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Result Update
October 19, 2016
Havells India (HAVIND)
Rating matrix
Rating
Target
Target Period
Potential Upside
:
:
:
:
Hold
| 416
12 months
1%
Muted performance of industrial products...
What’s changed?
Target
EPS FY17E
EPS FY18E
Rating
Unchanged
Changed from | 10.3 to | 9.9
Changed from | 13.2 to | 11.7
Changed from Buy to Hold
Quarterly performance
Revenue
EBITDA
EBITDA (%)
PAT
Q2FY17
1,452.2
203.4
14.0
145.8
Q2FY16
1,335.9
189.1
14.2
119.5
YoY (%)
8.7
7.6
-15bps
21.9
Q1FY17 QoQ (%)
1,466.8
-1.0
200.4
1.5
13.7 34bps
145.6
0.1
Key financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)
FY15
5,239
699.1
464.9
7.5
FY16E
5,437
749.3
716.2
11.5
FY17E
6,118
858.9
618.9
9.9
FY18E
7,162
1,039.5
730.7
11.7
FY16E
46.1
46.4
32.0
9.7
21.1
26.6
FY17E
41.6
41.9
27.6
8.6
20.6
28.0
FY18E
35.3
35.5
22.5
7.4
21.0
28.7
Valuation summary
P/E
Target P/E
EV / EBITDA
P/BV
RoNW (%)
RoCE (%)
FY15
56.1
56.5
34.7
10.8
19.3
26.6
Stock data
Particular
Market Capitalization (| Crore)
Total Debt (FY16) (| Crore)
Cash and Investments (FY16) (| Crore)
EV (| Crore)
52 week H/L
Equity capital (| Crore)
Face value (|)
Amount
23,458.6
4.1
1,805.4
21,657.3
459 / 235
62.4
1.0
Price performance
Havells India
Bajaj Electricals
Symphony
V-Guard
1M
5.4
(2.8)
(2.2)
1.5
3M
20.6
8.4
(5.5)
33.3
| 413
6M
25.8
15.3
(6.2)
98.9
12M
66.0
1.5
17.5
99.3
Research Analyst
Sanjay Manyal
[email protected]
Hitesh Taunk
[email protected]
ICICI Securities Ltd | Retail Equity Research
• Havells reported ~9% YoY growth in sales during Q2FY17 supported
by 22% and 9% YoY growth in electrical consumer durable (ECD)
and lighting segment, respectively. Lighting division (excluding CFL)
recorded growth of 22% YoY while ECD sales growth was largely
driven by pre-festive demand. Though the cables division registered
~9% YoY volume growth, aggressive price cuts due to lower
commodity price, resulted in muted sales growth. Switchgear sales
growth at 5% YoY was largely due to lower-than-expected demand
from real estate segment
• EBITDA margins remained flat YoY as higher employee expenses (up
39% YoY) offset the benefit of saving in raw material costs and
discontinuance of royalty payment in the quarter
• Higher depreciation charges (due to change in accounting norms)
were partly offset by the higher other income (due to higher other
interest income). As a result, the company recorded strong PAT
growth of ~22% YoY to ~| 146 crore in Q2FY17
To benefit from Seventh Pay Commission, GST
We believe consumer durable companies will be key beneficiaries of the
government’s key reforms like implementation of GST and pay hike.
While the Seventh Pay Commission will boost the disposable income of
the 1.4 crore govt employees, GST will bring down the effective tax rate
of the company. Additionally, a reduction of tax arbitrage for the
unorganised segment will provide additional benefit to organised players
in the long run. Further, the company has created a strong brand in
electrical consumer products in India, which was traditionally a low
involvement product category. Advertisement expenditure always
remained at ~2-3% of net sales to build the brand image and awareness
in Tier I, Tier II cities. Appliances have lower penetration in India. Hence,
improvement in power availability, increase in disposable income and
shift in focus towards branded category products would help grow
consumer durable segment at CAGR ~24% in FY16-18E.
Slight recovery in demand from industrial segment to drive growth
HIL’s switchgear segment recorded revenue CAGR of ~12% in FY11-16
largely due to new product launch, a gradual shift in branded product
categories and sustained demand from rural markets. This has helped
Havells increase its market share aggressively from 15% in 2006 to 29%
in FY15. The switchgear segment is the most profitable business (~39%
contribution margin). The company’s continuous effort to launch
premium products (like Euro II switchgears and super premium range of
distribution boards) would help the company to keep the margin of the
segment at elevated levels. The cable division continued its muted
performance (~12% revenue CAGR in FY11-16) largely hit by lower
demand for industrial cables coupled with lower raw material prices.
