 17 where it is expected to set up a manufacturing facility for cables and wires, switch gears,
consumer durable appliances which can take care of companys infrastructure demand over the next 4-5 years.

According to reports, HIL expects growth in industrial cable to pick up driven by rising spending on infrastructure
projects while its domestic cable portfolio should benefit from rising expansion in Tier 2 and Tier 3 cities where
the impact of housing construction slowdown is lesser compared to metro cities. Like any other industry,
innovation in the cables industry has led to increased efficiency, safety and reliability.

8
Information shared over con-call with Havells
Appendix D: Lighting and Fixtures Segment Overview

Revenue
Company FY 11 FY 12 FY 13 FY 14 FY 15 FY 16
Havells 44,467.0 55,439.0 66,518.0 72,069.0 74,095.0 80,161.0
YoY Growth 25% 20% 8% 3% 8%
Crompton Greaves 202,117.0 213,362.0 259,271.0 289,850.0 323,265.0 56269.09
YoY Growth 6% 22% 12% 12%
Bajaj Electric 63,115.6 76,476.9 86,043.5 95,297.1 90,267.4 105,758.9
YoY Growth 21% 13% 11% -5% 17%
Orient10 75,571.0 91,184.2 113,857.9 118,983.3 129,611.8
YoY Growth 21% 25% 5% 9%
Philips (EUR Millions) 11 7,638.0 8,442.0 7,145.0 6,869.0 7,411.0
YoY Growth 11% -15% -4% 8%
OSRAM (EUR Millions) 12 5,399.8 5,288.7 5,142.1 5,574.2
YoY Growth -2% -3% 8%
30%

25%

20%

15%

10%

5%

0%
FY 12 FY 13 FY 14 FY 15 FY 16
Havells Competitor Average

Fig: Comparison of YoY revenue growth for Havells versus competitors

9
Post Demerger Figure for Lighting; All other for Consumer Business
10
ECD and Lighting Combined
11
Source: Global Numbers in EUR Millions; FY ends 31st Dec
12
Source: Global Numbers in EUR Millions; in EUR Millions; FY ends 30th September
 EBITDA
Company FY 11 FY 12 FY 13 FY 14 FY 15 FY 16
Havells 8,685.0 14,590.0 16,784.0 19,220.0 21,318.0 20,972.0
EBITDA Margin 20% 26% 25% 27% 29% 26%
Crompton Greaves 29,281.0 26,288.0 27,807.0 33,746.0 40,733.0 4,922.0
EBITDA Margin 14% 12% 11% 12% 13% 9%
Bajaj Electric 3,708.91 5,951.90 5,859.32 4,912.87 3,340.47 7,051.72
EBITDA Margin 6% 8% 7% 5% 4% 7%
Orient13 5895.79 6847.41 7586.99 6171.09 8558.72
EBITDA Margin 8% 8% 7% 5% 7%
Philips (EUR Millions) 14 445.0 128.0 580.0 293.0 594.0
EBITDA Margin 6% 2% 8% 4% 8%
OSRAM(EUR 392.9 413.6 556.2 556.8
Millions)15
EBITDA Margin 7% 8% 11% 10%

35%

30%

25%

20%

15%

10%

5%

0%
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

Havells Competitor Average

Fig: Comparison of Contribution Margins in Lighting and Fixtures between Havells and its competitors

Havells Competitive Positioning

Havells entered the Lighting and Fixtures business in 2004, with the introduction of the CFL line up and has then
expanded into the LED segment. The manufacturing facility for the Lighting and Fixtures division is located in
Neemrana town in Alwar, Rajasthan. The facility is a 48 acre one, established in 2004 and is exclusively used for
manufacturing Lighting fixtures, CFLs, HID Lamps and Motors. Some components for the business are also
manufactured in the companys facility in Sahibabad in Uttar Pradesh.

In 2015, the company has acquired 51% stake in Promptec valuing the company at Rs 65 crores. The purpose of
this is for the company to venture in the street lighting business as well as the solar products business. This
expertise is likely to be used by Havells to bid for large LED based street lighting projects likely to be undertaken
by the government. This will be a key revenue driver for the company in this space going forward.

