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Havells India
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December/08/2011

Submitted By:
Shalabh Srivastava
Sudip Kar
Syed Ilham Naqvi
Varun Sunil
Vishal Vishy
Vishwajeet Narayan

Havells India Ltd

Havells India Ltds (Havells) standalone Q3FY11 results were broadly in
line with the Equities expectations. EBITDA margin was very high but
higher interest and financing charges - due to higher utilisation of funds
to finance the increase in working capital - made it even at the PAT level.
In Q2FY12 performance was good, on standalone basis, revenue was up
by 28.6% YoY to Rs 8.5 billion aided by strong growth in Lighting &
Fixtures segment coupled with new product introduction. However,
EBITDA margin contracted 86 bps YoY to 12.1%, primarily led by increase
in staff costs coupled with forex loss (Rs 131.4 million). Consequently, net
margin declined 52 bps YoY to 8.2% owing to 132.6% YoY increase in
interest cost in line with the recorded values in the previous year.
On the international front, Sylvania posted strong growth in revenues 3%
YoY in euro terms (11.3% YoY in rupee terms) with improved operating
efficiency. Led by strong growth in Europe Sylvanias operating margin
stood at 7.4% (up 160bps YoY) due to higher sales and restructuring
benefits. In FY 2012/2013 the (Expected) revenue was increased by
0.3/0.4% to Rs 62.4/69.3 bn respectively owing to the Standard Electrical
merger and successful entry into water heater and small appliances
segment and to capture revenues from the recently-launched geysers the
estimates were raised. Further, earnings estimates were increased by
5.7%/4.9% to Rs 3.7/4.6 bn due to higher than anticipated Europe sales.
Consequently, the revenue/earnings CAGR stands at 11%/21% (v/s
9%/20%) over FY11-13 Expected, respectively.
At CMP of Rs 381, the stock trades at 12.8/10.3x the EPS estimates for
FY12/13E is Rs 29.6-37.00. therefore as per the analysis we maintain BUY
rating on Havells with higher DCF-based target price of Rs466 (Rs450),
led by:
1. Merger of high margin standard Electricals business and
2. Higher revenue led by entry into water heater and small appliance

segments.

Profit & Loss Statement:

Particulars
INCOME :

Mar-12

Mar-11

Mar-10

Mar-09

Mar-08

Mar-07

Mar-06

Sales Turnover

3,173.95

2,573.52

2,330.61

2,229.08

1,677.81

1,108.25

Excise Duty

163.95

104.77

135.46

176.73

135.66

111.45
996.8

Net Sales

3,787.42

3,010.00

2,468.75

2,195.15

2,052.35

1,542.15

% Increase

25.83%

21.92%

12.46%

6.96%

33.08%

54.71%

Other Income

23.13

19.28

10.86

17.35

8.67

10.42

Stock Adjustments

111.52

73.67

-169

129.32

58.99

38.74
1,045.96

Total Income

3,972.67

3,144.65

2,561.70

2,037.01

2,199.02

1,609.81

Growth in Revenues

26.33%

22.76%

25.76%

-7.37%

36.60%

53.91%

Raw Materials

1,933.21

1,494.41

1,197.28

1,394.33

1,015.02

620.86

Power & Fuel Cost

42.81

35.67

24.33

23.01

19.01

15.96

Employee Cost
Other
Manufacturing
Expenses
Selling and Administration
Expenses
Miscellaneous Expenses
Less:
Pre-operative
Expenses Capitalized
Total Expenditure

101.79

75.58

85.96

72.65

51.46

40.74

189.34

164.43

143.05

137.31

92.6

72.63

513.46

455.88

361.74

356.63

269.23

181.58

5.3

10.46

14.56

10.41

11.31

6.61

3,486.11

2,785.91

2,236.43

1,826.92

1,994.34

1,458.63

938.38

Expenditure as a % of Sales

92.04%

92.56%

90.59%

83.23%

97.17%

94.58%

94.14%

24.57%

22.42%

-8.39%

36.73%

55.44%

EXPENDITURE :

