Buy Havells; target of Rs 360:Motilal Oswal

Motilal Oswal's research report on HavellsHAVL’s 3QFY16 adjusted PAT at INR1.2b (flat YoY) was below our and consensus estimates of INR1.3b. The miss was primarily due to lower-thanestimated EBITDA margin at 13.5%(-100bp YoY) v/s estimate of 14.7%. The company increased its advertising spend to INR0.56b (4.2% of sales) during 3QFY16 v/s INR0.32b (2.6% of sales) in 3QFY15) to push sales during the festive season and increase presence in Tier 2 and Tier 3 towns. Going forward, the company has guided for ad spends in the region of 3.5-4% as it continues to invest in its brand. Employee costs rose 21% YoY to INR1b on account of pay hikes and increased manpower.  Gross margins at 42% (+260bp YoY) were the highest since FY10 on the back of lower raw material prices (primarily copper and plastic), cost efficiency measures, better price management and policy discipline.  Segments that witnessed strong growth: Consumer durables (+23% YoY), lighting (+9% YoY) and cables (+6% YoY). Switchgear sales were flat YoY at INR3.3b. We maintain Buy with a price target of INR360. We ascribe a 28x PE multiple and roll forward our target price to FY18. We incorporate the divestment of Sylvania from 4QFY16 and build in higher other income as a result of the proceeds of INR8.8b received in 4QFY16. 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