13
Source: ECD and Lighting Combined
14
Source: Global Numbers in EUR Millions; FY ends 31st Dec
15
Source: Global Numbers in EUR Millions; in EUR Millions; FY ends 30th September
Havells Product Portfolio
Havells portfolio in the lighting and fixtures department can be broadly categorized into consumer and
Industrial focused lighting and fixture equipment. The entire product portfolio has been listed down in the figure
given below:

Segmental Performance

Key Observations:

The revenue growth of the major players in the lighting and fixtures space has seen a decline over FY 13 to FY15.
However, this trend has reversed in FY 16 where the revenue growth has been higher than the previous fiscal. The
dip in revenue growth can be attributed to the declining prices of lighting units and does not indicate an overall
decline in the sales volumes. Going forward however, the major drivers of growth for the industry are likely to
compensate for the reduced rate of top line increase and the industry is expected to grow faster.

The industry wide contribution margin has held more or less constant over the past five years at around 12%.
The contribution margin for Havells is significantly higher at about 20-25%. This is mainly because of the fact
that the company has a large line item of unallocated revenue, which is not distributed among different business
lines. Hence, this cannot be directly compared with its peers.

90,000 30%
80,000 240 28%
CAGR: 12.51% 25% 230
70,000 27%
220
26%
60,000 20% 210
200 25%
50,000
15% 190 24%
40,000
180 23%
30,000 10% 170
22%
20,000 160
5% 150 21%
10,000
140 20%
Sep-15

Sep-16
Mar-15

Mar-16
Dec-14

Dec-15
Jun-15

Jun-16

0 0%
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16
Segmental Revenue YoY Growth Revenue EBITDA Margin

Fig: Segmental Yearly Revenue in Lighting and Fixtures Fig: Quarterly Revenue & EBITDA Margins in Lighting & Fixtures
Appendix E: Electronics Consumer Durables Overview
Havells Product Portfolio
Havells has been a relatively new entrant in the Electric consumer durables market compared to its peers.
Havells has expanded its overall consumer durables pie with the launch of a host of products across the entire
small appliances product chain. At present, the company has 17 products in the consumer durables segment.
The major product categories are fans, water heaters and small consumer appliances. In small appliances,
Havells has products such as mixers, juicers, blenders, toasters, induction cooktops and irons.

Performance Benchmarking with Competition & Havells Competitive Positioning:

Havells introduced energy efficient fans in India. The company is most dominant in fans, with a portfolio of
innovative products positioned in the premium category. (It recently introduced fans under the brand name
Standard positioned in the premium category). The share of unorganised and regional players in the fans
category is shrinking and Havells has been one of the major beneficiaries of this shift. Havells is the fastest-
growing company in the fans category for the past three years.

Manufacturing Plants
Havells have the largest integrated fan factory in India located at Haridwar, Uttrakhand. Established in 2004,
Manufactures: Ceiling fans, TPW, Personal fans and Domestic exhaust fans.

Neemrana Plant, Rajasthan -Plant for manufacturing water heaters at Neemrana, Rajasthan has become
operational.
Competitive Advantage
This plant has the unique ability to manufacture mostof the critical components, in-house, adhering to
stringent quality norms. It is the only plant in the countryto use the worlds latest FeroGlassdry powder
technology wherein the powder becomes a uniform glass line coating once baked at the high temperature of
850 degrees Celsius. This prevents the tank from corrosion and extends its life even in hard water conditions.
The plant is a zero-discharge manufacturing facility, in line with our environment-friendly policy, and will go a
long way in promoting sustainable growth

Appendix F: Company Financials

Balance Sheet for the Company for the past 5 years. Source: MoneyControl
(in Rs Crores) Mar-12 Mar-13 Mar-14 Mar-15 Mar 16