All near term positives priced in
We expect Havells to record revenue, EBITDA CAGR of ~15%, ~18% for
FY16-18E, respectively, supported by ECD and lighting segment revenue
CAGR of 24% and 20%, respectively. However industrial product
category sales may be lower than historical growth due to a slow pick-up
in infrastructure spending, which would restrict any sharp movement in
EBITDA margin. Considering HIL’s debt free status, strong return ratios
and improving payout ratio (~30%) we maintain our target price at | 416
(36x FY18e EPS) and revise our rating from BUY to HOLD.
Variance analysis
Q2FY17 Q2FY17E
Revenue
Q2FY16
YoY (%)
Q1FY17 QoQ (%)
1452.2
1523.1
1335.9
8.7
1466.8
-1.0
25.3
31.0
9.8
158.2
30.7
-17.5
Raw Material Exp
686.6
776.8
681.8
0.7
729.9
-5.9
Employee Exp
121.6
124.9
87.8
38.5
123.9
-1.9
Purchase of Traded goods
159.6
121.8
115.2
38.5
116.8
36.6
Other expenses
281.2
281.8
262.1
7.3
295.8
-4.9
EBITDA
203.4
217.8
189.1
7.6
200.4
1.5
EBITDA Margin (%)
14.0
14.3
14.2
-15 bps
13.7
34 bps
Depreciation
30.8
28.5
26.1
17.9
28.0
10.0
1.9
3.0
3.1
-38.7
1.6
17.3
PBT
Total Tax
PAT
Key Metrics
203.0
57.2
145.8
217.3
61.1
156.3
168.3
48.8
119.5
20.6
17.3
21.9
202.2
56.7
145.6
0.4
1.0
0.1
Cable
559.2
584.6
558.1
0.2
533.0
4.9
Switchgear
347.4
384.8
330.9
5.0
352.9
-1.5
ECD
308.5
301.2
252.5
22.2
351.4
-12.2
Lighting & Fixtures
211.8
218.8
194.4
9.0
196.2
7.9
Other Income
Interest
Comments
Sales growth at 9% YoY was largely on account of lower-than-expected
growth in industrial product cable & wire and switchgear categories. Both
segments together contribute ~60% to the topline during Q1FY17. However,
consumer durable and lighting business recorded a good performance
supported by strong volume growth
Rise in other income was largely on account of higher interest income
Benign raw material prices helped in saving in raw material cost
Higher employee cost was mainly due to addition of new employees and
salary hike
Higher expenditure in the A&P spend was partially offset by discontinuation
of brand royalty payment from April 2016
Benefit of lower raw material prices was partially offset by higher employee
cost resulted in flattish EBITDA margin
Higher depreciation charges were only on account of adoption of new
accounting policy (IND-AS)
PAT growth was largely supported by strong growth in other income
Volume growth of 8% and 10% YoY in Industrial cable and domestic cable
segment, respectively, was offset by a decline in realisation mainly due to
lower commodity prices
Muted demand of switchgear from the real estate segment
Sales growth in consumer durable segment largely led by fans and sub
categories such as pump and water heater
Lighting division excluding CFL recorded a growth of 22% YoY while CFL
(contributes 16% in lighting revenue) de-grew 33% YoY
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore)
FY17E
Old
FY18E
New % Change
Old
Comments
New % Change
We have tweaked our revenue estimate for FY17E, FY18E on the back of lower-than(5.4) expected growth in the cable and wire segments. On a long term basis, we believe
lighting & consumer durable segment will benefit from upcoming government reforms
Revenue
6303.2
6118.4
(2.9)
7570.7
7161.9
EBITDA
900.2
858.9
(4.6)
1162.2
1039.5
(10.6)
14.3
14.0
-26bps
15.4
14.5
-89bps
PAT
645.4
618.9
EPS (|)
10.3
9.9
Source: Company, ICICIdirect.com Research
(4.1)
(3.7)
824.9
13.2
730.7
11.7
(11.4)
(11.3)
EBITDA Margin %
We have slightly tweaked our margin estimates considering the increase in headcount
and lower operating leverage from the industrial product categories
Assumptions
Cable Growth (%)
Switchgear Growth (%)
ECD Growth (%)
Lighting & Fixtures (%)
FY15
Current
FY16
FY17E
FY18E
Earlier
FY17E
FY18E
13.7
0.8
3.7
6.4
10.3
4.9
0.6
12.0
17.0
15.1
20.5
11.0
21.6
26.6
20.0
2.8
8.2
17.5
22.3
18.6
Comments
Rising investment in the infrastructure sector under various government initiatives
15.1 would help drive sales of the cable segment. However, value growth would largely be
impacted by lower commodity prices
Launched new range of premium switchgears in Karnataka, Tamil Nadu, Chandigarh,
17.9
Andhra Pradesh and Telangana would drive overall sales
Growth in ECD segment would largely be driven by implementation of Seventh Pay
26.4
Commission and better monsoon forecast in near future
We believe Havells' domestic lighting business will remain intact with a revenue CAGR
21.9
of 20% in FY16-18E supported by better product mix
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
Company Analysis
Slight recovery in demand from industrial segment to drive growth
Havells India (HIL) is a leading FMEG player in the switchgear segment
with a presence in three product categories, viz. domestic, modular and
LV industrial switchgear. HIL’s switchgear segment, largely dominated by
the domestic MCB segment, contributes ~24% to standalone revenues.
