Buy Havells India; target of Rs 350: Emkay

Remain upbeat on growth trajectory of domestic business. Have assigned 25x multiple on FY17E earnings given strong cash flows, 30% return ratios and 45-50% dividend payouts. We retain BUY with revised price target of Rs 350.

"Q2FY15 revenues were in line with estimates, but missed PAT estimates. Key highlights are: 1) Standalone revenues at Rs 13.7bn, up 16.3% yoy led by strong +20% growth in cables & wires (21.4% yoy) and Electrical consumer durables – ECD (24.9% yoy). 2) EBITDA at Rs 1.8bn, up 6.7% yoy, below estimates with EBITDA margins down 120bps yoy to 13.2% due to high base quarter and higher A&P spends towards brand building. 3) APAT at Rs 1.2bn declined 5% yoy, was below estimates, led by higher depreciation and higher tax due to expiry of tax exemption in few facilities."

"Havells continued its strong uptick in domestic business. Given earnings growth of 25%, healthy cash flow generation, return ratios of 30% and dividend payout of 45-50%, we have assigned earnings multiple of 25x FY17E earnings, which translates into price target of Rs 350/share. Unless, there is any serious competitor to challenge the growth trajectory of Havells, we believe Havells would sustain premium valuations; We maintain BUY rating", says Emkay Global Financial Services research report.

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