Havells India: Add For A Target Price Of Rs. 604

Havells 1QF13 Result Review I TP – Rs604  I Rating: ADD

1QF13 revenues in line, Sylvania to off-set increase in input costs by price hikes. Maintain ADD

Havells 1QF13 standalone revenues were in line with our estimates. Growth was supported by all the business verticals, with maximum growth in consumer durables which reported 57% YoY growth. Revenues / EBITDA / PAT were at Rs10.4bn / Rs.1.2bn and Rs801mn as against SSle of Rs10.6bn / Rs1.2bn / Rs787mn. Impact of forex was witnessed in the quarter because of the Euro loan on standalone books. Sylvania has achieved 25% of F13e revenue expectations but maintaining margins for F13e is a cause of worry. Hence, we have revised our estimates accordingly.

Robust growth across standalone operations: Growth levels across the domestic operations continued to be robust with Consumer durables vertical reporting the maximum growth of 57% YoY followed by Lighting business which reported 24% YoY growth. PBIT profits across the Cables and Wires segment reported the maximum growth of 50% at Rs425mn. With festive season in 2Q & 3QF13, we expect increase in volume off-take to happen in the forthcoming quarters. We continue to expect 27% CAGR in the period between F13e – F16e in standalone operations in India. Growth in Indian operations would also be supported by launch of new products in its existing segments and new product launches.

Sylvania shows signs of fatigue, price rise to offset currency impact and hike in input prices: Sylvania had reported 25% of our F13e revenues in 1QF13 at Rs7.45bn (2% YoY growth in Euro and 11% YoY growth in INR). However, the management had reported signs of fatigue in Sylvania’s growth during the quarter due to economic uncertainties. The company also intends to increase price across its product portfolios in the range of 3%-5% in order to off-set the impact of currency movement and hike in input costs. Increase in product prices might result in lower product off-take. We have already factored in impact on margins due to economic uncertainties in Europe and lower volume off-take by expecting 62% YoY decrease in F13e profits of Sylvania at Rs.246.2mn as against Rs645mn in F12e.

With 2 year consolidated PAT CAGR of 16% the stock is trading 13.9x on F14e EPS, ADD: We have already factored in 62% YoY de-growth in Sylvania’s PAT for F13e at Rs246.2mn. Domestic growth continues to be robust and we expect margins to remain stable for F13e and F14e. At the CMP of Rs555, Havells trades 17.5x / 13.9x its F13e / F14e EPS of Rs31.7 / 40. We maintain ADD rating on the company but lower our price target on the stock to Rs604.