The company recorded revenue CAGR of ~12% in FY11-16 largely due to
new product launch, a gradual shift in branded product categories and
sustained demand from rural markets. HIL has maintained its leadership
position in the domestic switchgear market and had increased its market
share aggressively from 15% in 2006 to 29% in FY15. The switchgear
segment is the most profitable business (~39% contribution margin). The
company’s continuous effort to launch premium products (like Euro II
switchgears and super premium range of distribution boards) would help
the company to keep the margin of the segment at elevated levels.
Havells has a leadership position in the domestic
switchgear market and increased its market share
aggressively from 15% in 2006 to 29% in FY15
Another industrial category, the cable division, continued to put up a
muted performance (~12% revenue CAGR in FY11-16) largely hit by
lower demand for industrial cables coupled with lower raw material
prices. During FY16, sales growth of the cable segment remained muted
as the company passed on the maximum benefit of lower raw material
prices by taking a price cut in the cable and wire segments. Though the
wire segment of the company continuously recorded strong volume
growth supported by demand remaining intact in tier II, III cities, the price
cut hit sales growth. Despite the price cut, the segment registered
improvements in margins (14.2% in FY16 vs. 12.1% in FY15) due to focus
on cost efficiency measures and the brand strength.
We believe a revival of industrial policies (to boost infrastructure) by the
central government, capex in power sectors coupled with the
government’s flagship programmes like Housing For All will be key
revenue drivers for HIL’s cable & wire and switchgear segments. As a
result, the cable & wire and switchgear segment is likely to record sales
CAGR of ~5% and ~15% in FY16-18E, respectively. On the profitability
front, we believe with the stabilisation in most commodity prices, any
price hike in the segment would help maintain margins in this segment.
Exhibit 1: Standalone revenue contribution during FY15
ECD
20%
Exhibit 2: Revenue contribution improves in ECD & lights segment in FY16
ECD
21%
Lighting &
Fixtures
14%
Switchgear
24%
Lighting &
Fixtures
15%
Switchgear
24%
Cable
42%
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Cable
41%
Source: Company, ICICIdirect.com Research
Page 3
Lighting, consumer durable to get boost from rising disposable incomes
Under discretionary categories, HIL’s standalone lighting & fixtures
segment recorded revenue CAGR of ~12% in FY11-16 largely supported
by the lighting division. The slower sales growth was largely due to
presence in the conventional lighting business (like CFL). However, the
company has capitalised the LED lighting technology of Sylvania (before
divestment) and launched premium LED lighting products in various
countries. Currently, over 51% of revenue from lighting business comes
from LED lighting. To strengthen its presence in the higher margin
business i.e. street lights and solar solutions, Havells has acquired
Bangalore based Promptec Renewable Energy Solutions. Promptec is
engaged in marketing and manufacturing of LED products including street
lighting, office lighting and solar lighting. The company also refrained
from bidding for lower margin government orders to maintain the
profitability of the business. We believe the lighting & fixture industry will
get a boost on the back of growing awareness on using power efficient
products (LED) and launch of new products (such as colour changing and
ambient dual colour products to improve the aesthetics of a home) that
would help drive sales and margins of the company, going forward.
Home appliances, relatively a new category for the company, recorded
sales CAGR of 19.5% in FY11-16. Under the fan segment, the company is
the third largest player in terms of market share (~15%) after Crompton
Greaves and Orient fans. To spread its wings in the appliances division by
leveraging its existing strong dealer network across the country, Havells
launched various home/kitchen appliance products. The company has
also introduced a new range of air coolers and lifestyle-based products
like air fryers and air purifier, which have a niche market as of now.
