Buy Havells India; target of Rs 591: Motilal Oswal

Motilal Oswal is bullish on Havells India and has recommended buy rating on the stock with a target of Rs 591 in its July 31, 2012 research report.

“Havells' 1QFY13 results were a mixed bag. While standalone operating performance was ahead of expectations, Sylvania's performance was significantly below our expectations. Standalone revenue grew 26%, while adjusted PAT grew 55% to INR880m, higher than our estimate of INR790m. Consolidated sales grew 19% to INR17.7b while consolidated PAT declined 11% to INR712m, led by 190bp decline in Sylvania's EBITDA margin to 5.4%.”

“In the standalone business, while all segments posted robust growth, fans (42% growth) and wires (35% growth) stood out. We understand that these growth rates are an aberration and are likely to moderate, going forward. In 1QFY13, EBITDA margin expanded 180bp to 12.6% (v/s 10.8% in 1QFY12), largely due to operating leverage and improved sales mix. Sylvania reported net loss of EUR1.4m, hit by one-time debt refinancing fees, though there was a favorable impact of EUR3.1m on sale of fixed assets in Brazil. Adjusted net loss was EUR0.7m. Profitability has been hit by slower sales (up 1.1%), given the macroeconomic volatility in Europe and increased costs. Sylvania is impacted by currency fluctuations, as it sources from China in USD and its sales are in EUR. The company plans to mitigate the effect of higher costs through price increase of 3-5% effective from August-end. The management has cut its EBITDA margin guidance pertaining to Sylvania to ~7% (v/s earlier target of 8-9%) for FY13. It expects to maintain revenue growth at 5% in EUR terms.”

“We have cut our consolidated earnings estimates by 15%/9% for FY13/14 to factor in reduced margin expectations, given increased cost pressures and macro volatility. We believe Havells is well on track as far as profitability improvement in Sylvania is concerned, and the decline in 1QFY13 would be partly corrected through price increases. We maintain Buy, with a TP of INR591,” says Motilal Oswal research report. 

FIIs holding more than 30% in Indian cos

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