% Change
Operating Profit

486.56

358.74

325.27

210.09

204.68

151.18

107.58

%EBITDA

12.25%

11.41%

12.70%

10.31%

9.31%

9.39%

10.29%

Interest
%
Increase
expenses
Gross Profit

19.11

19.11

11.74

25.03

25.42

20.94

22.55

in

interest

Depreciation

62.78%

-53.10%

-1.53%

21.39%

-7.14%

467.45

339.63

313.53

185.06

179.26

130.24

85.03

29.34

29.34

23.27

17.86

13.06

9.74

6.54

0.260850881

0.3029115

0.3675345

0.3408624

0.4892966

Change in Depreciation
Profit Before Tax

438.11

310.29

290.26

167.2

166.2

120.5

78.49

Tax

78.86

58.43

53.4

20.9

19.21

14.6

13.64

Fringe Benefit tax

1.66

1.45

NA

Deferred Tax

9.81

8.7

1.07

1.79

2.3

1.64

Reported Net Profit

242.05

228.16

145.23

143.54

102.15

63.21

Extraordinary Items

0.08

-5.89

-0.68

1.39

-1.1

-0.35

Adjusted Net Profit

241.97

234.05

145.91

142.15

103.25

63.56

Adjst. below Net Profit

P & L Balance brought
forward
Statutory Appropriations

5.48

596.82

418.41

305.33

193.23

117.8

63.2

Appropriations

60.5

49.75

32.15

31.44

26.72

14.09

P & L Balance carried down

778.37

596.82

418.41

305.33

193.23

117.8

Dividend

31.19

23.12

15.04

14.48

13.44

6.72

Dividend Pay-out ratio

12.89%

9.88%

10.31%

10.19%

13.02%

10.57%

Preference Dividend

Equity Dividend %
Earnings Per Share-Unit
Curr
Earnings Per Share(Adj)Unit Curr
EPS growth

50

75

50

50

50

50

18.99

37.27

23.72

24.36

18.58

25

23.7166833

18.99

18.64

11.86

12.18

9.29

6.25

27.23%

1.88%

57.17%

-2.63%

31.11%

48.64%

107.45

188.51

154.91

112.06

48.82

CAGR for EPS

24.89%

Book Value-Unit Curr

Share Price
No of Shares Issued (in
crores)
Market Capitalization

620.861118

370.7

597.25

144.35

467.35

12.4673

12.4673

12.4673

12.4673

12.4673

7740.46182

4621.62811

7446.0949

1799.6548

5826.5927

Price-Earnings
ratio

26.178
244

19.093
692
70.111
772

32.635
41
119.83
68

12.39
176
45.50
236

40.59
212
149.0
537

PEG Ratio

70.29

Q3FY12 result analysis - Havells (standalone)

Havells Q3 revenues grew by ~23% y-o-y from 2561.70 to 3144.65

and ~4% q-o-q to Rs 7,279mn. While the overall revenue growth
was fairly predictable, consumer durables (up 55% y-o-y) showed
an upsurge in revenue due to good traction in geysers.
EBITDA margins improved 53 bps q-o-q to 12.6%. This was driven
by better EBITDA margins of 20% vs. 17% in Q2FY11 in the lighting
and fixtures segment (~16.5% of total revenues).
Adjusted PAT grew by 4% y-o-y and 6% q-o-q to Rs 611 mn due to
improved EBITDA margins which was partially offset by higher
interest costs (Rs 52 mn in Q3FY11 vs. Rs 13 mn in Q3FY10).

Sylvania strong growth with better margins

Strong growth in Asia (up 60% y-o-y in euro terms) and Latin
America (up 29% y-o-y in euro terms) led to 9% y-o-y growth in
Sylvanias revenues in euro terms. However, a weak euro resulted
in a 5% y-o-y decline to Rs 7,636 mn in revenues in rupee terms.
With the successful completion of restructuring programs,
normalised EBITDA margins increased to 5.3% as compared to 4.7%
in Q2FY11 and negative 6.1% in Q3FY10. EBITDA margin in the
Europe operations increased to 4.1% for 9MFY11 from negative
3.1%.
Sylvania reported a marginal loss of Rs 18 mn as compared to a
loss of Rs 2,366 mn in Q3FY10. Better operating efficiency and
negligible restructuring costs improved profitability.