Implementation of Seventh Pay Commission, GST: Fillip to consumer
segment
We believe the lighting & fixture industry will get a boost
on the back of growing awareness on using power efficient
products and infra spending while lower penetration of
home appliances will help in driving the ECD performance
We believe consumer durable companies will be key beneficiaries of the
government’s key reforms like implementation of GST and pay hike. In
line with the historical trend, implementation of the Seventh Pay
Commission (23.5% pay hike) would directly benefit 1.4 crore
government employees resulting in inflow of | 1 lakh crore to the system
(flow to state government employee would come with a lag effect). This
would provide additional disposable income in the hand of customers to
spend more on branded products.
Further, GST is going to benefit the company is two ways:
1) Reduction in effective tax rate to ~18% from ~23%: would lead to an
improvement in the volume and margin of the company
2) Elimination/reduction of tax arbitrage (including tax evasion) currently
enjoyed by unorganised players: as products like air cooler, fans, water
heater, mixer grinders have a significant presence of unorganised players,
GST would accelerate the shift towards the organised sector considering
reduction in tax arbitrage.
Appliances have lower penetration in India. Hence, an improvement in
power availability, increase in disposable income and shift in focus
towards branded category products would help to grow consumer
durable and lighting segment at CAGR ~23% and 20% in FY16-18E.
ICICI Securities Ltd | Retail Equity Research
Page 4
Consistent brand building through advertisement expenses
The company has created a strong brand in electrical consumer products
in India, which was traditionally a low involvement product category.
Under its brand building exercise, HIL incurred notable advertisement
expense at a CAGR of 20% over the last six years. The advertisement
expenditure has always remained at ~3% of net sales to build the brand
image and awareness in Tier I and Tier II cities. The higher advertisement
expenditure was mainly on the back of HIL’s aggressive ad campaigns
during international events including the T-20 World Cup and Indian
Premier League. We believe the company has built up strong brand
equity, which has helped it to move from a dealer push to a consumer
pull business model.
HIL’s advertisement expenditure always remained at ~2-
Exhibit 3: Continuous exercise of brand building through advertisement expenses
3% of net sales to build brand images and awareness in
9
Tier I and Tier II cities
8.2
(%)
7
7.0
6.9
6.5
5.8
6.2
5.5
5
3
3.1
3.2
3.9
3.6
3.1
2.5
2.3
1
FY09
FY10
FY11
Havells
1.8
FY12
3.1
1.6
FY13
Bajaj electricals
2.4
3.0
2.2
1.9
FY14
FY15
6.2
3.3
2.1
FY16
TTK Prestige
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 5
Strong performance by consumer facing business
Havells reported ~9% YoY growth in sales during Q2FY17 supported by
22% and 9% YoY growth in electrical consumer durable (ECD) and
lighting segment respectively. Lighting division (excluding CFL) recorded
growth of 22% YoY while ECD sales growth was largely driven by pre
festive demand. Though cables division registered ~9% YoY volume
growth, aggressive price cuts due to lower commodity price, resulted in
muted sales growth. Switchgear sales growth at 5% YoY was largely due
to lower-than-expected demand from the real estate segment.
HIL recorded standalone revenue CAGR of ~14% in FY11-16 led by the
ECD and lighting segments, which recorded revenue CAGR of ~20% and
~13%, respectively, in FY11-16. We have modelled standalone revenue
CAGR of 15% led by the ECD and lighting segment considering
implementation of Seventh Pay Commission recommendations, GST and
expectation of better monsoon.
7,161.9
5,436.9
5,238.7
20
5
FY18E
FY17E
Q2FY17
Q1FY17
FY16
Q4FY16
Q3FY16
Q2FY16
Q1FY16
FY15E
Q4FY15
Q3FY15
Q2FY15
FY14
Q1FY15
Q4FY14
Sales (| crore)
YoY growth
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 6
(%)
10
1,452.2
1,466.8
1,475.4
1,344.5
1,335.9
15
1,252.3
1,349.3
1,247.5
1,365.1
4,719.7
1,276.9
1,310.0
1,184.4
25
-5
Q1FY14
(| crore)
coupled with a revival in infrastructure spending
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
1,174.0
sales CAGR of 5% YoY with stabilising commodity prices
Q3FY14
product categories (like cable and switchgear) would see
6,118.4
Exhibit 4: Standalone revenue CAGR of 15% in FY16-18E
Q2FY14
the ECD and lighting segment. We believe industrial
1,051.3
We have modelled standalone revenue CAGR of 15% led by
Margin to remain higher despite higher head counts in FY16-18E
The company recorded ~15 bps YoY decline in EBITDA margin to 14%
(excluding forex gains) in Q2FY16 on the back of higher employee cost
(up 39% YoY) which offset the benefit of lower raw material and
discontinuance of royalty payment. We believe the EBITDA margin will
remain at elevated levels (14.0%, 14.5% for FY17E, FY18E, respectively)
with a gradual recovery in industrial product sales and change in product
mix change.