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS

Equity Share Capital 62.39 62.39 62.44 62.46

62.39
Total Share Capital 62.39 62.39 62.39 62.44 62.46

Reserves and Surplus 893.22 1,379.65 1,603.62 1,755.74 2,495.44

Total Reserves and Surplus 893.22 1,379.65 1,603.62 1,755.74 2,495.44

Total Shareholders Funds 955.61 1,442.04 1,666.01 1,818.18 2,557.90

Minority Interest 0.09 0.09 0.11 0.09 8.44

NON-CURRENT LIABILITIES

Long Term Borrowings 438.64 742.36 705.57 226.4 1.67

 Deferred Tax Liabilities [Net] 55.61 61.9 51.74 43.37 74.91

Other Long Term Liabilities 15.44 48.89 40.3 1.36 4.13

Long Term Provisions 301.96 298.24 388.86 452.44 13.43

Total Non-Current Liabilities 811.65 1,151.39 1,186.47 723.57 94.14

CURRENT LIABILITIES

Short Term Borrowings 429.87 91.84 118.39 69.63 83.79

Trade Payables 1,069.92 932.86 1,197.21 1,051.11 520.33

Other Current Liabilities 700.61 672.56 825.52 816.48 467.74

Short Term Provisions 207.64 181.01 343.78 352.11 409.59

Total Current Liabilities 2,408.04 1,878.27 2,484.90 2,289.33 1,481.45

Total Capital And Liabilities 4,175.39 4,471.79 5,337.49 4,831.17 4,141.93

ASSETS

NON-CURRENT ASSETS

Tangible Assets 988.62 1,093.17 1,127.68 1,158.10 1,067.39

Intangible Assets 39.75 37.47 34.73 24.43 11.02

Capital Work-In-Progress 66.25 24.89 44.41 38.3 21.36

Assets Held For Sale 0 0 0 0.39 0.1

Fixed Assets 1,094.62 1,155.53 1,206.82 1,221.22 1,099.87

Non-Current Investments 0 0 0 0 252.31

Deferred Tax Assets [Net] 0 13.87 5.1 57.2 0.55

Long Term Loans And Advances 46.2 60.95 80.23 58.14 80.24

Other Non-Current Assets 0.34 0 0.35 175.38 0.38

Total Non-Current Assets 1,503.62 1,599.79 1,730.47 1,870.00 1,453.75

CURRENT ASSETS

Current Investments 0 0 0 0 5.19

Inventories 1,367.75 1,318.36 1,493.44 1,366.29 837.09

Trade Receivables 890.53 862.28 1,000.53 623.18 259.37

Cash And Cash Equivalents 233.64 473.57 881.94 777.47 1,465.26

Short Term Loans And Advances 168.19 205.21 211.38 172.29 85.34

OtherCurrentAssets 11.66 12.58 19.73 21.94 35.93

Total Current Assets 2,671.77 2,872.00 3,607.02 2,961.17 2,688.18

Total Assets 4,175.39 4,471.79 5,337.49 4,831.17 4,141.93

OTHER ADDITIONAL INFORMATION

CONTINGENT LIABILITIES,
COMMITMENTS
Contingent Liabilities 299.69 307.73 417.05 559.36 334.95

BONUS DETAILS

Bonus Equity Share Capital 51.59 51.59 51.59 51.59 51.59

NON-CURRENT INVESTMENTS

Non-Current Investments Quoted Market 0 0 0 0 156

Value
Non-Current Investments Unquoted Book 0 0 0 0 101.65
Value
CURRENT INVESTMENTS

Current Investments Unquoted Book Value 0 0 0 0 5.19

Statement of Profit and Loss for the Company: Source: MoneyControl

 FY 12 FY 13 FY 14 FY 15 FY 16

Net Sales
6,303.25 7,247.89 8,185.80 8,250.06 7,582.39
Growth Rate 15% 13% 1% -8%

Other Income 41.35 227.78 41.25 50.46 810.27

%of Sales 1% 3% 1% 1% 11%

Stock 0 0.88 122.81 -103.76 73.24

Adjustments
Total Income 6,344.60 7,476.55 8,349.86 8,196.76 8,465.90

COGS 3,796.71 4,262.63 4,880.97 4,847.05 4,578.61

%of Sales 60% 59% 60% 59% 60%

Gross Profit 2,547.89 3,213.92 3,468.89 3,349.71 3,887.29

SG&A 2,063.96 2,317.25 2,685.15 2,897.49 2,408.60

%of Sales 33% 32% 33% 35% 32%

D&A 94.85 109.66 115.54 138.66 126.67

389.08 787.01 668.20 313.56 1,352.02

EBIT
Interest 128.1 123.22 74.11 63.96 44.94

Profit Before Tax 260.98 663.79 594.09 249.60 1,307.08

Tax 105.81 82.36 147.76 183.55 229.96

Tax Rate 41% 12% 25% 74% 18%

Reported Net 155.17 581.43 446.33 66.05 1,077.12

Profit
 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

SwitchGear Revenue 896.15 1,078.06 1,219.19 1,279.02 1,286.09 1,014.07 883.95 972.35 1,069.58 1,176.54 1,294.20 1,423.62 1,565.98 1,722.58 1,894.83

