Hold Havells India, Lupin: ICICIdirect.com
Brokerage house ICICIdirect.com has recommended a hold rating on Havells India and Lupin with a target price of Rs 720 and Rs 974 respectively, in its October 2013 research reports.
October 31, 2013 / 12:20 IST
ICICIdirect.com research report
Havells India (HIL)"Havells India (HIL) posted a robust set of numbers with standalone topline growth of ~22 percent led by strong growth in the switchgear and cables segment. Higher sales growth and operating margin expansion led to 45 percent jump in earnings. The switchgear, electronic consumer durable (ECD) segment witnessed growth of 23 percent and 19 percent, respectively, largely due to the low base of Q2FY13. Revenues from the cables segment also witnessed ~25 percent growth compared to de-growth of 6 percent in Q1FY14 mainly due to 36 percent growth in industrial cables and some sales shift from Q1FY14 to Q2FY14. Lighting & fixtures witnessed growth of 15 percent due to higher growth from luminaries. Operating margins expanded 100 bps to 14.4 percent (I-direct estimate of 12.3 percent) due to lower advertisement cost and expanded contribution margin. Net profit has grown mainly on account of higher operating profit and increased other income.""The growth has been largely volume driven as cables segment revenues have been shifted in Q2 due to supply constraints on copper in Q1FY14. We believe this high growth in the next two quarters would be unsustainable. We have built in 18.6 percent, 1.2 percent, and 21.8 percent, 12.9 percent growth in switchgear, cables, ECD and lighting & fixtures, respectively, in FY14. Given the strong performance in Q2, we have upgraded our FY14E EPS estimate by ~5 percent and maintained FY15E EPS estimate of Rs 43.9. We are valuating Havells’ standalone at 17x FY15E EPS and Sylvania at 3x FY15E EV/EBITDA and assigning HOLD rating to HIL with a target price of Rs 720"Lupin"Lupin reported an in-line set of Q2FY14 numbers. Revenues grew 16 percent YoY to Rs 2668 crore (I-direct estimates: Rs 2713 crore) buoyed by 32 percent growth in the US (including IP) and 20 percent growth in APIs. Other core markets of India and Japan continued to languish with India growing by 9 percent and there was de-growth in Japan. EBITDA margins improved 250 bps to 24.7 percent (I-direct estimate: 24 percent) on account of 1) higher realisation, 2) higher proportion of own manufactured products in sales and 3) translation gains in Japan. The net profit grew 39 percent to Rs 406 crore (I-direct estimate: Rs 376 crore) despite higher taxation on the back of improved profitability at the GPM/EBITDA level and higher other income.""In the last five quarters, Lupin has registered significant margin improvement despite its core growth engine i.e. US cooling down a bit due to braded portfolio slowdown. The company has now become a virtual debt-free company on account of improved tangible cash flows. The outlook for all geographies (except maybe Japan) continues to be robust given the product range on hand. A strong balance sheet, good working capital management and management focus remain differentiators for Lupin. Our new target price stands at Rs 974, based on 22x (earlier 20x) FY15E EPS of Rs 44.3. We maintain HOLD with an improved multiple."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. 
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