749.3
800
200.4
203.4
Q2FY17
219.6
Q4FY16
Q1FY17
189.1
179.6
Q4FY15
181.5
178.1
Q3FY15
Q3FY16
180.4
Q2FY15
162.0
161.0
Q1FY15
Q2FY16
168.3
Q4FY14
Q1FY16
169.0
163.3
Q3FY14
200
Q2FY14
400
141.1
600
Q1FY14
margin expansion, going forward
699.1
brand “Havells” to the company would benefit in terms of
633.2
1,000
(| crore)
in sales of industrial product categories. Further, a shift in
858.9
1,200
forward, led by benign raw material prices and a recovery
EBITDA (| crore)
FY18E
FY17E
FY16
FY15E
FY14
-
16
15
15
14
14
13
13
12
12
11
(%)
We believe the company will record better margin, going
1,039.5
Exhibit 5: EBITDA margin to inch up, going forward
EBITDA Margin (%)
Source: Company, ICICIdirect.com Research
Margin expansion coupled with debt free status to drive PAT
Historically, the company has recorded a PAT CAGR of 24% in FY11-16,
led by sales CAGR of 13.5%and expansion in EBITDA margin by ~200
bps during the same period. For the future, we believe sustained growth
in PAT can be attributed to expansion in EBITDA margin by ~70 bps in
FY16-18E, coupled with the debt-free status of the company.
730.7
716.2
618.9
12
464.9
10
145.8
145.6
120.8
119.5
105.9
121.9
116.2
119.6
107.3
136.9
121.5
125.7
6
4
2
PAT (| crore)
FY18E
FY17E
Q2FY17
Q1FY17
FY16
Q4FY16
Q2FY16
Q1FY16
FY15E
Q4FY15
Q3FY15
Q2FY15
Q1FY15
FY14
Q4FY14
Q3FY14
Q2FY14
-
PAT Margin
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 7
(%)
478.7
14
8
94.7
800
700
600
500
400
300
200
100
-
Q1FY14
(| crore)
Exhibit 6: PAT stays flat due to decline in sales and flat margin
Annual report key takeaways…
1. With the commencement of new water heater plant in Rajasthan,
Havells India is now operating with total 12 manufacturing unit. It
manufactures ~90% of its total products.
2. The plant, built with an investment of | 100 crore, has a
manufacturing capacity of 5,00,000 units per annum and will
initially manufacture 3,00,000 units per annum with an investment
of | 100 crore
3. During FY16, Havells India ventured into integrated automation &
control solutions for homes, offices & hotels under its premium
brand “Crabtree” in association with world’s leading automation
company HDL Automation. The domestic market size of the
automation solution industry is estimated to be | 500 crore, which
is growing at 20-25% annually. HIL is planning to capture 10%
market share and expects revenue of | 100 crore by 2020
4. Lighting division recorded sales growth of 8% YoY to | 802 crore.
Despite a high base, the LED segment recorded 100% growth in
revenues and contributes 51% to total lighting division
5. Havells enlarged its product portfolios in the solar lighting
business by leveraging the synergies from its recent acquisition of
Promptec Renewables Energy Solutions (PRES)
6. We believe a surge in consumer demand and the government’s
push to LED and solar lighting solutions will help achieve further
growth in the lighting business
7. Havells India has divested its 80% holding for a consideration of
€148.8 million (~| 1070 crore) in February 2016 while the
remaining 20% will be divested in three to five years. The
decision to divest the entire stake in Sylvania came on the back of
the continuously poor financial performance of the company in
the European region. With this move, the company is likely to
shift its entire focus to the domestic market
8. The company launched the new range of switchgears “Euro II”,
super premium range of “Distribution Board” and energy efficient
fan “ES 40” (fan consumes only 40 watts of electricity while a
normal fan consumes between 75 watt and 80 watt of electricity)
9. Advertisement and sales promotion expenses were at 3.3% of
standalone sales (vs. 3% in FY15)
10. Havells increased its exclusive one stop Galaxy showrooms count
2.5x to 375 in three years
Exhibit 7: Related party transaction
FY14
FY15
FY16
19.3
40.6
5.5
0.0
47.5
19.3
40.0
5.5
0.0
38.0
19.3
40.0
8.1
0.0
113.9
Guptajee & Company
Commission on sales
Reimbursement of Expenses received
Dividend paid
6.9
0.7
4.7
7.6
0.7
3.8
7.5
0.6
11.3
Vivekanand Ashrama
CSR Contribution
0.3
0.3
0.3
Ajanta Mercantile Limited
Dividend paid
16.2
13.8
41.2
Managerial remunearation
15.7
24.8
23.7
QRG Enterprises
Rent/Usage Charges Paid
Trade mark fees and Royalty
CSR Contribution
Rent received
Dividend paid
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 8
Outlook and valuation
We expect Havells to record revenue, EBITDA CAGR of ~15%, ~18% for
FY16-18E, respectively, supported by ECD and lighting segment revenue
CAGR of 24% and 20%, respectively. However, industrial product
category sales are expected to be lower than historical growth due to a
slow pick-up in infrastructure spending, which would restrict any sharp
movement in EBITDA margin. Considering the company’s debt free
status, strong return ratios and improving payout ratio (~30%) we
maintain our target price at | 416 (36x FY18E EPS) and revise our rating
from BUY to HOLD.