% Growth 20% 13% 5% 1% -21% -13% 10% 10% 10% 10% 10% 10% 10% 10%
Segment Wise Revenue Projections:

Cables Revenue 1,592.99 1,692.48 1,926.43 2,190.42 2,208.07 2,539.28 2,920.17 3,358.20 3,861.93 4,441.22 5,062.99 5,721.18 6,407.72 7,112.57 7,823.82
Appendix F: Valuation Analysis

% Growth 6% 14% 14% 1% 15% 15% 15% 15% 15% 14% 13% 12% 11% 10%
Lighting and Fixtures Revene
3,456.98 3,688.08 4,186.80 4,071.69 3,078.91 3,540.75 4,071.86 4,682.64 5,385.03 6,138.94 6,937.00 7,769.44 8,624.08 9,486.49 10,340.27

% Growth 7% 14% -3% -24% 15% 15% 15% 15% 14% 13% 12% 11% 10% 9%
ECD Revenue 572.08 789.27 853.38 1,028.03 1,411.11 1,720.86 2,098.60 2,559.25 3,121.02 3,806.11 4,377.02 5,033.58 5,536.93 6,090.63 6,699.69
% Growth 38% 8% 20% 37% 22% 22% 22% 22% 22% 15% 15% 10% 10% 10%
Total Sales 6,518.20 7,247.89 8,185.80 8,569.16 7,984.18 8,814.96 9,974.58 11,572.44 13,437.57 15,562.81 17,671.21 19,947.81 22,134.71 24,412.26 26,758.62
% Growth 11% 13% 5% -7% 10% 13% 16% 16% 16% 14% 13% 11% 10% 10%
Less: Excise Duty 214.95 - - 319.10 401.79 212.51 240.46 278.98 323.95 375.18 426.01 480.90 533.62 588.52 645.09
% Total Sales 3% 0% 0% 4% 5% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%

Net Sales 6,303.25 7,247.89 8,185.80 8,250.06 7,582.39 8,602.45 9,734.12 11,293.45 13,113.62 15,187.62 17,245.20 19,466.91 21,601.09 23,823.73 26,113.53

% Growth 15% 13% 1% -8% 13% 13% 16% 16% 16% 14% 13% 11% 10% 10%
Correlation Analysis for Switchgear Segment

Year Completion (msf) Growth Rate Revenue from switchgear Growth Rate

2008 160 1 542.63 1

2009 200 1.25 609.09 1.12

2010 190 1.19 703.53 1.30

2011 210 1.31 818.52 1.51

2012 305 1.91 896.15 1.65

2013 315 1.97 1078.06 1.99

2014 415 2.59 1219.19 2.25

2015 550 3.44 1297.02 2.39

2016 650 4.06 1286.09 2.37

2017e 500 3.13 -0.23 1014.1 1.87

2018e 430 2.69 -0.14 884.0 1.63

Data Source: National
Housing Bank

Correlation 0.92

However, Havells has identified tier-2 and tier-3 cities as the next avenues of growth and has already started
to focus on these cities.
-Projected revenue used for 2017 and 2018.
-Assuming average of last 5 year's growth till 2026 after 2018
 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26

Net Sales 6,303.25 7,247.89 8,185.80 8,250.06 7,582.39 8,602.45 9,734.12 11,293.45 13,113.62 15,187.62 17,245.20 19,466.91 21,601.09 39,401.81 26,113.53
Growth Rate 15% 13% 1% -8% 13% 13% 16% 16% 16% 14% 13% 11% 82% -34%
10 Year Projection of Income Statement

