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Equity Research Project

Havells India Limited


Restructuring

Global Presence It operates across Europe, Latin America & AfricaInvestor’s Consideration

Investor’s Consideration


Market Leadership

Growth Rate Estimated revenue growth at 15% CAGR for FY 11-13E

Strong competitive positioning

The Big Picture The growth in the domestic electrical equipments industry on account of increasing electricity supply

Restructuring Restructuring exercise aimed at cost savings.Their strategy has paid off with Havells set to realize cost benefits to the tune of € 25mn over FY10-CY11

Profitability

Global Presence

Future Potential Aggressive expansion plans as seen before in international markets

ISO: 9001-2000, Relevant UL , CE, ISI certificationsQuality Standard

It operates across Europe, Latin America & Africa

Strong CAGR of 26% in FY11-13E period

Beta 0.9 (Showing marginally lower volatility than the market)

Investor’s Consideration


ATTRACTIVE!!Rating - BUYTarget –Rs. 539


Company Profile

Company Profile


Established in 1971

Promoted by Qimat Rai Gupta

One of the largest & fastest growing ECD, electrical & power distribution equipment manufacturer

Owns well known brands like Crabtree, Sylvania, Concord, Luminance, Linolite & SLI Lighting

11 state of the art manufacturing plants in India & operates 7 state of the art manufacturing plants across Europe, Latin America & Africa

Global network spans 91 branches & offices, with over 8,000 employees in over 50 countries backed by a strong global network of 20,000 distributors

Company Profile


Company Profile

62%

27%

2%2% 7%

Share Holding Pattern (%) as on Mar’11

Promoters FII/NRI InstitutionsPrivate Corp Public

Company Profile


17%

27%

17%

39%

Revenue Mix over FY11-13E

ECD SwitchgearLighting Cables & Wires

Company Profile


62%

27%

2%2% 7%

Share Holding Pattern (%) as on Mar’11

Promoters FII/NRI InstitutionsPrivate Corp Public


Segments

Market Growth

Average no. of competitors

Competitive Positioning

Revenue

Operating Margin

Company Profile

Havells India LimitedCompany Profile

Source : Indiabulls


Investment Rationale


Havells India LimitedWhy Invest in Havells ?

Varied Product Stream –

diversified revenue stream & aggressive brand- building initiatives resulted in 25% revenue CAGR over the last 5 years on a standalone basis



PAT to witness strong CAGR of 26% in FY11-13E period led by improvement in Sylvania profitability due to its aggressive restructuring activities in FY10 and FY11


Revenue stability & profit growth –

Sylvania is expected to contribute significantly to profitability from FY12E. Havells is expected to grow its revenue at a CAGR of 15% and PAT at 25% CAGR over FY11-FY13E


Restructuring Plan –

Why Invest in Havells ?



Restructuring Plan –

Why Invest in Havells ? Sylvania operating cash flows to turn positive FY12E onwards Sylvania to generate cash flows of Rs 866mn in FY12E and Rs 1,211mn in FY13E.


Strong positioning to leverage demand potential –

1. Growing disposable income with Indian households

2. Preference for premium products due to evolving lifestyle patterns

3. Strong sustainable demand for consumer electrical products

4. Demand towards energy saving products

5. 4,300 wholesalers and 25,000 retailers in India. In addition, it is also setting up unique Havells Galaxies




One of the lowest per capita consumption of electricity in the world



Significant investments in building power infrastructure by the Govt. of India


Potential Risks

Potential Risks


In FY10, copper accounted for 26% of total domestic business raw material costs and aluminum accounted for 17% of the domestic raw material costs

Potential Risks


Every 1% change in copper prices impacts FY12E earnings by 1.3%, while every 1% change in aluminum prices impacts earnings by 0.7%

Potential Risks

Havells India Limited Delay in restructuring of Sylvania

Sylvania is expected to turn PAT positive in FY11 as against loss reported in FY10

Delay in complete turnaround of Sylvania, continued weakness in European markets and slow growth in LATAM and Asia has adversely impacted revenues and profits