Exhibit 8: Valuation
FY15
FY16
FY17E
FY18E
Sales
(| cr)
5238.7
5436.9
6118.4
7161.9
Growth
(%)
3.8
12.5
17.1
EPS
(|)
7.5
11.5
9.9
11.7
Growth
(%)
54.0
-13.6
18.1
PE
(x)
55.4
36.0
41.6
35.3
EV/EBITDA
(x)
34.7
32.0
27.6
22.5
RoNW
(%)
19.3
21.1
20.6
21.0
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 9
RoCE
(%)
26.6
26.6
28.0
28.7
Recommendation history Vs consensus chart
70.0
500
60.0
50.0
400
30.0
300
(%)
(|)
40.0
20.0
10.0
200
0.0
Oct-14
Dec-14
Mar-15
Price
May-15
Jul-15
Idirect target
Oct-15
Dec-15
Mar-16
Consensus Target Mean
May-16
Aug-16
Oct-16
% Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date
Mar-09
Event
Wins export order worth US$200 million from West European countries to supply CFL over five years
Jun-09
Opens new switchgear plant at Baddi in Himachal Pradesh. This boosts overall volume growth by 67% YoY
Sep-10
Announces bonus issue of 1:1
Oct-10
Enters premium range of new generation electric water heater segment
Nov-10
Sylvania reports maiden profit in Q2FY11, for the first time after three years of its acquisition
Dec-10
Announcement on doubling capacity of cable & wire and CFL plant
Jul-11
Announces entry into home and kitchen appliances business
Dec-11
Enters into 50:50 joint venture agreement with Shanghai Yaming Lighting
May-12
Havells Sylvania Europe successfully refinances existing outstanding term loan liability of €77.5 million
Sep-12
Receives one-time fee of US$38 million against settlement of jurisdictional ownership of Sylvania brand with Osram Sylvania Inc and Osram AG
Oct-12
Unveils country's first large-scale state-of-the-art lighting fixture plant in Neemrana, Rajasthan (Incurred | 100 crore for expansion)
Jan-13
Company enters revised trademark license agreement with promoters
Feb-13
Warburg Pincus offloads 5.6% stake in Havells India for | 455 crore
May-13
Launches new range of non modular (REO) switches
Apr-15
Acquires 51% stake in Promptec Renewable Energy Solutions for about | 33 crore to enter the solar energy and LED street lighting segment
Dec-15
Decides to divest its 100% holding in Havells Malta and Havells Exim (largely Sylvania business) to China-based Shanghai Feilo Acoustics Company
Source: Company, ICICIdirect.com Research
Top 10 Shareholders
Rank
1
2
3
4
5
6
7
8
9
10
Name
QRG Enterprises, Ltd.
Ajanta Mercantile, Ltd.
Gupta (Vinod)
Nalanda Capital Pte Ltd
Gupta (Surjeet Kumar)
Capital World Investors
Norges Bank Investment Management (NBIM)
Gupta (Anil Rai)
Capital Research Global Investors
Gupta (Qimat Rai)
Shareholding Pattern
Latest Filing Date
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
30-Jun-16
31-Mar-16
30-Jun-16
30-Jun-16
30-Jun-16
% O/S
30.4
11.0
8.5
5.3
5.2
3.8
3.2
2.8
2.6
2.2
Position (m)
189.9
68.7
52.8
33.0
32.7
24.0
19.7
17.3
16.0
13.6
Change (m)
0.0
0.0
0.0
0.0
0.0
7.9
0.0
0.0
0.0
0.0
(in %)
Promoter
FII
DII
Others
Sep-16 Dec-16 Mar-16 Jun-16 Sep-16
61.6
61.6
61.6
61.6
61.6
23.2
25.1
25.8
27.1
26.7
3.6
3.9
4.0
2.8
2.7
11.6
9.4
8.6
8.5
9.0
Source: Reuters, ICICIdirect.com Research
Recent Activity
Buys
Investor name
Capital World Investors
FIL Investment Management (Singapore) Ltd.
