>HAVELLS INDIA: Strong quarter

■ Strong earnings growth; margin expands
Havells India (HAVL) reported strong Q4FY10 (standalone) results with PAT growth of 31.8% Y-o-Y, to INR 644 mn, led by strong operating performance and reduced interest cost during the quarter (down 69.2bps Y-o-Y, to 0.2% of sales). With strong operating performance, HAVL reported 165bps expansion in EBTIDA margin Y-o-Y, to 12.2%, due to reduced raw material cost (down 165bps Y-o-Y, to 58.9% of sales), leading to strong growth of 31.4% Y-o-Y in EBITDA, to INR 866 mn during the quarter. Revenues for HAVL improved 22.7% Y-o-Y, to 7.0 bn during the quarter.The company recorded strong growth in the switchgear (27% of sales), lighting & fixtures (15% of sales) and fans (17% of sales) segments with 16.4%, 58.3% and 45.3% growth, respectively. The cables & wires segment (40% of sales), however, recorded slower growth at 8.6% during the quarter.

■ Sylvania margin to improve; to break-even this year
Sylvania’s revenues dipped 9.2%, to INR 6.9 bn, due to depreciation in the EUR. The company, however, reported flat sales Y-o-Y in terms of EUR, at EUR 108 mn, during the quarter. Adjusted for the restructuring cost, EBITDA margin for Sylvania stood at 4.9% during the quarter against 2.7% during Q4FY09. The management is confident of achieving break-even at PAT for the company during the current year and expects EBITDA margin to improve to 8-9%.

■ Outlook and valuations: Positive; maintain ‘BUY’
We remain positive on the company’s outlook on the back of its robust domestic business and positive signs from the international business. We believe full impact of the two restructuring projects will start showing from the current year. In view of weakening EUR, we have lowered our EUR assumption, thus reducing the consolidated revenue by 2.4% and 2.3% for FY11E and FY12E, respectively. Having increased our EBITDA margin assumption for Sylvania, we have
increased our consolidated earnings estimates by 3.8% and 0.3% for FY11E and FY12E, respectively. At our target price of INR 730, the stock is trading at 16.3x and 13.4x its FY11E and FY12E earnings, respectively. We maintain ‘BUY’ on the stock and rate it ‘Sector Outperformer’ on relative returns.

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