Buy Havells India; target of Rs 740: Emkay

Emkay Global Financial Services is bullish on Havells India and has recommended buy rating on the stock with a target of Rs 740 in its January 7, 2013 research report.

• QRG Enterprises Ltd (promoter company) transfers the brand “Havells” to Havells India at ZERO consideration w.e.f 1st April 2016
• Addresses investor concerns – improves management credibility, enhances shareholder value and resolves ambiguity on estimation of future royalty payments
• No impact on near term earnings; hypothetically FY14E consolidated earnings would have been upgraded by 8%
• Domestic growth drivers remain intact, while Sylvania is focused on improving profitability. Rollover valuations to FY15E. Upgrade to BUY with PT of Rs 740

“QRG Enterprises Ltd owning brand name/trade mark ‘Havells’ has entered into a revised Trademark License Agreement with Havells India, pursuant to which, the brand would be transferred to Havells India for ZERO consideration wef April 01, 2016. This existing Trademark License Agreement expires in FY16. Presently, Havells pays Rs 400mn annually towards trade mark/royalty to QRG Enterprises. Post FY16E, there won’t be payout by Havells India towards trademark/royalty on ‘Havells’ brand. Until FY113E, Havells India incurred marketing spends for brand "Havells"; whereas paid trade mark /royalty to Promoter Company. The said transfer of brand “Havells” has addressed investor concerns. It also resolves ambiguity surrounding estimation of future royalty payments. This improves the management credibility multi-folds; it would also enhance shareholder value. Since, new arrangement would transpire w.e.f 1st April 2016, there is no impact on near term earnings i.e. FY13-FY15E. Had it been implemented in FY14E, it would have generated annual savings of Rs 400mn to the company. Also, upgrading the standalone earnings by 9% (from Rs 33.2/share to Rs 36.2/share) and consolidated earnings by 8% (from Rs 37.5/share to Rs 40.5/share).”
 
“We remain positive on domestic business and expect distribution, branding and new products to drive 18% revenue CAGR over FY12-FY15E. While for Sylvania, revenue growth remains challenging but focus on cost management and price increases would drive margins and earnings growth. We rollover our valuations to FY15E and upgrade Havells to Buy with price target of Rs 740 (9.4x FY15E EV/EBIDTA),” says Emkay Global Financial Services research report.

Bodies Corporate holding more than 50% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More