Edmond de Rothschild Asset Management
William Blair & Company, L.L.C.
Harding Loevner LP
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Value(m)
42.3
6.1
3.2
3.7
1.1
Shares(m)
7.9
1.1
0.7
0.6
0.2
Sells
Investor name
Davis Selected Advisers, L.P.
ICICI Prudential Asset Management Co. Ltd.
Amundi Hong Kong Limited
Driehaus Capital Management, LLC
Birla Sun Life Asset Management Company Ltd.
Value(m)
-10.6
-5.9
-3.4
-2.7
-1.5
Shares(m)
-2.1
-1.0
-0.6
-0.4
-0.2
Page 10
Financial summary
Profit and loss statement
Year End March
Total Operating Income
Growth (%)
Raw Material Expenses
Employee Expenses
Marketing Expenses
Other expenses
Total Operating Expenditure
Operating Profit (EBITDA)
Growth (%)
Other Income
Interest
Depreciation
Less: Exceptional Items
PBT
Total Tax
PAT
Minority Interest
PAT before MI
Growth (%)
| Crore
FY15
5238.7
2784.5
312.7
155.0
893.4
4539.6
699.1
44.3
17.6
87.5
-8.0
646.3
181.3
464.9
0.0
464.9
4.2
FY16E
5436.9
3.8
2875.4
376.3
178.8
959.1
4687.6
749.3
7.2
68.7
12.6
92.2
-201.0
914.2
198.0
716.2
0.0
716.2
54.0
FY17E
6118.4
12.5
3120.4
498.4
202.9
975.7
5259.5
858.9
14.6
119.3
8.2
113.2
0.0
856.8
238.0
618.9
0.0
618.9
-13.6
FY18E
7161.9
17.1
3795.8
562.3
231.2
1051.7
6122.4
1039.5
21.0
115.5
9.5
132.5
0.0
1013.0
282.3
730.7
0.0
730.7
18.1
| Crore
(Year-end March)
Profit after Tax
Depreciation
CF before working cap changes
Net Increase in Current Assets
Net Increase in Current Liabilities
FY15
464.9
87.5
570.0
-1.4
165.8
FY16E
716.2
92.2
821.0
-149.2
84.8
FY17E
618.9
113.2
740.3
7.3
71.4
FY18E
730.7
132.5
872.7
-223.0
164.6
CF from operating activities
(Purchase)/Sale of Liquid Investmen
Others
(Purchase)/Sale of Fixed Assets
CF from Investing Activities
Proceeds from issues of Equity Shar
Inc / (Dec) in Loan Funds
Others
734.4
-129.2
-31.5
-160.8
-449.0
0.0
-566.9
-236.6
756.6
551.5
-718.4
-167.0
564.6
0.0
-50.0
-459.5
819.0
-150.0
-110.0
-260.0
-428.2
0.0
-200.0
-268.0
814.2
-100.0
-100.0
-200.0
-315.7
0.0
0.0
-269.4
CF from Financing Activities
Net Cash flow
Opening Cash
Closing Cash
-389.2
-103.8
626.2
522.4
-498.4
822.8
522.4
1345.2
-258.0
132.8
1345.2
1478.0
-269.4
229.2
1478.0
1707.2
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
Balance sheet
| Crore
(Year-end March)
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Deferred Tax Liability
FY16E
62.4
2313.4
2375.8
43.1
43.4
FY17E
62.5
2582.7
2645.1
4.1
74.9
FY18E
62.5
2941.7
3004.2
14.1
74.9
FY18E
62.5
3412.5
3475.0
14.1
74.9
Total Liabilities
2462.3
2724.2
3093.2
3564.0
Assets
Total Gross Block
Less Total Accumulated Depre
Net Block
Capital WIP
1327.3
342.1
985.2
22.1
1494.2
434.3
1059.9
22.1
1754.2
547.5
1206.7
22.1
1954.2
680.0
1274.2
22.1
1007.3
1011.76
689.7
132.5
41.1
21.9
522.4
1407.6
1082.1
460.27
784.4
157.6
56.5
35.9
1345.2
2379.6
1228.9
610.27
804.6
154.7
55.7
12.1
1478.0
2505.1
1296.4
710.27
961.5
180.5
85.9
22.2
1707.2
2957.3
Total Current Liabilities
Net Current Assets
1186.6
221.0
1271.4
1108.2
1342.8
1162.3
1507.4
1449.9
Total Assets
2462.3
2724.2
3093.2
