Havells India

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An in depth qualitative and quantitative analysis of Havells India Ltd to ascertain its stock movement in long and medium term.

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Havells India

  1. 1. Global Presence It operates across Europe, Latin America & AfricaRestructuring
  2. 2. Quality Standard ISO: 9001-2000, Relevant UL , CE, ISI certificationsGrowth Rate Estimated revenue growth at 15% CAGR for FY 11-13EMarket Leadership Strong competitive positioningProfitability Strong CAGR of 26% in FY11-13E periodGlobal Presence It operates across Europe, Latin America & AfricaRestructuring Restructuring exercise aimed at cost savings. Their strategy has paid off with Havells set to realize cost benefits to the tune of € 25mn over FY10-CY11Beta 0.9 (Showing marginally lower volatility than the market)Future Potential Aggressive expansion plans as seen before in international marketsThe Big Picture The growth in the domestic electrical equipments industry on account of increasing electricity supply
  3. 3. ATTRACTIVE!!Rating - BUYTarget –Rs. 539
  4. 4.  Established in 1971Promoted by Qimat Rai Gupta One of the largest & fastest growing ECD, electrical & power distribution equipment manufacturer Owns well known brands like Crabtree, Sylvania, Concord, Luminance, Linolite & SLI Lighting 11 state of the art manufacturing plants in India & operates 7 state of the art manufacturing plants across Europe, Latin America & Africa Global network spans 91 branches & offices, with over 8,000 employees in over 50 countries backed by a strong global network of 20,000 distributors
  5. 5. Share Holding Pattern (%) as on Mar’11Promoters FII/NRI InstitutionsPrivate Corp Public 2% 2% 7% 27% 62%
  6. 6. Revenue Mix over FY11-13E ECD Switchgear Lighting Cables & Wires 17% 39% 27% 17%
  7. 7. Share Holding Pattern (%) as on Mar’11Promoters FII/NRI InstitutionsPrivate Corp Public 2% 2% 7% 27% 62%
  8. 8. Segments Market Growth Average no. of competitorsCompetitive Positioning Revenue Operating Margin
  9. 9. Source : Indiabulls
  10. 10.  Varied Product Stream – diversified revenue stream & aggressive brand- building initiatives resulted in 25% revenue CAGR over the last 5 years on a standalone basis
  11. 11.  PAT to witness strong CAGR of 26% in FY11-13E period led by improvement in Sylvania profitability due to its aggressive restructuring activities in FY10 and FY11
  12. 12.  Revenue stability & profit growth – Sylvania is expected to contribute significantly to profitability from FY12E. Havells is expected to grow its revenue at a CAGR of 15% and PAT at 25% CAGR over FY11-FY13E Restructuring Plan –
  13. 13.  Sylvania operating cash flows to turn positive FY12E onwards Sylvania to generate cash flows of Rs 866mn in FY12E and Rs 1,211mn in FY13E. Restructuring Plan –
  14. 14.  Strong positioning to leverage demand potential –1. Growing disposable income with Indian households2. Preference for premium products due to evolving lifestyle patterns3. Strong sustainable demand for consumer electrical products4. Demand towards energy saving products5. 4,300 wholesalers and 25,000 retailers in India. In addition, it is also setting up unique Havells Galaxies
  15. 15.  Strong positioning to leverage demand potential –1. Growing disposable income with Indian households2. Preference for premium products due to evolving lifestyle patterns3. Strong sustainable demand for consumer electrical products4. Demand towards energy saving products5. 4,300 wholesalers and 25,000 retailers in India. In addition, it is also setting up unique Havells Galaxies
  16. 16.  One of the lowest per capita consumption of electricity in the world
  17. 17.  Significant investments in building power infrastructure by the Govt. of India
  18. 18.  In FY10, copper accounted for 26% of total domestic business raw material costs and aluminum accounted for 17% of the domestic raw material costs
  19. 19.  In FY10, copper accounted for 26% of total domestic business raw material costs and aluminum accounted for 17% of the domestic raw material costs
  20. 20.  Every 1% change in copper prices impacts FY12E earnings by 1.3%, while every 1% change in aluminum prices impacts earnings by 0.7%