Other Income 41.35 227.78 41.25 50.46 810.27 268.40 303.71 352.37 409.16 473.87 538.07 607.39 673.97 1,229.37 814.77
%of Sales 1% 3% 1% 1% 11% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Stock Adjustments 0 0.88 122.81 -103.76 73.24 0 0 0 0 0 0 0 0 0 0
Total Income 6,344.60 7,476.55 8,349.86 8,196.76 8,465.90 8,870.85 10,037.83 11,645.82 13,522.78 15,661.49 17,783.26 20,074.30 22,275.07 40,631.19 26,928.30
COGS 3,796.71 4,262.63 4,880.97 4,847.05 4,578.61 5,123.79 5,797.83 6,726.60 7,810.73 9,046.05 10,271.58 11,594.88 12,866.04 23,468.50 15,553.73

%of Sales 60% 59% 60% 59% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60% 60%
Gross Profit 2,547.89 3,213.92 3,468.89 3,349.71 3,887.29 3,747.07 4,240.00 4,919.22 5,712.05 6,615.44 7,511.68 8,479.42 9,409.03 17,162.69 11,374.56
SG&A 2,063.96 2,317.25 2,685.15 2,897.49 2,408.60 2,831.51 3,204.00 3,717.25 4,316.36 4,999.02 5,676.28 6,407.56 7,110.02 12,969.15 8,595.30
%of Sales 33% 32% 33% 35% 32% 33% 33% 33% 33% 33% 33% 33% 33% 33% 33%
D&A 94.85 109.66 115.54 138.66 126.67 (153.34) 9.98 10.35 10.74 11.14 11.56 11.99 12.43 12.90 13.38
EBIT 389.08 787.01 668.20 313.56 1,352.02 1,068.90 1,026.02 1,191.61 1,384.94 1,605.28 1,823.85 2,059.88 2,286.57 4,180.64 2,765.88
Interest 128.1 123.22 74.11 63.96 44.94 50 50 50 50 50 0 50 50 50 50
Profit Before Tax 260.98 663.79 594.09 249.60 1,307.08 1,018.90 976.02 1,141.61 1,334.94 1,555.28 1,823.85 2,009.88 2,236.57 4,130.64 2,715.88
Tax 105.81 82.36 147.76 183.55 229.96 393.98 377.40 441.43 516.19 601.39 705.24 777.17 864.83 1,597.22 1,050.17
Tax Rate 41% 12% 25% 74% 18% 39% 39% 39% 39% 39% 39% 39% 39% 39% 39%
Reported Net Profit 155.17 581.43 446.33 66.05 1,077.12 624.92 598.62 700.18 818.75 953.89 1,118.61 1,232.71 1,371.74 2,533.42 1,665.72
 Working Capital Schedule

Current Assets 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
COGS 3,796.71 4,262.63 4,880.97 4,847.05 4,578.61 5,123.79 5,797.83 6,726.60 7,810.73 9,046.05 10,271.58 11,594.88 12,866.04 23,468.50 15,553.73
Inventories 1,367.75 1,318.36 1,493.44 1,366.29 837.09 922.28 1,043.61 1,210.79 1,405.93 1,628.29 1,540.74 1,739.23 1,929.91 3,520.27 2,333.06
% of COGS 36% 31% 31% 28% 18% 18% 18% 18% 18% 18% 15% 15% 15% 15% 15%
Trade Receivables 890.53 862.28 1,000.53 623.18 259.37 512.38 579.78 672.66 781.07 904.60 1,027.16 1,159.49 1,286.60 2,346.85 1,555.37
% of COGS 23% 20% 20% 13% 6% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%

Other Current Assets 179.85 217.79 231.11 194.23 121.27 153.71 173.93 201.80 234.32 271.38 308.15 347.85 385.98 704.05 466.61
% of COGS 5% 5% 5% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Total non Cash Current Assets 2,438.13 2,398.43 2,725.08 2,183.70 1,217.73 1,588.37 1,797.33 2,085.25 2,421.33 2,804.27 2,876.04 3,246.57 3,602.49 6,571.18 4,355.05
Current Liabilities
COGS 3,796.71 4,262.63 4,880.97 4,847.05 4,578.61 5,123.79 5,797.83 6,726.60 7,810.73 9,046.05 10,271.58 11,594.88 12,866.04 23,468.50 15,553.73
Short Term Borrowings 429.87 91.84 118.39 69.63 83.79 196.43 222.28 257.88 299.45 346.80 393.79 444.52 493.25 899.73 596.29
% of COGS 11% 2% 2% 1% 2% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%
Trade Payables 1,069.92 932.86 1,197.21 1,051.11 520.33 1,024.76 1,159.57 1,345.32 1,562.15 1,809.21 2,054.32 2,318.98 2,573.21 4,693.70 3,110.75
% of COGS 28% 22% 25% 22% 11% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
Other Current Liabilities 700.61 672.56 825.52 816.48 467.74 768.57 869.67 1,008.99 1,171.61 1,356.91 1,540.74 1,739.23 1,929.91 3,520.27 2,333.06

