Hold Havells India; target of Rs 539: Nirmal Bang

“Havells has reported strong performance in all the business segments in Q3FY12. Standalone revenues was up by 29.7% YoY led by strong growth in all the business segments while PAT rose by 29% YoY. The EBITDA margin was down by 50bps YoY due to Foreign Exchange loss of Rs. 13.51 crores in Q3FY12; excluding that the margin was 14.2% as compared to 13.2% in Q3FY11. Sylvania has reported a decline in revenue by 4% YoY though the margins improved by 460bps to 9.7% mainly led by Europe business registering strong operating margin of 13.1%. With its focus on profitability from Sylvania, strong domestic business and steadily expansion of product portfolio, we remain confident on Havells performance going forward.”

“Net Sales for Q3FY12 increased by 29.7% on YoY to Rs. 896.17 crs and was up by 5.4% on QoQ. The revenue was up YoY due to the good growth recorded in the cables (28.7% YoY growth), Lighting & Fixtures (27.8% YoY growth), Electrical Consumer & Durables (34.7% YoY Growth) and Switchgears (30% YoY growth). Switchgear EBIT margins grew 210bps to 39.5% (37.4% in Q3FY11). Lighting & Fixtures EBIT margins increased by 510bps to 26.2% (21.1% in Q3FY11) and EBIT margins of Consumer Durables and Cables grew by 110bps to 28.9% and to 9.9% in Q3FY12 respectively.”

“Sylvania reported decline in revenue by 4.1% YoY to €113.9mn in Q3FY12 as compared to €118.8mn and 1.4% QoQ revenue growth. Europe reported decline of 4.5% YoY in net revenue to €71.8mn with a significant jump in EBIDTA margin to 13.1% in Q3FY12 as against 6% in Q3FY11. The better price realization and inventory of low cost boosted the margin in Q3FY12. Latin America (LatAm) reported decline in revenue by 4% YoY in US$ terms to $48.2mn in Q3FY12 as against $50.2mn in Q3FY11. Management has attributed sharp currency fluctuation in Brazil as key reason for weak revenue and margin performance for LatAm. The profit margin was 5.9% in Q3FY12 as against 7% in Q3FY11 due to non-recurring inventory provisions of €1.2mn; without which, the EBIDTA margin would have been 9.2%. Sylvania reported EBIDTA margin at 9.7% (adjusted for pension liabilities) in Q3FY12, a jump of 460 bps YoY from 5.1% in Q3FY11, driven by better price realization and cost management.”

“At CMP of Rs. 480, the stock is trading at a PE of 16.4x in FY12E and 13.4x in FY13E. We have recommended Havells at a price of Rs. 382 on 2nd Nov 2011 with a target price of Rs. 482, which got achieved on 31st Jan 2012. We have revised our target price to Rs. 539 per share (Rs. 482) (15x FY13 P/E) on account of strong performance in the entire business segment in Indian business and Sylvania reporting better operating margins. We feel that the upside from here is limited as the stock has seen a good run up in the recent past and is fairly priced-in. We recommend the investors to partially book the profit,” says Nirmal Bang research report. 

Institutional holding more than 40% in Indian cos

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