3564.0
Total Fixed Assets
Investment
Inventory
Debtors
Loans and Advances
Other Current Assets
Cash
Total Current Assets
Cash flow statement
Key ratios
(Year-end March)
Per Share Data
Reported EPS
Cash EPS
BV per share
DPS
Operating Ratios (%)
EBITDA Margin (%)
PAT Margin (%)
Asset Turnover
Debtors Turnover
Creditor Turnover
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios
EV / EBITDA
P/E
EV / Net Sales
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt / Equity
Current Ratio
Quick Ratio
FY15
FY16E
FY17E
FY18E
7.5
8.9
38.1
3.6
11.5
13.0
42.4
7.2
9.9
11.7
48.2
4.2
11.7
13.8
55.7
4.2
13.3
8.8
2.1
9.2
27.5
13.8
10.3
2.0
10.6
29.3
14.0
10.1
2.0
9.2
29.3
14.5
10.2
2.0
9.2
29.3
19.3
26.6
53.3
21.1
26.6
52.0
20.6
28.0
56.3
21.0
28.7
62.1
34.7
55.4
4.6
4.6
4.9
10.8
32.0
36.0
4.4
4.4
4.7
9.7
27.6
41.6
3.9
3.9
4.2
8.6
22.5
35.3
3.3
3.3
3.6
7.4
0.0
1.2
0.3
0.0
1.2
0.3
0.0
1.1
0.2
0.0
1.2
0.3
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
.
ICICI Securities Ltd | Retail Equity Research
Page 11
ICICIdirect.com coverage universe (Consumer Discretionery)
Sector / Company
Asian Paints (ASIPAI)
Bajaj Electricals (BAJELE)
Havells India (HAVIND)
Kansai Nerolac (KANNER)
Pidilite Industries (PIDIND)
Essel Propack (ESSPRO)
Supreme Indus (SUPIND)*
Symphony (SYMLIM)*
V-Guard Ind (VGUARD)
Voltas Ltd (VOLTAS)
CMP
(|)
1,167
UR
413
380
718
236
918
1,170
185
402
M Cap
TP(|) Rating
(| Cr)
1,310
Buy 111,939
UR
UR
2,564
416
Hold 25,767
400
Buy 20,479
812
Buy 36,808
198
Hold
3,707
1,011
Buy 11,661
1,372
Buy
8,185
170
Hold
5,522
410
Buy 13,296
EPS (|)
FY16 FY17E FY18E
18.8 24.0 28.5
9.6 11.3 13.8
11.5
9.9 11.7
23.4
8.4 10.1
13.0 16.9 19.2
11.6 13.7 15.9
17.4 32.8 39.8
16.9 26.1 36.3
3.7
4.5
5.5
11.7 14.5 16.4
P/E (x)
EV/EBITDA (x)
FY16 FY17E FY18E FY16 FY17E FY18E
62.1 48.6 41.0 39.8 33.3 28.8
26.8 22.7 18.7 10.4
9.9
8.7
36.0 41.6 35.3 32.0 27.6 22.5
22.8 45.4 37.5 34.5 29.3 24.5
55.1 42.5 37.4 33.8 27.3 23.8
20.4 17.3 14.9 10.0
9.1
8.0
52.7 28.0 23.1 26.7 16.5 13.3
69.2 44.9 32.2 59.8 35.2 25.1
49.4 40.9 33.6 31.0 26.6 22.6
34.5 27.7 24.5 29.0 21.3 18.1
RoCE (%)
FY16 FY17E FY18E
42.1 42.0 42.8
26.6 26.0 27.4
26.6 28.0 28.7
22.4 24.0 24.2
34.7 38.0 37.8
19.5 20.5 21.2
21.6 31.9 35.5
47.5 65.0 67.8
34.1 32.9 32.6
19.4 23.3 24.1
RoE (%)
FY16 FY17E
32.1 33.8
12.8 13.7
21.1 20.6
54.8 17.0
24.9 28.1
19.0 19.1
17.2 26.3
34.3 47.6
23.7 23.8
14.9 18.1
FY18E
34.8
14.8
21.0
17.6
27.8
19.1
27.8
49.6
23.4
18.3
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 12
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Head – Research
Pankaj Pandey
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]
ICICI Securities Ltd | Retail Equity Research
Page 13
ANALYST CERTIFICATION
We /I, Sanjay Manyal, MBA (Finance) and Hitesh Taunk, MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report.
Terms & conditions and other disclosures:
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
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ICICI Securities Ltd | Retail Equity Research
Page 14