% of COGS 18% 16% 17% 17% 10% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%
Short Term Provisions 207.64 181.01 343.78 352.11 409.59 409.90 463.83 538.13 624.86 723.68 821.73 927.59 1,029.28 1,877.48 1,244.30
% of COGS 5% 4% 7% 7% 9% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%
Total Current Liabilities 1,770.53 1,605.42 2,022.73 1,867.59 988.07 1,793.33 2,029.24 2,354.31 2,733.76 3,166.12 3,595.05 4,058.21 4,503.11 8,213.97 5,443.81
Working Capital 667.60 793.01 702.35 316.11 229.66 -204.95 -231.91 -269.06 -312.43 -361.84 -719.01 -811.64 -900.62 -1,642.79 -1,088.76
Change in Working Capital 125.41 -90.66 -386.24 -86.45 -434.61 -26.96 -37.15 -43.37 -49.41 -357.17 -92.63 -88.98 -742.17 554.03
 Depreciation and Capital Expenditure

Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Gros s Bl ock 1,094.62 1,155.53 1,206.82 1,221.22 1,099.87 1,121.87 1,144.30 1,167.19 1,178.86 1,190.65 1,202.56 1,214.58 1,226.73 1,239.00 1,251.39
% Increas e 6% 4% 1% -10% 2.0% 2.0% 2.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Accumulated Depreciation 141.37 195.83 254.24 342.10 420.77 262.96 268.22 273.59 276.32 279.08 281.88 284.69 287.54 290.42 293.32
% of Gros s Bl ock 13% 17% 21% 28% 38% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23%

Capex 60.91 51.29 14.40 (121.35) 22.00 22.44 22.89 11.67 11.79 11.91 12.03 12.15 12.27 12.39
Peer Based Beta Calculation
Peer Based Beta Calculation
Levered Unlevered Relevered
Peer Beta Beta Beta
Crompton Greaves Consumer
Electrical 1.35 0.54 0.54

Veto Switch 1.21 1.14 1.14

Bajaj Electricals 1.20 1.06 1.06

Orient Paper and Industries 0.81 0.66 0.67

Honda Siel 1.39 1.37 1.37

Average Beta 0.96

WACC Calculation

2016 WACC= Cost of Equity (Negligible Debt)

Debt

Short Term Debt 83.79 CAPM Model

Long Term Debt 1.67

Total Debt 85.46 Risk Free Rate 7%

Market Risk 16%

Beta 0.73

Cost of Equity 14%

Equity

Market Value of Equity 25664.42 WACC 14%

FCFE Calculations

Present Value 12833.66

Terminal Growth Rate 8.0%

Terminal Value 4339.68

Equity Value 17173.34

Number of Shares Outstanding 62.49

Share Price 274.84

Disclosures:
Ownership and material conflicts of interest

The author(s), or a member of their household, of this report do not hold a financial interest in the securities
of this company. The author(s), or a member of their household, of this report does not know of the existence
of any conflicts of interest that might bias the content or publication of this report.
Receipt of Compensation

Compensation of the author(s) of this report is not based on investment banking revenue.

Position as an officer or a director

The author(s), or a member of their household, does not serve as an officer, director, or advisory board
member of the subject company.

Market making
The author(s) does not act as a market maker in the subject companys securities.

Disclaimer

The information set forth herein has been obtained or derived from sources generally available to the public
and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty,
express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis
of any investment decisions by any person or entity. This information does not constitute investment advice,
nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to
be a recommendation by any individual affiliated with CFA Institute, or the CFA Institute Research Challenge
with regard to this companys stock.

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