ICRA revises Havells India valuation grade to 'C'

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ICRA revises Havells India valuation grade to 'C'

ICRA Equity Research Service has come out with its update note on Havells India’s Q3 FY 12 results. The research firm has maintained the fundamental grading of '4' and revised valuation grading to 'C' to the company in its February 2, 2012 report.

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ICRA Equity Research Service has come out with its update note on Havells India 's Q3 FY 12 results. The research firm has maintained the fundamental grading of '4' and revised valuation grading to 'C' to the company in its February 2, 2012 report.

Havells India's standalone revenues increased by 26% in Q3FY12 to Rs. 896 crore from Rs. 713 crore in the corresponding previous. The growth in top-line was largely driven by the contribution from new home appliances, robust growth in the lighting & fixtures division that reported 28% growth over the previous fiscal, and an increase in prices to pass on the higher raw material cost - especially in cables and wires division. The sale of home appliances and water heaters contributed Rs 36 crore to the revenues in Q3FY12, as against Rs 15 crore in the corresponding previous, while sale of fans also picked up to 16% as against lacklustre performance of most competitors in the fan industry.

The company has reported an EBITDA margin of 14.0%, 130 bps higher than the corresponding quarter last year on account of higher realisation for most products and cost rationalisation. Going forward, margins in the domestic operations are expected to remain stable at around 12-13%. At the net profit level, the margins dipped to 8.8% in Q3FY12 from 9.1% in Q3FY11 primarily as a result of foreign exchange loss stemming from rupee depreciation that impacted USD-denominated loans. Moreover, interest cost increased driven by higher interest rates.

Sylvania's strong operating profitability demonstrates successful implementation of restructuring packages
For the nine-months ended December 2011, Sylvania's comparative EBITDA increased to €27.5 million (8.2%) as compared to €18.5 million (5.5%) during 9M, FY11. The margins improved sequentially to 9.7% in Q3FY12 from 7.3% in q1FY12 and 7.4% in Q2FY12 reflecting favourably on the successful implementation of the group's restructuring programmes. This was despite a marginal decline in sales during the quarter. Having realised the benefits of restructuring packages resulting in improved operating leverage; with increased contribution from emerging markets; and with an improved product mix, Sylvania's operating margins are expected to stabilize at current levels going forward.

Outlook: The expected increase in Havells' market share in the consumer appliances division together with its plans to export switchgears is expected to drive company's growth in the medium term. We maintain our initial estimates for the current year. We expect Havells to post a net profit CAGR of around 21% between FY11 and FY13(E) on a consolidated basis. Since our last update the stock has outperformed the overall market significantly. In view of the same, while we maintain our fundamental grade at „4', we have revised the valuation grade to „C'.

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To read the full report click on the attachment