Hold Havells India; target of Rs 576: Nirmal Bang

Nirmal Bang has recommended hold rating on Havells India with a target of Rs 576, in its July 31, 2012 research report.

“Havells’ domestic operation has shown strong growth of 25.6% YoY led by higher seasonal sales of fan while PAT rose by 23.6% YoY. The EBITDA margin was flat at 11.8% YoY and down by 20bps QoQ due to Foreign Exchange loss of Rs. 8.45 crores in Q1FY13; excluding that the margin was 12.7% in Q1FY13 as compared to 11.6% in Q1FY12 and 12% in Q4FY12. Sylvania, on the other hand has reported loss led by decline in operating margin and one time financial restructuring cost. The operating margin of Sylvania was 5.4% in Q1FY13 as against 7.3% in Q1FY12 and 8.5% in Q4FY12 on count of higher procurement cost resulting from depreciation of Euro. The management has planned to take price hike Sylvania by 3-5% which will help company to off-set cost increase and expect operating margin to come back to 7% in coming quarters. With its focus on profitability from Sylvania, strong domestic business and steadily expansion of product portfolio, Havells will continue to perform.”

“Net Sales for Q1FY13 increased by 25.6% YoY to Rs. 1032.8 crs and down by 1.3% QoQ. The revenue was up YoY due to the good growth recorded in the cables (21% YoY growth), Lighting & Fixtures (23.8% YoY growth), Electrical Consumer & Durables (56.6% YoY Growth) and Switchgears (14.6% YoY growth). Switchgear EBIT margins fell by 30bps to 36.4% (36.7% in Q1FY12). Lighting & Fixtures EBIT margins decreased by 50bps to 23% (23.5% in Q1FY12), EBIT margins of Consumer Durables fell by 510bps to 25.3% (30.4% in Q1FY12); whereas, the EBIT margin in Cables was up by 180 bps to 9.8% in Q1FY13 led by better product mix. The PAT margin was 7.8% in Q1FY13 as against 7.9% in Q1FY12 and 6.7% in Q4FY12. The depreciation and interest cost has increased by 37.2% YoY and by 8.7% YoY respectively. The interest cost included exchange loss of Rs. 1.5 crores in Q1FY13 as against loss of Rs. 9.4 crores in Q4FY12. The tax rate jumped to 20.3% in Q1FY13 as against 18.5% inQ1FY12 and 21.6% in Q4FY12.”

“At CMP of Rs. 539, the stock is trading at a PE of 14.7x FY13E and 13.1x FY14E. Management maintained its guidance of 15%-20% domestic growth. We are bit concerned with the muted performance by Sylvania in the top-line and decline in bottom-line. The company plans to take a price hike of around 3-5% which will come effective from August 2012; which in our view will improve margins going forward in Sylvania. We have tweaked our Sylvania numbers for FY13E and FY14E but have increased the revenue growth of domestic operation owing to strong performance in Q1FY13. We are positive on the stock owing to core business momentum remains robust with healthy EPS growth, cash flow generation and high RoEs. We have revised our target price of Rs. 576 per share (PE 14x FY14E). We recommend a “HOLD” rating,” says Nirmal Bang research report.  

Public holding more than 90% in Indian cos

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