Wednesday, February 1, 2012

>HAVELLS INDIA LIMITED: Q3FY12- No sign of fatigue here! ; Sylvania sees margin improvement

■ Domestic revenues maintain strong momentum
Havells India Limited’s (HIL) 3QFY12 standalone and consolidated revenues at INR9bn
and INR16.6bn were in line with our estimates. In India, growth was impressive across
all verticals viz. cables & wires (C&W), lighting & fixtures (L&F) and consumer durables, while the switchgears division delivered the second quarter of superlative growth (30% YoY) after two quarters of sluggish growth in 4QFY11 and 1QFY12. Sylvania’s revenues fell 4% YoY to Euro114m, but improved product mix and timely price increases across several key product lines coupled with tight cost control resulted in EBIDTA rising 30% YoY to Euro7.8m in the quarter.

■ Sylvania sees margin improvement, Indian OPM slightly better
HIL delivered margin improvement of 290bps (consolidated) on the back of a superior product mix and savings resulting from the management's efforts at rationalisation of manufacturing and selling costs in Sylvania. This reflected HIL's continued preference on operational profitability as opposed to improving revenues at the cost of margins and cash flows. In India, HIL registered an OPM of 12.7% (+10bps YoY). Its consolidated EBIDTA jumped 52% to INR1.8bn in the quarter. The company also registered a forex loss of INR194m on account of M-to-M provisioning on its forex loans in India as well as its Brazilian operations. PAT stood at INR889m (+40%).

■ Valuation and outlook
HIL’s 3QY12 operating performance and profitability, at the domestic and international levels, were in line with our estimates. Going forward, we believe that HIL’s domestic turnover and margins would play a key role in shaping the operational cash flows of the company. We expect HIL to focus on higher channel sweating in domestic and international markets, which in turn, should bolster profitability and cash flows. This would be the key to fortifying its balance sheet metrics and return ratios. We reiterate a BUY recommendation on the stock, with a marginally higher target price of INR535, which represents an upside of 12% from current levels.