Potential Risks

Havells India Limited Delay in restructuring of Sylvania

Sylvania‘s debt obligations of around € 40million that are due for repayment in 2012-13 would need to be refinanced

Potential Risks


Rise in domestic competition

Competition in the form of technology upgradation

Price wars in certain segments like industrial switchgears, fans, cables & wires, CFL

New segments like water heaters and appliances are highly competitive markets

Heightened competition from unorganized sector or Chinese players

Potential Risks


Adverse movements/fluctuations in F/X

Sylvania operates in Asia, Europe and LATAM markets, exposing it to multiple currency risk

Havells has increased the outsourcing of components of Sylvania from emerging markets like India and China


Financial Analysis

Financial Analysis

FY09 FY10 FY11 FY12E FY13E0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.61.41

1.151.26 1.27 1.33

0.850000000000001

0.630000000000001

0.750000000000001

0.740000000000001 0.78

Current Ratio Quick Ratio

Havells India LimitedLiquidity

Financial Analysis

High debtor collection ratio

Speedy and effective mechanism in place showing extremely efficient operations

Reduce dependence on short term loans

FY07 FY08 FY09 FY10 FY1105

101520253035404550

19.42

43.25

28.83 29.74 31.46

Debtor Turnover ratio


Financial Analysis


Debt/Equity to decline from 2.3x in FY10 to 0.4x by FY13E

No further investments in Sylvania are expected except for maintenance capex

Financial Analysis


Capital Efficiency to improve with Sylvania turnaround

ROCE to improve from 7.6% in FY10 to 26.8% in FY13E and ROE to improve from 17.4% in FY10 to 45.7% in FY13E

Profitability


Price in 5 years =

Estimated Dividends in 5 Years

D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6Valuation

Valuation


Current mkt price is Rs. 425 per share, an expected dividend per share next year of Rs 2.50, an EPS of Rs 20, expected EPS growth of 20% per year, and a P/E ratio of 17. Target rate is 10%. Investment Horizon is five years. Payout is Constant.

Price in 5 years = P/E x EPS x (1+g)^5 = 17x20x(1.20)^5 = 846


D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6

D4 = D3 x (1.20) = 4.32 D5 = D4x (1.20) = 5.18

Po = 2.50 + 3.00 + 3.6 + 4.32 + 5.1+846 = 539 1.10 1.10^2 1.10^3 1.10^4 1.10^5

Hence, the current intrinsic value is Rs. 539 giving a MOS of (539-425=114). MOS% of 27%

Valuation


Current mkt price is Rs. 425 per share, an expected dividend per share next year of Rs 2.50, an EPS of Rs 20, expected EPS growth of 20% per year, and a P/E ratio of 17. Target rate is 10%. Investment Horizon is five years. Payout is Constant.

Dividend Discount Model

Price in 5 years = P/E x EPS x (1+g)^5 = 17x20x(1.20)^5 = 846


D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6

D4 = D3 x (1.20) = 4.32 D5 = D4x (1.20) = 5.18

Po = 2.50 + 3.00 + 3.6 + 4.32 + 5.1+846 = 539 1.10 1.10^2 1.10^3 1.10^4 1.10^5

Hence, the current intrinsic value is Rs. 539 giving a MOS of (539-425=114). MOS% of 27%

Valuation

PEG Ratio


Havells FY13 PEG Ratio –> 9.8/20 = 0.49

Crompton FY13 PEG Ratio –> 17.5/15 = 1.16 -

Bajaj FY13 PEG Ratio –> 10.5/15 = 0.7 -

Philips FY13 PEG Ratio –> 10.7/15 = 0.7-

Valuation

ROE/PE Ratio


Havells Crompton Bajaj Phillips

FY11E 0.7 1.36 1.73 0.75

FY12E 1.59 1.42 2.34 0.72

FY13E 2.06 1.5 2.45 0.84


Credit Rating

Credit Rating

ICRA Rating


Thank You!!


By:

Ankesh PanjwaniMadhav SudNikhil MarwahNitin BhallaP. SrivastavaRidhika Seth

Download - Havells India

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