Buy Havells India; target of Rs 447: GEPL Capital

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Buy Havells India; target of Rs 447: GEPL Capital

GEPL Capital is bullish on Havells India and has recommended buy rating on the stock with a target of Rs 447 in its June 1, 2011 research report.

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RELATED NEWS Accumulate BGR Energy; target of Rs 520: Angel Broking Buy Anant Raj Industries; target of Rs 132: Motilal Oswal Buy IVRCL; target of Rs 100: Angel Broking ALSO READ See previous views by GEPL Capital See what other Experts & Brokerages are saying about Havells India See messages about Havells India Havells India BSE | NSE 31/05/12 Are Mutual Funds betting on Havells India?

GEPL Capital is bullish on Havells India and has recommended buy rating on the stock with a target of Rs 447 in its June 1, 2011 research report.

"Havells India reported a robust stand alone Q4FY11 Sales growth of 24% YoY at Rs 8.45 bn, though gross operating margin (Decline by 400 bps YoY) came under pressure due to high Raw material cost. But company was able to control its EBITDA margin decline at 110 bps YoY by practicing strong control over other expenses. On consolidated basis annually, Sales grew by 9%, though EBITDA & PAT margins increased by 370 bps & 410 bps owing to strong performance by Sylvania & interest cost (down 6% YoY). Sylvania Turnaround - Sylvania has constantly been improving and its Q4FY11 numbers vindicate management's stance of operational turnaround."

"Though there is non-operational revenue of Rs 260 mn gained from revaluation of Pension Liabilities in the EBITDA of Q4FY11, even after adjusting for same EBITDA margin works out at 8%, which is decent. Major growth came from Latin American Markets where turnover more then tripled. Management also brought down cost of operations for Sylvania by both direct & indirect restructuring. The company has a Debt of € 127 mn out of which €10 mn is acquisition debt raised by Havells for acquiring Sylvania & € 78 mn is long term debt, rest is working capital loans & short term debt. Management is planning to restructure this long term debt in Q1FY12 to avail better interest rates and thereby improving margins further. Management is also retiring some of the long term debt on the books in two installments for this year; first installment is of € 6 mn in June, 2012 and second also of € 6 mn in dec, and 2012. Sylvania brand has also been launched in India and placed in Premium Segment (Pricing products above Havells Brands); management expects decent growth in Sales from India. On annual basis also Sylvania's performance was much better operationally higher sales in Latin America and better price realization, restructuring and operational efficiencies in Europe."

"At CMP of Rs 410, the stock is currently trading at 73X its TTM (FY10) EPS of Rs 5.6, 21X its stand aloneFY11 EPS of Rs 19.4 & 17X its consolidated FY11 EPS of 24.3 and 14X its FY12E consolidated consensus EPS of 29. It is difficult to arrive at PE multiples based valuation because when compared to PE multiples attributed to C&G (15-16X FY12E consensus EPS) and Siemens (26X FY12E consensus EPS), the mismatch arises due to operational efficiencies and different markets they operate in. Hence it would be more prudent to follow EV/EBITDA based methodology and compare with both domestic & international peers. Domestically both C&G & Bajaj Electrical are trading at an average 1 year forward EV/EBITDA multiple of 9.5X, whereas internationally Thorpe Electric, Legrand & Schneider are trading at an average 1 year forward EV/EBITDA multiple of 7.5X (source Bloomberg). Considering the growth prospects Havells has to offer in its Domestic as well as international operations, we have valued Havells at 1 year forward EV/EBITDA of 10X giving a target price of Rs 447 (10% upside) hence an accumulate rating, currently it is trading at 1 year forward EV/EBITDA of 9.1X," says GEPL Capital research report.

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