  21. 21.  Delay in restructuring of Sylvania  Sylvania is expected to turn PAT positive in FY11 as against loss reported in FY10  Delay in complete turnaround of Sylvania, continued weakness in European markets and slow growth in LATAM and Asia has adversely impacted revenues and profits
  22. 22.  Delay in restructuring of Sylvania Sylvania‘s debt obligations of around € 40million that are due for repayment in 2012-13 would need to be refinanced
  23. 23.  Rise in domestic competition  Competition in the form of technology upgradation  Price wars in certain segments like industrial switchgears, fans, cables & wires, CFL  New segments like water heaters and appliances are highly competitive markets  Heightened competition from unorganized sector or Chinese players
  24. 24.  Adverse movements/fluctuations in F/X  Sylvania operates in Asia, Europe and LATAM markets, exposing it to multiple currency risk  Havells has increased the outsourcing of components of Sylvania from emerging markets like India and China
  25. 25. 1.6 1.411.4 1.27 1.33 1.261.2 1.15 1 0.85 0.75 0.74 0.780.8 0.630.60.40.2 0 FY09 FY10 FY11 FY12E FY13E Current Ratio Quick Ratio
  26. 26.  High debtor collection ratio Speedy and effective mechanism in place showing extremely efficient operations Reduce dependence on short term loans50 43.2540 29.74 31.46 28.8330 19.4220100 FY07 FY08 FY09 FY10 FY11 Debtor Turnover ratio
  27. 27.  Debt/Equity to decline from 2.3x in FY10 to 0.4x by FY13E  No further investments in Sylvania are expected except for maintenance capex
  28. 28.  Capital Efficiency to improve with Sylvania turnaround  ROCE to improve from 7.6% in FY10 to 26.8% in FY13E and ROE to improve from 17.4% in FY10 to 45.7% in FY13E
  29. 29. Price in 5 years = Estimated Dividends in 5 Years D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6
  30. 30. Current mkt price is Rs. 425 per share, an expected dividend per share next year of Rs 2.50, an EPS of Rs 20, expected EPS growth of 20% per year, and a P/E ratio of 17. Target rate is 10%. Investment Horizon is five years. Payout is Constant.Price in 5 years = P/E x EPS x (1+g)^5 = 17x20x(1.20)^5 = 846 Estimated Dividends in 5 Years D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6 D4 = D3 x (1.20) = 4.32 D5 = D4x (1.20) = 5.18 Po = 2.50 + 3.00 + 3.6 + 4.32 + 5.1+846 = 539 1.10 1.10^2 1.10^3 1.10^4 1.10^5 Hence, the current intrinsic value is Rs. 539 giving a MOS of (539-425=114). MOS% of 27%
  31. 31. Current mkt price is Rs. 425 per share, an expected dividend per share next year of Rs 2.50, an EPS of Rs 20, expected EPS growth of 20% per year, and a P/E ratio of 17. Target rate is 10%. Investment Horizon is five years. Payout is Constant.Price in 5 years = P/E x EPS x (1+g)^5 = 17x20x(1.20)^5 = 846 Estimated Dividends in 5 Years D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6 D4 = D3 x (1.20) = 4.32 D5 = D4x (1.20) = 5.18 Po = 2.50 + 3.00 + 3.6 + 4.32 + 5.1+846 = 539 1.10 1.10^2 1.10^3 1.10^4 1.10^5 Hence, the current intrinsic value is Rs. 539 giving a MOS of (539-425=114). MOS% of 27%
  32. 32. Current mkt price is Rs. 425 per share, an expected dividend per share next year of Rs 2.50, an EPS of Rs 20, expected EPS growth of 20% per year, and a P/E ratio of 17. Target rate is 10%. Investment Horizon is five years. Payout is Constant.Price in 5 years = P/E x EPS x (1+g)^5 = 17x20x(1.20)^5 = 846 Estimated Dividends in 5 Years D1 = 2.50 D2 = D1 x (1.20) = 3 D3 = D2 x (1.20) = 3.6 D4 = D3 x (1.20) = 4.32 D5 = D4x (1.20) = 5.18 Po = 2.50 + 3.00 + 3.6 + 4.32 + 5.1+846 = 539 1.10 1.10^2 1.10^3 1.10^4 1.10^5 Hence, the current intrinsic value is Rs. 539 giving a MOS of (539-425=114). MOS% of 27%
  33. 33. Havells FY13 PEG Ratio –> 9.8/20 = 0.49Crompton FY13 PEG Ratio –> 17.5/15 = 1.16 -Bajaj FY13 PEG Ratio –> 10.5/15 = 0.7 -Philips FY13 PEG Ratio –> 10.7/15 = 0.7-
  34. 34. Havells FY13 PEG Ratio –> 9.8/20 = 0.49Crompton FY13 PEG Ratio –> 17.5/15 = 1.16 -Bajaj FY13 PEG Ratio –> 10.5/15 = 0.7 -Philips FY13 PEG Ratio –> 10.7/15 = 0.7-
  35. 35. Havells Crompton Bajaj PhillipsFY11E 0.7 1.36 1.73 0.75FY12E 1.59 1.42 2.34 0.72FY13E 2.06 1.5 2.45 0.84
  36. 36. By:Ankesh PanjwaniMadhav SudNikhil MarwahNitin BhallaP. SrivastavaRidhika Seth

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