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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. 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