Havells operates globally with a strong presence in Europe, Latin America, and Africa, and is expected to achieve a revenue growth rate of 15% CAGR and a profitability CAGR of 26% from FY11 to FY13. The company is undergoing a restructuring to improve its financial performance, particularly for its Sylvania brand, and is well-positioned to leverage growing demand for electrical products in India. With an intrinsic value target of Rs. 539 per share, it maintains a 'buy' rating amidst challenges from competition and currency fluctuations.

2. Global Presence It operates across Europe, Latin America & Africa
Restructuring

3. Quality Standard ISO: 9001-2000, Relevant UL , CE, ISI certifications
Growth Rate Estimated revenue growth at 15% CAGR for FY 11-13E
Market Leadership Strong competitive positioning
Profitability Strong CAGR of 26% in FY11-13E period
Global Presence It operates across Europe, Latin America & Africa
Restructuring 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-CY11
Beta 0.9 (Showing marginally lower volatility than the market)
Future Potential Aggressive expansion plans as seen before in
international markets
The Big Picture The growth in the domestic electrical equipments
industry on account of increasing electricity supply

4. ATTRACTIVE!!
Rating - BUY
Target –Rs. 539

6.  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

7. Share Holding Pattern (%) as on
Mar’11
Promoters FII/NRI Institutions
Private Corp Public
2% 2% 7%
27%
62%

8. Revenue Mix over FY11-13E
ECD Switchgear
Lighting Cables & Wires
17%
39%
27%
17%

9. Share Holding Pattern (%) as on
Mar’11
Promoters FII/NRI Institutions
Private Corp Public
2% 2% 7%
27%
62%

10. Segments
Market Growth
Average no. of
competitors
Competitive Positioning
Revenue
Operating Margin

11. Source : Indiabulls

13.  Varied Product Stream –
diversified revenue stream & aggressive brand-
building initiatives resulted in 25% revenue CAGR
over the last 5 years on a standalone basis

14.  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

16.  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 –

17.  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 –

18.  Strong positioning to leverage demand potential –
1. Growing disposable income with Indian households
2. Preference for premium products due to evolving lifestyle
patterns
3. Strong sustainable demand for consumer electrical products
4. Demand towards energy saving products
5. 4,300 wholesalers and 25,000 retailers in India. In addition, it
is also setting up unique Havells Galaxies

19.  Strong positioning to leverage demand potential –
1. Growing disposable income with Indian households
2. Preference for premium products due to evolving lifestyle
patterns
3. Strong sustainable demand for consumer electrical products
4. Demand towards energy saving products
5. 4,300 wholesalers and 25,000 retailers in India. In addition, it
is also setting up unique Havells Galaxies

20.  One of the lowest per capita consumption of electricity
in the world

21.  Significant investments in building power infrastructure
by the Govt. of India

23.  In FY10, copper accounted for 26% of total domestic
business raw material costs and aluminum accounted
for 17% of the domestic raw material costs

24.  In FY10, copper accounted for 26% of total domestic
business raw material costs and aluminum accounted
for 17% of the domestic raw material costs

25.  Every 1% change in copper prices impacts FY12E
earnings by 1.3%, while every 1% change in aluminum
prices impacts earnings by 0.7%

26.  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

27.  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

28.  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

29.  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

31. 1.6
1.41
1.4 1.27 1.33
1.26
1.2 1.15
1 0.85
0.75 0.74 0.78
0.8 0.63
0.6
0.4
0.2
0
FY09 FY10 FY11 FY12E FY13E
Current Ratio Quick Ratio

32.  High debtor collection ratio
 Speedy and effective mechanism in place showing
extremely efficient operations
 Reduce dependence on short term loans
50
43.25
40
29.74 31.46
28.83
30
19.42
20
10
0
FY07 FY08 FY09 FY10 FY11
Debtor Turnover ratio

33.  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

34.  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

35. 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

36. 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%

37. 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%

38. 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%

39. Havells FY13 PEG Ratio –> 9.8/20 = 0.49
Crompton 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-

40. Havells FY13 PEG Ratio –> 9.8/20 = 0.49
Crompton 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-

41. Havells Crompton Bajaj Phillips
FY11E 0.7 1.36 1.73 0.75
FY12E 1.59 1.42 2.34 0.72
FY13E 2.06 1.5 2.45 0.84

44. By:
Ankesh Panjwani
Madhav Sud
Nikhil Marwah
Nitin Bhalla
P. Srivastava
Ridhika Seth