Cash Flow
Particulars

Mar-11

Mar-10

Mar-09

Cash and Cash Equivalents at Begining of the year

67.6
8

155.
43

64.2
2

Net Cash from Operating Activities

341.
83

199.
16

273.
17

Net Cash Used In Investing Activities

339.
1

299.
5

322.
4

Net Cash Used In Financing Activities

-21.6

12.5
4

140.
39

Net Inc/(Dec) In Cash And Cash

18.8
4

87.7
5

91.2
1

Cash And Cash Equivalents At End Of The Year

48.8
4

67.6
8

155.
43

Balance Sheet
Particulars
SOURCES OF FUNDS :

Mar-11

Mar-10

Mar-09

Mar-08

Mar-07

Mar-06

Share Capital

62.39

31.19

30.08

28.96

26.88

12.45

Reserves Total

1,278.42

1,104.00

901.83

620.07

235.55

162.57

Total Shareholders Funds

1,340.81

1,135.19

931.91

649.03

262.43

175.02

Secured Loans

133.62

115.81

24.36

31.48

45.93

108.54

Unsecured Loans

45.92

4.32

10.13

1.3

Total Debt

133.62

115.81

70.28

35.8

56.06

109.84

Total Liabilities

1,474.43

1,251.00

1,002.19

684.83

318.49

284.86

Gross Block

808.22

643.95

507.62

344.52

244.35

168.88

Less : Accumulated Depreciation

99.61

72.41

57.93

42.63

31.36

22.45

Less: Impairment of Assets

NA

Net Block

708.61

571.54

449.69

301.89

212.99

NA

Lease Adjustment

Capital Work in Progress

21.69

29.69

15.79

83.36

29.26

6.77

Investments

715.47

531.71

387.87

164.79

3.48

3.17

Inventories

469.85

330.65

207.53

430.29

239.5

190.62

Sundry Debtors

112.07

79.47

86.74

66.07

30.96

128.17

Cash and Bank

49.18

68.23

157.37

64.91

33.17

8.33

Loans and Advances

93.31

99.67

81.58

79.03

62.51

44.47

Total Current Assets

724.41

578.02

533.22

640.3

366.14

371.59

Current Liabilities

596.92

396.03

347.37

436.28

249.94

212.29

Provisions

45.21

20.14

19.95

37.77

31.75

21.32

Total Current Liabilities

642.13

416.17

367.32

474.05

281.69

233.61

Net Current Assets

82.28

161.85

165.9

166.25

84.45

137.98

Miscellaneous Expenses not written off

0.02

0.05

0.1

0.14

0.05

Deferred Tax Assets

6.31

4.7

24.07

7.02

3.88

2.76

Deferred Tax Liability

59.93

48.51

38.76

20.64

15.71

12.3

Net Deferred Tax

-53.62

-43.81

-14.69

-13.62

-11.83

-9.54

Total Assets

1,474.43

1,251.00

1,004.61

702.77

318.49

284.86

Contingent Liabilities

335.86

326.18

383.56

602.78

613.41

79.6

APPLICATION OF FUNDS :

Current Assets, Loans & Advances

Less : Current Liabilities and Provisions

Valuations: Current market price is aligned

We continue to value Havells based on the sum-of-the-parts method. We
have rolled forward our earnings estimates by one year to FY13. Based on
the revised estimates, our fair value has increased to Rs 368 from Rs 330.

Comparison with Sensex Performance:

Result Highlights

Lighting & Fixtures and new products launch prop up

domestic growth
Havells Q2FY12 (standalone) revenue grew 28.6% YoY to
Rs8.5 bn primarily led by 17.7% YoY growth in Consumer Durable
segment to Rs1.2 bn (Rs180/40 mn revenue from water
heaters/small appliances). Lighting & Fixtures division reported 30%
YoY increase to Rs1.4 bn. Cables grew 25.6% YoY due to price
increase necessitated by increased raw material cost (volume up
10%).
Further, Switchgear segment also grew 13% YoY on back of
domestic growth (up 27% YoY after Standard Electricals merger).
EBITDA margin contracted 90bps YoY to 10.2%, primarily led by
rising staff costs and other expenditure. Consequently, net margin
declined 52bps YoY to 8.2% owing to 132% YoY increase in interest
cost.

Sylvania-Europe growth surprises; margin in-line

Sylvanias revenue grew 3% YoY to EUR115.5 mn (up 11.4%
YoY to Rs7.5 bn in rupee terms). Europe grew 4% YoY to EUR69.0
mn on back of new geographies added in the Eastern Europe
region. Sylvanias OPM stood at 7.4% (up ~160bps YoY). Sylvanias
loan funds include EUR6.7 mn as a recourse debt on Havells as on
30th September, 2011.