Buy Havells India; target of Rs 355:Emkay

Emkay's reserach report on Havells IndiaHavells proposes to divest 80% stake in Havells Sylvania Malta to Shanghai Feilo Acoustics Co Ltd (“Feilo”) for a combined equity value of Eur 186 mn. We see this as a positive move as Sylvania had dragged consolidated financials of Havells. The balance non-divested subsidiaries of US, Brazil, Chile and Thailand are loss making (Eur 12mn in CY14), which the company plans to turnaround over next 2 years. We expect enhanced focus on domestic operations and improvement in demandsentiments will drive robust revenue & earnings performance from Havells. We now value Havells on its standalone business and we are not assigning any value to the balance Sylvania operations. We retain BUY rating and assign 27x to the domestic business and Rs 17 to cash proceeds from Sylvania stake, arriving at price target of Rs 355/share.The deal brings in Rs 10.7bn (80% divestment) of cash on the balance sheet, which company plans to utilize for inorganic opportunities in domestic markets; we have not estimated any subsequent rise in other income on account of proceeds from divestment. Havells has strong operating metrics in domestic business and likely uptick in demand sentiments & economic activity will further boost performance. We expect 16% revenue CAGR, EBITDA margin of 15.2%, up 150bps, PAT CAGR of 18%, free cash flows of Rs 8.7 (100% PAT conversion), negative working capital, debt free status and ROCE of 29% for FY15-FY18E should warrant premium valuations. We now value Havells on standalone business (27x FY18 EPS) and assign Rs 17 cash value to proceeds from divestment of Havells Malta. We have a BUY rating with revised target price of Rs 355 For all recommendations, click here 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.

Read More